Section 161 rectification cannot substitute merits review; non-consideration of replies requires recall and fresh hearing.

A show-cause notice under Section 74 of the U.P. GST Act, 2017 was issued to the petitioner on 17 June 2021.

The petitioner submitted replies on 13 July 2021 and 18 July 2021.

Despite this, the adjudicating authority passed an ex parte order on 30 January 2025 without apparent consideration of those replies.

Without issuing notice to the petitioner, the authority subsequently passed another order on 5 February 2025 under Section 161 of the Act, acknowledging that the earlier order had failed to consider the petitioner’s replies but proceeding to consider them ex parte instead of recalling the earlier order and granting a fresh hearing.

Whether the adjudicating authority could rectify the order dated 30 January 2025 under Section 161 of the U.P. GST Act by undertaking a merits-based, ex parte reconsideration of the petitioner’s replies without issuing notice or granting a fresh hearing?

Whether, upon finding that the petitioner’s replies had not been considered, the authority was required to recall the earlier order and pass a fresh order after affording an opportunity of hearing?

The Court applied Section 161 of the U.P. GST Act, 2017, which permits an authority to rectify an error apparent on the face of the record, subject to the statutory limitation and the requirement that principles of natural justice be followed where rectification adversely affects a person.

The Court distinguished permissible procedural correction from a review on merits, observing that an adjudicating authority has no general power of merits review unless conferred by statute.

It relied on Grindlays Bank Ltd. v. Central Government Industrial Tribunal, (1980) Supp SCC 420, which recognises an inherent or implied power of procedural review to set aside a palpably erroneous or ex parte order caused by procedural defect or inadvertent error, ex debito justitiae, while distinguishing such power from review on merits.

The Court further applied the principles of natural justice, holding that denial of consideration of the assessee’s reply and failure to provide reasons vitiate the adjudication proceedings.

The authority correctly identified the omission to consider the petitioner’s replies as an error capable of rectification and had acted within the relevant period.

However, the error went to the root of the adjudication because the original order had been passed without considering the petitioner’s defence.

Rectification in such circumstances could only take the form of procedural review—recalling the defective order and providing a fresh opportunity of hearing—not a unilateral merits-based reconsideration of the replies in the petitioner’s absence.

The fact that the subsequent order reduced part of the tax demand did not make it non-prejudicial, since a demand was still created or sustained contrary to the petitioner’s replies.

The exception permitting notice-free rectification for clerical or arithmetical errors therefore did not apply.

The order dated 5 February 2025 was set aside, and the matter was remitted to the adjudicating authority to pass a fresh order after affording the petitioner an opportunity of hearing.

The writ petition was allowed, with no order as to costs.