Section 130 of GST Act Cannot Be Invoked for Mere Stock Variations Found in Search: Supreme Court [Read Judgement]
The bench held that the proper course of action for the department would have been to initiate proceedings under Sections 73/74, instead of resorting to Section 130
The Supreme Court has upheld the ruling of the Allahabad High Court, holding that Section 130 of the GST (Goods and Services Tax) Act cannot be applied merely on account of stock discrepancies detected during a search or survey.
The apex court dismissed the Special Leave Petition (SLP) filed by the Additional Commissioner, against the Allahabad High Court’s judgment in M/s Dayal Product v. Additional Commissioner Grade-2 & Anr.
The fact is that a survey was conducted on 29 May 2018 at the premises of M/s Dayal Product, a hosiery goods trader in Kanpur. The inspection was carried out by the Special Investigation Branch, allegedly identifying excess stock through mere eye estimation without physical verification.
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The authorities, relying on the findings, initiated proceedings under Section 130 of the GST Act, leading to the imposition of tax and penalty through an order dated 10 September 2018, later affirmed on appeal on 2 April 2024.
The petitioner argued before the High Court that proceedings for confiscation under Section 130 cannot be sustained against a registered dealer, especially when discrepancies arise during a survey. Instead, any alleged excess stock should be addressed through Sections 73 or 74 of the Act, which deal with assessment of tax not paid or short paid.
The petitioner also relied on previous precedents, including S/s Dinesh Kumar Pradeep Kumar v. Addl. Commissioner (2024), M/s Maa Mahamaya Alloys Pvt. Ltd. v. State of U.P. (2023), and M/s Shree Om Steels v. Addl. Commissioner (2024).
The Allahabad High Court agreed with this reasoning and quashed the orders passed under Section 130, stating that stock variation in itself cannot justify confiscation proceedings. It was held that the proper course of action for the department would have been to initiate proceedings under Sections 73/74, instead of resorting to Section 130.
On appeal, the Supreme Court bench of Justice Sanjya Kumar and Justice Satish Chandra Sharma declined to interfere with the High Court’s ruling. While dismissing the SLP, the Court clarified that the dismissal would not prevent the department from pursuing other remedies available in law.
The apex court said that “We are not inclined to interfere with the impugned judgment/order passed by the High Court. The special leave petition is, accordingly, dismissed. We, however, clarify that the impugned judgment/order and the dismissal of this special leave petition will not come in the way of the petitioners in taking recourse to appropriate remedies in accordance with law.”
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