Facts of the Case:

In this case, the petitioner was issued a Show Cause Notice under Section 74 of the U.P. GST Act, 2017 on 17.06.2021. The petitioner submitted replies on 13.07.2021 and 18.07.2021. However, an ex-parte adjudication order was subsequently passed on 30.01.2025, which, on its plain reading, did not consider either of the replies furnished by the petitioner.

Thereafter, without issuing any notice to the petitioner, the Adjudicating Authority passed another order dated 05.02.2025 under Section 161, acknowledging that the earlier order had failed to consider the two replies. Instead of recalling the original order and granting a fresh opportunity of hearing, however, the Authority proceeded to consider the replies ex-parte and passed a second order.

The petitioner challenged the second order, contending that the Adjudicating Authority had no power to review its own order on merits and that, once the fundamental error of non-consideration of the replies was noticed, the only lawful course was to recall the earlier order and decide the matter afresh after providing an opportunity of personal hearing.

Issue:

Whether the Adjudicating Authority could invoke Section 161 to rectify an ex-parte adjudication order which had admittedly failed to consider the taxpayer’s replies, and thereafter undertake an ex-parte consideration of those replies, or whether it was required to recall the original order and provide a fresh opportunity of hearing.

Held That:

The Court observed that the Authority had jurisdiction to exercise the power of rectification suo motu and that the order dated 05.02.2025 was passed within one week of the original order, so there was no issue regarding the six-month limitation under Section 161. The Authority had itself acknowledged that the replies dated 13.07.2021 and 18.07.2021 had not been considered in the original order. Thus, the existence of an error capable of attracting Section 161 was not in dispute.

However, the Court drew a crucial distinction between procedural review and review on merits. Referring to the Supreme Court’s decision in Grindlays Bank Ltd. v. Central Government Industrial Tribunal, the Court noted that a court or tribunal may possess an inherent procedural power to correct an order suffering from a fundamental procedural defect, such as an ex-parte order passed due to non-appearance or inadvertent procedural error. Such procedural correction is distinct from a substantive review of the merits, for which statutory authority is necessary.

Applying this principle, the Court held that the failure to consider the petitioner’s replies went to the root of the adjudication. Denial of an effective opportunity of hearing and failure to assign reasons in the adjudication order vitiated the proceedings. Once the Adjudicating Authority accepted that the replies had not been considered, it could not cure the defect by simply examining those replies itself and passing another ex-parte order.

The Court specifically rejected the Revenue’s contention that the second order was not prejudicial merely because a portion of the demand had been reduced. The relevant question was not whether the overall demand had decreased, but whether the Authority had undertaken a merits determination without giving the taxpayer the procedural opportunity that had been denied in the first place. Where the original order had completely failed to consider the taxpayer’s replies, the appropriate remedy was to recall that order and provide a fresh hearing.

The Court further held that permitting the Adjudicating Authority to pass another ex-parte order after acknowledging the fundamental defect in the original adjudication would effectively confer upon it a power to review its own order on merits or pass a fresh prejudicial order without following the natural-justice requirement under Section 161. This could not be permitted.

The Allahabad High Court allowed the writ petition and set aside the order dated 05.02.2025. It held that although Section 161 confers power upon the Adjudicating Authority to rectify an error apparent on the face of the record, that power could not be used in the present circumstances to undertake a merits review of the earlier adjudication order.

Case Name: M/S Wonder Enterprises Vs. State of U.P. and Another dated 13.08.2026

Citation No. 2026 Taxo.online 2504