Assessment and recovery proceedings could not be sustained without consideration of factual and legal issues

The Hon’ble Himachal Pradesh High Court in Hindustan Construction Company Limited Versus Union of India and others - 2025 (8) TMI 554 - HIMACHAL PRADESH HIGH COURT held that the matter required reconsideration on factual and legal aspects and remitted it to the Assistant Commissioner, State Taxes and Excise, Dharamshala, directing a fresh decision by September 30, 2025, after affording opportunity of hearing.

Facts:

Hindustan Construction Company Limited (“the Petitioner”) was undertaking a works contract in Himachal Pradesh and challenged the demand order on the ground that no notice in Form GST ASMT‑10 was issued upon scrutiny of returns under Section 61 of the CGST Act, nor was any pre‑show cause notice in Form GST DRC‑01A issued.

The Union of India and others, including Respondent No. 4 – the Assistant Commissioner, State Taxes and Excise, Dharamshala (“the Respondents”), were the authorities responsible for passing the impugned orders. The Petitioner submitted that while its returns were selected for scrutiny, no notice in Form GST ASMT‑10 was served as required under Section 61. Moreover, though proceedings under Section 74 were initiated, no Show Cause Notice in Form GST DRC‑01 was issued, which is a statutory prerequisite for raising a tax demand.

The Petitioner further contended that no GST could be levied on “unbilled revenue” as GST liability arises only upon the occurrence of a taxable supply, and not on notional or accrued income merely reflected in the books. It was contended that while “unbilled revenue” may have relevance under income tax law, it has no application in the GST regime, which is governed by a different set of taxability conditions. Therefore, the Petitioner challenged the assessment order and the recovery notice on several legal and factual grounds. During the hearing, both parties agreed that instead of adjudicating the matter in writ proceedings, it would be appropriate for the competent authority, i.e., Respondent No. 4, to re‑examine the issues afresh.

Issue:

Whether the assessment and recovery proceedings could be sustained without reconsideration of factual and legal issues?

Held:

The Hon’ble Himachal Pradesh High Court in Hindustan Construction Company Limited Versus Union of India and others - 2025 (8) TMI 554 - HIMACHAL PRADESH HIGH COURT held as under:

• Observed that, the parties were ad idem that the matter required reconsideration on both factual and legal aspects by the proper authority.
• Directed that, the petition be disposed of with a direction to Assistant Commissioner, State Taxes and Excise, Dharamshala (Respondent No. 4), to examine the matter afresh on both legal and factual issues and quashed & set aside the assessment order dated December 31, 2023 and the recovery notice dated February 20, 2024.
• Further directed that, since the proceedings relate to FY 2017–18, the Respondent must expedite and conclude the hearing by September 30, 2025.
• Held that, the proceedings must be conducted after affording the Petitioner an opportunity to file replies and supporting documents.

Our Comments:

The High Court ensured that the matter is adjudicated afresh by the proper authority, particularly when the parties themselves conceded the need for such reconsideration. By setting aside the impugned order and ensuring time-bound disposal with opportunity of hearing, the Court has protected the taxpayer’s rights under principles of natural justice.

Relevant Provision:

Section 61. Scrutiny of returns.- CGST Act, 2017

“(1) The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.

(2) In case the explanation is found acceptable, the registered person shall be informed accordingly and no further action shall be taken in this regard.

(3) In case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74 or section 74A”

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