GST - SCOPE OF SECTION 130 FOR DISCREPANCY IN STOCK

Dr. Sanjiv Agarwal

Excess stock under GST must be assessed under tax determination provisions, not confiscation proceedings under Section 130. Excess stock found during inspection, search or survey is to be treated as unaccounted goods under the GST accounting and tax determination scheme, not through confiscation proceedings under Section 130. Where a registered person fails to maintain true and correct accounts of goods, tax must be determined under Section 73 or Section 74, and the statutory route for such discrepancies is confined to that mechanism. Section 130 is not attracted merely because excess stock is found; its invocation depends on the specific statutory grounds and cannot replace the prescribed tax-determination process. (AI Summary)

It is often seen that during inspection and search, the stock is found in excess of the stocks as per books. Such excess stock is subject to levy of tax as Section 36(6) of the Act provides that in the event the person fails to keep their accounts for the goods or the services in accordance with the provisions of Section 35(1), the proper officer is empowered to determine the amount of tax payable on the goods or services which are unaccounted for as if such goods or services had been supplied by such person and the provisions of Section 73 and 74 shall mutatis mutandis apply for the determination of tax.

The tax is to be determined for excess stock under Section 73 or 74 of the CGST Act, 2017 and not under Section 130, which is not applicable in such cases.

The case of excess stock would not fall under Section 130(i) (ii) or (iv) of CGST Act as the liability to pay tax arises at the time of point of supply and not at any other point earlier than that the scope of Section 130(1)(ii) is that any assesse who is liable to pay tax and does not account for such goods, after the time of supply is occasioned, would be liable to penalty this clause. Section 130(1)(iv) can be invoked by the Department when the Department establishes that there were a contravention of the Act and Rules coupled with the intent to evade the payment of tax. If the stock is found in excess, proceedings, under Section 73 and 74 of the Act will come into play and proceedings under Section 130 of the Act cannot be initiated.

In M/s Ganga Brick Field Umraipurwa/Gangamau Versus Additional Commissioner Grade -2 And Another - 2025 (11) TMI 296 - ALLAHABAD HIGH COURT, where excess stock was found during a survey conducted at assessee's premises and discrepancies were recorded, confiscation of goods was done and penalty proceedings initiated, it was observed and held that proceedings admittedly arose from survey alleging unaccounted stock. Section 35 of CGST/UPGST Act, 2017 required true and correct accounts and sub-section (6) mandated tax determination under section 73 and 74 for goods not accounted for. Since statute prescribed this specific route, recourse to section 130 was impermissible in such facts. The Court observed that Apex Court has categorically held in ADDITIONAL COMMISSIONER GRADE-2, & ANR. Versus M/s VIJAY TRADING COMPANY - 2025 (4) TMI 1644 - SC Order (LB) and ADDITIONAL COMMISSIONER GRADE 2, (APPEAL) & ANR. Versus M/s. PP POLYPLAST PVT. LTD. - 2025 (5) TMI 1442 - SC Order that proceedings under Section 130 cannot be put to service if excess stock is found at time of service. In view of same, impugned order could not be sustained. [Also see:

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