Tiles manufacturer loses appeal against confiscation and penalty for excess stock and poor record maintenance under Section 35 CGST Act

The Commissioner (Appeals) CGST, Jaipur dismissed the appeal filed by a tiles manufacturer against confiscation of excess goods and penalty imposition. The appellant failed to maintain proper stock registers for raw materials and finished goods, leading to discovery of excess stock during physical verification. The HC upheld findings of clandestine manufacture and clearance, confirming contraventions of Section 35 CGST Act and Rule 56 CGST Rules. Penalties under Sections 122 and 125 were deemed proper for failure to maintain records and intent to evade tax. The authority followed natural justice principles by providing adequate hearing opportunities.

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Issues Involved:
1. Timeliness of the appeal.
2. Excess stock of raw material and finished goods.
3. Imposition of penalty under Sections 122 and 125 of CGST Act.
4. Adherence to principles of natural justice and judicial discipline.

Issue-wise Detailed Analysis:

(a) Timeliness of the Appeal:
The appellant filed the appeal on 17-11-2020 against the impugned order dated 4-8-2020, resulting in a delay of 13 days from the normal period prescribed under Section 107(1) of the CGST Act, 2017. The appellate authority accepted the delay, citing Section 107(4) of the CGST Act, 2017, which allows for an extension if sufficient cause is shown.

(b) Excess Stock of Raw Material and Finished Goods:
During a search on 24-3-2018, excess stock of raw material and finished goods valued at Rs. 24,03,635/- was found at the appellant's factory. The appellant did not maintain any stock register. Statements from the manager and partner admitted the non-accounting of stock. The adjudicating authority confiscated the excess stock under Section 130(1)(ii) & (iv) of the CGST Act and imposed a redemption fine of Rs. 10,00,000/-, along with penalties. The appellant argued that the stock records were with a part-time accountant for reconciliation, but this was dismissed as a flimsy ground. The authority upheld that the appellant violated Section 35 of the CGST Act and Rule 56 of CGST Rules, justifying the confiscation and penalties.

(c) Imposition of Penalty under Sections 122 and 125 of CGST Act:
The appellant contended that penalties under Sections 122(1), (3), and 125 are imposable only if there is intent or mens rea to evade tax. The adjudicating authority found that the appellant failed to maintain stock records and file returns, indicating intent to evade CGST/SGST. Thus, penalties under Sections 122(1)(xvi) and (xviii) and 125 were deemed appropriate. The appellant's argument that penalties on the firm preclude penalties on the partner was rejected, as both firm and partner are separate entities under the law.

(d) Adherence to Principles of Natural Justice and Judicial Discipline:
The appellant claimed that the principles of natural justice and judicial discipline were not followed. However, the adjudicating authority provided a show cause notice and an opportunity to be heard. The authority discussed all submissions and examined cited case laws, concluding they were not applicable. Therefore, the appellant's contention was found irrelevant.

Conclusion:
The appellate authority upheld the order of the adjudicating authority, finding no infirmity in the impugned order. Both appeals filed by the appellant were rejected, and the penalties and confiscation were deemed justified and proper.

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