The Hon’ble Allahabad High Court in J.T. Steel Traders v. State of U.P. and 2 Others [WRIT TAX No. 1154 of 2022 dated July 28, 2025] held that proceedings under section 130 of the GST Act cannot be initiated solely on the basis of finding excess stock during survey; instead, proceedings under sections 73 or 74 should be adopted.
Facts:
J.T. Steel Traders (“the Petitioner”) is a registered company engaged in the business of sale and purchase of steel coils and other steel items. On August 8, 2019, the Respondent No. 3 conducted a survey at the Petitioner’s business premises, assessing stock on the basis of eye measurement and alleging excess stock.
The Petitioner contended that actual weighment was not done and that proceedings under Section 130 of the GST Act were not maintainable in such circumstances; instead, sections 73 or 74 ought to have been invoked.
The Respondent contended that the impugned orders were valid and defended the initiation of proceedings under section 130.
Aggrieved by the orders dated January 9, 2020 (Deputy Commissioner) and May 31, 2022 (Additional Commissioner), the Petitioner approached the Court by way of writ petition.
Issue:
Whether proceedings under section 130 of the GST Act can be initiated solely on the basis of excess stock found during a survey?
Held:
The Hon’ble Allahabad High Court in WRIT TAX No. 1154 of 2022 held as under:
- Observed that, it is undisputed that a survey was conducted on August 8, 2019 and excess stock was found, triggering the present proceedings.
- Noted that, consistent judicial view holds that if excess stock is found, proceedings under Sections 73/74 of the GST Act should be invoked, and not Section 130.
- Noted that, M/s Shree Om Steels Vs. Additional Commissioner Grade-2 and Another [Writ Tax No. 1007 of 2022] wherein the Supreme Court held that proper officers are to determine tax liability under Section 35(6) by following procedures under Section 73 or 74.
- Cited M/s Maa Mahamaya Alloys Pvt. Ltd. vs State Of U.P. And 3 Others[2023 (3) TMI 1358 – HC – GST] wherein the Allahabad High Court clarified that Section 130 is not meant for assessment or determination of tax/penalty and such determination must follow Section 73 or 74.
- Found that, clauses (ii) and (iv) of Section 130(1) were not applicable as the liability to pay tax arises at the time of supply, and there was no allegation of contravention coupled with intent to evade tax.
- Held that, the impugned orders dated January 9, 2020 and May 31, 2022 were unsustainable and thus quashed.
Our Comments:
This decision reiterates the consistent judicial stance, affirmed by this court in M/s Vijay Trading Company v. Additional Commissioner, Grade – 2 & Another [Writ Tax No. 1278 of 2024] that Section 130 of the GST Act is not a substitute for the adjudicatory framework under Sections 73 and 74. It was clarified that confiscation provisions under Section 130 are penal in nature and cannot be invoked merely for excess stock without establishing statutory ingredients, particularly “intent to evade tax.” This ruling reinforces the procedural safeguard that tax determination and penalty imposition must be undertaken strictly under the provisions meant for adjudication, thereby preventing the misuse of confiscatory provisions.
Watch Our video on “SC: Confirms HC order quashing confiscation for mere excess stock detected during survey” at: https://www.youtube.com/shorts/1R0Z_DyavwU
Relevant Provisions:
Section 73 of the CGST Act
“73. Determination of tax pertaining to the period up to Financial Year 2023-24 not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any willful-misstatement or suppression of facts.-
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.
(2) The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.
(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.
(4) The service of such statement shall be deemed to be service of notice on such person under sub-section (1), subject to the condition that the grounds relied upon for such tax periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.”
Section 74 of the CGST Act 2017
“74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts.-
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.
(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.
(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.
(4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under subsection (1) are the same as are mentioned in the earlier notice.”
Section 130 of the GST Act, 2017
“130. Confiscation of goods or conveyances and levy of penalty.-
(1) Where any person-
(i) supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or
(ii) does not account for any goods on which he is liable to pay tax under this Act; or
(iii) supplies any goods liable to tax under this Act without having applied for registration; or
(iv) contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or
(v) uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance, then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122…”
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