Excess Stock calls for Proceedings u/s 73/74 of GST Act: Allahabad HC quashes Order u/s 130 [Read Order]

The Allahabad High Court has held that discovery of excess stock during a survey does not justify action under Section 130 of the GST Act. Instead, the proper course of law requires proceedings under Sections 73 or 74.

Quashing orders passed by the Deputy Commissioner (9 January 2020) and the Additional Commissioner on 31 May 2022, the Court allowed the writ petition of M/s J.T. Steel Traders.

The company, engaged in the trade of steel coils and allied products, faced proceedings after a survey was conducted on 8 August 2019 at its premises. The authorities assessed the stock on the basis of “eye measurement” and concluded that excess goods were found. No actual weighment of stock was undertaken. Based on this assessment, proceedings under Section 130 were initiated, culminating in penalty orders.

Challenging the action, the petitioner argued that proceedings under Section 130, which deal with confiscation and penalty for contravention of provisions with intent to evade tax, were inapplicable. The counsel stressed that excess stock, if found, could at best attract assessment under Sections 73 or 74, which specifically deal with determination of tax not paid, short paid, or wrongfully availed input tax credit. Reliance was placed on precedents including Vijay Trading Company vs. Additional Commissioner (affirmed by the Supreme Court in SLP Diary No. 5881 of 2025), where a similar interpretation was upheld.

The State counsel defended the impugned orders but the Court, after reviewing the record and earlier rulings, found merit in the petitioner’s case. It cited previous judgments such as Shree Om Steels, Metenere Ltd., and Maa Mahamaya Alloys Pvt. Ltd., all of which clarified that excess or unaccounted stock triggers tax determination under Section 35(6), to be quantified strictly in line with Section 73 or 74. The Court reiterated that Section 130 cannot be stretched to cover such cases, as liability arises only at the point of supply and not merely because of discrepancies in stock records.

Justice Piyush Agrawal held that invoking Section 130 on the basis of eye-estimated excess stock was unsustainable. “The law is clear on the subject that proceedings under Section 130 of the GST Act cannot be put to service if excess stock is found at the time of survey,” the judgment recorded.

Accordingly, the High Court quashed both impugned orders, allowing the writ petition. The decision reaffirms judicial consistency that excess stock, absent evidence of fraudulent intent or evasion, should be dealt with under the structured assessment and adjudication framework of Sections 73/74 of the Goods and Services Tax Act, not confiscation proceedings.

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