The Madurai Bench of the Madras High Court has remitted a GST demand order for fresh adjudication after a taxpayer claimed that it had closed its business before issuance of the proceedings and was therefore unaware of the GST show cause notice issued in Form DRC-01.
The bench of Justice C. Saravanan directed the taxpayer to deposit the balance disputed tax, if any, after verification of amounts already recovered, and to file its reply to the original show cause notice along with supporting documents.
The bench directed the jurisdictional authority to undertake fresh adjudication on merits if the conditions stipulated in the order were complied with.
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The impugned order had confirmed the proposal contained in a Show Cause Notice in Form GST DRC-01 dated January 2, 2023, concerning the tax period 2021-2022. The petitioner sought quashing of the order on the ground that it was without jurisdiction and in violation of statutory provisions.
According to the petitioner, the business had already been closed well before the issuance of the DRC-01 notice. Consequently, the company claimed that it was unaware of both the show cause notice and the subsequent adjudication order dated July 31, 2023.
An important aspect of the case was that recovery proceedings had already taken place after the impugned order.
The petitioner informed the Court that the SGST component was recovered on November 3, 2023, while the CGST component was recovered on December 16, 2023. It was further submitted that certain amounts towards interest had been recovered from the petitioner’s Electronic Credit Ledger.
The Court was also informed that the petitioner’s GST registration had subsequently been cancelled on February 1, 2025.
The petitioner nevertheless expressed its willingness to have the matter adjudicated afresh and offered to make the requisite tax pre-deposit, subject to verification of the amount that had already been recovered by the department.
The undertaking recorded before the Court was that the petitioner would pay 100% of the tax if the same had not already been recovered.
During the hearing, the Government Advocate (Taxes) was unable to confirm whether the entire disputed tax had already been recovered from the petitioner.
This uncertainty regarding the extent of recovery became relevant to the Court’s directions concerning fresh adjudication. Rather than finally deciding the merits of the underlying GST dispute, the Court considered it appropriate to remit the matter to the assessing authority, subject to verification of the tax already recovered.
Justice Saravanan observed that, strictly on the averments made in the writ petition, there was no scope for entertaining the challenge. However, taking into account the petitioner’s submission that the tax had already been recovered and that it may have a case on merits, the Court exercised its discretion to remit the matter to the respondent authority.
The High Court directed the respondent to first verify whether the entire disputed tax had already been recovered.
If the entire disputed tax had not been recovered, the petitioner was directed to deposit the balance of the disputed tax within 30 days from the date of receipt of a copy of the Court’s order.
The Court also imposed a corresponding procedural requirement on the taxpayer.
Within the same period, the petitioner must file its reply to the DRC-01 show cause notice dated January 2, 2023, along with the necessary documents supporting its case. Significantly, the Court directed that the impugned order dated July 31, 2023 would be treated as an addendum to the original show cause notice for this purpose.
Thus, the High Court did not simply erase the tax proceedings. Instead, it restored the matter to the adjudicating authority with conditions designed to ensure that the taxpayer gets an opportunity to place its defence on record while also safeguarding the revenue’s claim for disputed tax.
Once the petitioner complies with the conditions imposed by the Court, the respondent authority has been directed to proceed with the matter and pass a final order on merits and in accordance with law.
The Court further directed that the fresh decision should be taken as expeditiously as possible, preferably within three months from the date of receipt of the petitioner’s reply or completion of the pre-deposit, as applicable.
This direction effectively gives the petitioner an opportunity for fresh adjudication while leaving the substantive GST dispute open for determination by the competent authority.
The relief granted by the High Court was expressly conditional.
If the petitioner fails to comply with any of the stipulated conditions, the respondent authority has been given liberty to proceed with recovery of the tax in accordance with law, treating the writ petition as having been dismissed in limine.
Before taking such action, however, the authority has been directed to give due notice to the petitioner.
The order is significant because the High Court did not pronounce upon the correctness or otherwise of the underlying GST demand. The Court’s intervention was confined to providing an opportunity for the petitioner to participate in fresh adjudication, subject to payment of the disputed tax to the extent it remained unrecovered.
The Court’s approach also took into account the petitioner’s assertion that it had closed its business before the DRC-01 proceedings and therefore remained unaware of the notice and subsequent order. At the same time, the Court did not grant unconditional relief and required the petitioner to meet the specified tax-deposit and reply requirements before the adjudication could be reopened.
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