Facts of the Case

The petitioner, M/s.Vadivel Pyro Works, a manufacturer and trader of fireworks registered under GSTIN 33AAKFV8790Q1Z2, was subjected to statutory audit for assessment years 2017-18, 2018-19 and 2019-20. Based on the audit report, the respondent issued show cause notice dated 25.08.2022 in Form GST DRC-01 proposing tax, penalty and interest under Sections 50(1), 73(9) and 125 of the TNGST Act, 2017 on other expenses, employee-benefit expenses, and reversal of ITC. The petitioner sought repeated adjournments citing the absence, on medical leave, of the staff handling GST matters and the voluminous nature of the three years' records. On 10.11.2022 the petitioner submitted a fourth adjournment letter at 9.19 a.m.; by 1.22 p.m. the same day the respondent passed the assessment order confirming the entire proposal and raising a demand exceeding Rs.1 crore, without recording the adjournment letter. A rectification petition under Section 161 was subsequently rejected on 01.03.2023 without a personal hearing.

Issues Involved

  1. Whether the assessment order dated 10.11.2022 was vitiated by the respondent's failure to consider the petitioner's adjournment letter received the same day.
  2. Whether the rejection of the rectification petition under Section 161 without granting a personal hearing, as required by its proviso, was sustainable.

Petitioner's Arguments

  • The adjournment letter was submitted at 9.19 a.m. on 10.11.2022, but the respondent passed the assessment order the same day at 1.22 p.m. without recording or considering it.
  • Given the voluminous three-year record and the unavailability of the staff member handling GST compliance on medical leave, one further opportunity ought to have been granted.
  • Reliance was placed on Pinstar Automotive India Pvt. Ltd. v. Additional Commissioner (W.P.No.8493 of 2023) to argue that the third proviso to Section 161 mandates a hearing before any rectification order adverse to the assessee, which was not afforded here.

Respondent's Arguments

  • The petitioner had already been granted adjournments on more than three occasions, and the proviso to Section 75(5) of the TNGST Act bars further adjournment beyond three times during proceedings.
  • Left with no option after repeated non-compliance, the respondent proceeded to pass the assessment order.
  • The rectification remedy under Section 161 is confined to correcting errors apparent on the face of the record; the petitioner, under the guise of rectification, sought to have the entire assessment re-done, which is impermissible.

Court Order / Findings

  • Although the respondent was not obliged to grant a fourth adjournment, it was still required to record the adjournment letter, reject it if necessary, and only then pass the order — which was not done.
  • Given that voluminous three-year records were genuinely involved and the petitioner later substantiated its claims with records at the rectification stage, the petitioner was found entitled to one further opportunity.
  • Following Pinstar Automotive, the Court held that the third proviso to Section 161 required a personal hearing before passing an order adverse to the petitioner on rectification, and its absence amounted to a violation of principles of natural justice.
  • The impugned assessment and rectification orders were set aside; since the tax liability was substantial, the petitioner was directed to deposit Rs.1,00,000 for each of the three years, upon which the respondent shall redo the assessment within six weeks, with no further adjournments to the petitioner.
  • The writ petitions were allowed with no costs.

Important Clarification

Even where a taxing statute or its proviso bars grant of a further adjournment beyond a specified number of opportunities (e.g., three under Section 75(5) TNGST), the adjudicating authority must still note an adjournment request received before the order is passed and deal with it, rather than proceeding as though it was never received. Separately, an order under Section 161 rectifying (or refusing to rectify) an assessment to the assessee's detriment requires a personal hearing under its proviso, distinct from the hearing requirement at the original assessment stage.

Sections Involved

  • Section 73(9), TNGST Act, 2017 – determination of tax not paid/short paid other than by reason of fraud.
  • Section 50(1), TNGST Act, 2017 – levy of interest on delayed payment of tax.
  • Section 125, TNGST Act, 2017 – general penalty provision.
  • Section 161, TNGST/CGST Act, 2017 – rectification of errors apparent on the face of the record, with a proviso requiring natural justice where rectification adversely affects a person.
  • Section 75(5), TNGST Act, 2017 – limits adjournments during adjudication proceedings to three.

Decision – In Favour of

In favour of the Assessee — both the assessment order and the rectification rejection were set aside, though relief was conditional on a Rs.1,00,000 per-year deposit and completion of a fresh assessment within six weeks, so the tax dispute itself remains open for fresh adjudication.

Case Details

Madurai Bench of the Madras High Court; W.P.(MD)Nos.11143 to 11145 of 2023 with connected W.M.P.(MD)Nos.9730 to 9732 of 2023; Coram: Hon'ble Mrs. Justice S. Srimathy; Common Order dated 26.07.2023; CNR not indicated on the order copy.

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