S. 130 Proceedings under GST cannot be Initiated against Excess Stock Found During Survey: Allahabad HC [Read Order]

In a recent ruling, the Allahabad High Court has held that proceedings under Section130 of the Central Goods and Services Tax Act, 2017 which deal with confiscation of goods cannot be invoked merely because excess stock is found during a survey.

The Court held that where discrepancies in stock arise, the proper statutory route is Section 73 or Section 74, which govern determination of tax not paid, short paid, erroneously refunded, or irregularly availed ITC.

The petitioner, Vidyarthi Dresses, challenged two orders passed by the GST authorities dated 30 September 2019 and 24 October 2024 through which confiscation proceedings under Section 130 were initiated solely on the basis of a survey conducted at its business premises on 30 April 2019.

The allegation of excess stock was made without any actual physical counting during the survey, according to the petitioner.

It was argued that Section 130 proceedings were not legally permissible in such circumstances and that the authorities were bound to act under Sections 73 or 74 of the GST Act.

In support of this contention, the petitioner quoted Allahabad High Court’s judgment in M/s Vijay Trading Company v. Additional Commissioner in which the Court held that confiscation proceedings cannot be used as a substitute for assessment where excess stock is found.

The State counsel could not dispute the applicability of these binding precedents. After examining the record, the Court noted that the GST Act is a complete code governing assessment, liability, and enforcement.

Section 35(6) specifically mandates that where goods are not properly accounted for, the proper officer shall determine tax liability by following the mechanism prescribed under Sections 73 or 74.

The High Court said that when the Act itself provides a clear pathway for determining tax on unaccounted goods, the drastic confiscation powers under Section 130 cannot be triggered.

Justice Piyush Agrawal observed that the issue is no longer res integra. According to the court's past decisions, which the Supreme Court has recently upheld, excess inventory found during a survey does not warrant the use of Section 130 confiscation procedures. Rather, Sections 73 or 74, which permit notification, hearing, and adjudication of tax liabilities, require authorities to conduct assessment proceedings.

Accordingly, the court quashed the orders. Additionally, the court directed to refund any amount deposited pursuant to the confiscation orders within one month of producing a certified copy of the judgment.

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