Appeal to High CourtGoods & Services Tax (GST) in IndiaTaxGST Appeal Admitted Despite Delay Due to Bonafide Rectification

The Hon’ble Madras High Court in the case of Kaajal Agarwal v. State Tax Officer, Chennai Writ Petition No. 20985 of 2025, decided on 16.06.2025, concerns a dispute over alleged mismatch of Input Tax Credit (hereinafter referred to as “ITC”) between GSTR-1 and GSTR-3B for FY 2019–20, leading to a demand under Section 73 of the Central Goods and Services Tax (hereinafter referred to as “CGST”) Act, 2017. The Petitioner’s reply to the show cause notice was ignored, and an adverse assessment order was passed. The Petitioner first sought rectification under Section 161, but upon rejection, filed an appeal under Section 107, which was delayed by 67 days and dismissed on limitation grounds. The High Court was called upon to decide whether such delay, due to bona fide pursuit of rectification, could be condoned.

FACTS

Kaajal Agarwal (hereinafter referred to as “the Petitioner”) was issued a show cause notice dated 21.05.2024 by the jurisdictional officer (hereinafter referred to as “the Respondent”), alleging that there was a mismatch in ITC between GSTR-1 and GSTR-3B for FY 2019–2020, resulting in excess claim of ITC. The Petitioner filed a reply on 26.08.2024, contending that no discrepancy existed and explaining the reconciliations. However, the officer proceeded to confirm the proposals in the SCN by passing an assessment order dated 28.08.2024, demanding  65,37,201/- in tax, along with applicable interest and penalty. To correct this, the petitioner filed a rectification application under Section 161 on 25.11.2024, which was rejected on 06.02.2025.

Being aggrieved by this, the petitioner then filed an appeal under Section 107 on 07.03.2025, with a delay of 67 days, which was rejected on 28.03.2025 on the sole ground of limitation.

ISSUES

1. Whether the pendency of a rectification application under Section 161 constitutes sufficient cause for condonation of delay in filing an appeal under Section 107?
2. Whether the rejection of appeal on limitation, without examining the justification offered, was legally sustainable?

CONTENTIONS OF THE PARTIES

The Petitioner contended that the delay of 67 days in filing the appeal was not due to negligence or disregard of the statutory timeline but was the result of a bona fide and diligent effort to seek rectification under Section 161 of the CGST Act, 2017.

The Petitioner further contended that he had filed the rectification application on 25.11.2024, shortly after receiving the assessment order, and pursued the remedy in good faith. It was only after the application was rejected on 06.02.2025 that the petitioner approached the appellate authority by filing an appeal on 07.03.2025.

The Petitioner also submitted that the appeal was filed without undue delay following the rectification rejection, and the delay was entirely attributable to the pendency of rectification proceedings.

Further, the Petitioner argued that the appellate authority failed to consider the reasonable cause assigned for the delay and had dismissed the appeal summarily on the ground of limitation. This, according to the petitioner, deprived them of the substantive right to appeal against an order that was passed without due consideration of their reply.

The Petitioner also submitted their willingness to comply with any condition that the Court might impose, including an additional pre-deposit, to facilitate adjudication of the appeal on merits.

On the other hand, the Respondent did not oppose the Petitioner’s request for condonation of delay and submitted that, subject to the directions of the Hon’ble Court, the Respondent would abide by the outcome of the writ petition and had no objection to the matter being disposed of accordingly.

DECISION AND FINDINGS

The Hon’ble Madras High Court, after examining the records and hearing both parties, observed that the reason for delay in filing the appeal appeared to be genuine. The Court noted that the petitioner had initially pursued the rectification remedy under Section 161 in a timely manner and only after its rejection proceeded to file the appeal. The Court found that the conduct of the petitioner did not reflect any deliberate delay or abuse of process but rather a bona fide effort to resolve the issue at the earliest available stage. The Court held that the explanation offered by the petitioner, that the delay occurred due to the pendency of the rectification application, constituted sufficient cause within the meaning of the law. It observed that rigid application of limitation provisions, without regard to the circumstances of each case, could result in denial of justice.

Therefore, the Court found it appropriate to condone the 67-day delay in filing the appeal and directed the appellate authority to take the appeal on record and hear the matter on merits. However, to balance the equities and protect the interests of revenue, the Court imposed a condition that the petitioner should deposit 15% of the disputed tax amount, comprising the statutory 10% pre-deposit and an additional 5% as volunteered by the petitioner, within two weeks from the receipt of the order.

The Court also directed that, upon production of proof of such payment, the respondents shall take necessary steps to de-freeze the petitioner’s bank account forthwith. Accordingly, the writ petition challenging the rejection of appeal was allowed, and the connected petition challenging the assessment order itself was dismissed as infructuous in view of the restoration of appellate remedy.

AMLEGALS REMARKS

The Madras High Court’s ruling is a critical clarification on procedural fairness under GST law. It emphasizes that taxpayers should not be penalized for pursuing available legal remedies, such as rectification under Section 161, before filing an appeal. By condoning delay based on a genuine and justifiable explanation, the Court ensures that the right to appeal is not defeated by hyper-technical objections. This judgment sets a balanced precedent, protecting revenue interests while upholding taxpayers’ access to fair adjudication. The decision reinforces the principle that tax adjudication should serve justice, not merely procedure, especially when no mala fides or gross negligence is attributed to the assessee.

–Team AMLEGALS 

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