1. Case Title:
Shyama Power India Ltd. vs. State of Himachal Pradesh & Others
CWP No. 6990 of 2025
Decided on: 19.06.2025
Bench: Hon’ble Mr. Justice Tarlok Singh Chauhan and Hon’ble Mr. Justice Sushil Kukreja, High Court of Himachal Pradesh

2. Summary of Facts:

Shyama Power India Ltd., a company registered under the HP GST Act, is engaged in constructing transmission lines and sub-stations for hydro-electric projects. The company received an audit notice for FY 2017-18 and 2018-19 regarding wrong availment of Input Tax Credit (ITC) on purchases from three suppliers. Despite submitting responses and supporting documents, an order under Section 74 of the HP GST Act was issued on 02.12.2023 imposing interest of ₹1,32,34,923 and penalty of ₹1,11,45,134. The petitioner challenged the validity of this order and sought its quashing or alternatively, issuance of a corrected DRC-07 reflecting only the disputed tax amount to enable filing an appeal.

• Whether the order passed under Section 74 of the HP GST Act, 2017 was valid in law.
• Whether principles of natural justice were followed in issuing the impugned order.
• Whether the ITC availed by the petitioner was rightly reversed/denied based on the audit findings.
• Whether the impugned order should be quashed and proceedings restored for a fair hearing or appeal.

4. Decision/Outcome:

The High Court quashed the impugned order dated 02.12.2023 and directed Respondent No. 4 to issue a fresh DRC-07 indicating only the disputed tax amount of ₹1,11,45,134, thereby enabling the petitioner to pursue its appeal before the appellate authority.

5. Reasoning behind the Decision:

The Court found the impugned order to be legally unsustainable and fundamentally flawed, characterizing it as "totally perverse." The respondent failed to properly evaluate the petitioner's responses and documents submitted during the audit. There was no rebuttal filed by the State despite specific directions, suggesting the order was indefensible. The absence of a reasoned approach and failure to observe natural justice, particularly by not providing a fair opportunity to the petitioner, justified judicial intervention.

6. Impact/Implications of the Decision:

This decision reinforces the importance of procedural fairness and adherence to principles of natural justice in tax adjudication under GST law. It sets a precedent on judicial scrutiny of administrative orders under Section 74, especially where high monetary penalties and interest are imposed. The judgment underscores the judiciary’s intolerance towards arbitrary tax administration and highlights the necessity of transparent and well-reasoned tax assessments, particularly in cases involving ITC disallowances.