Goods confiscation and penalty quashed due to authorities' failure to properly verify stock during survey under Section 74

Allahabad HC allowed the petition challenging confiscation of goods and penalty imposition. The court found that authorities failed to properly weigh or count stock during survey, instead relying on estimates without legal basis. The 10-month delay in issuing show cause notice after survey demonstrated callous conduct. Since burden of proof lies with the Department for confiscation and penalty, and physical verification could have been conducted but wasn't, the excess stock finding based on estimates was rejected. The court quashed confiscation and penalty orders, setting aside proceedings under Section 74 of the Act.

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Issues involved:
The judgment involves challenges to orders passed under Section 107 of the Uttar Pradesh Goods and Services Tax Act, 2017. The first writ petition questions orders regarding confiscation under Section 130 of the Act and levy of penalty under Section 122. The second writ petition challenges orders under Section 74 for liability arising from additional stock.

First Issue - Writ Tax No.916 of 2022:
The issue at hand is whether the mere presence of additional stock justifies confiscation and subsequent penalty. The petitioner relied on previous judgments to support their arguments.

The Court analyzed the provisions of Section 130 of the Act, emphasizing that liability to pay tax arises at the time of supply. The Court held that the department failed to establish contravention of the Act with intent to evade tax. The Court further ruled that confiscation based solely on eye estimation is not valid, as valuation should be done in accordance with the Act and Rules.

The Appellate Authority's decision to reduce the penalty based on an estimate without proper quantification of stock was deemed unsound. The Court criticized the delay in issuing show cause notices and concluded that the authorities acted incompetently. Ultimately, the Court quashed the orders for penalty and confiscation.

Second Issue - Writ Tax No.1600 of 2022:
In this case, the challenge was against orders passed under Section 74 of the Act related to excess stock. The Court found the finding of excess stock to be baseless and illegal, leading to the initiation of proceedings under Section 74 being unsustainable.

Consequently, the Court quashed the orders in Writ Tax No.1600 of 2022 and directed for any deposited amount to be returned to the petitioner within eight weeks.

In conclusion, both writ petitions were allowed, and the impugned orders were quashed and set aside in both cases.

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