2024 (8) TMI 71 - HC - GST

Excess stock discovery requires proceedings under Sections 73-74 UPGST Act, not Section 130 with Rule 122

The Allahabad HC set aside an assessment order involving confiscation of goods based on alleged excess stock found during a survey conducted on ... Proceedings under Section 130 for quantification of tax where excess stock is found are impermissible - determination of tax on unaccounted goods under Section 35(6) must follow the assessment/determinative procedure under Sections 73 and 74 - penalty under Section 130 attracted only where contravention of the Act or Rules is coupled with intent to evade tax - survey findings of excess stock engage assessment proceedings under Sections 73 & 74 and not confiscation/penal provisions of Section 130Proceedings under Section 130 for quantification of tax where excess stock is found are impermissible - penalty under Section 130 attracted only where contravention of the Act or Rules is coupled with intent to evade tax - Whether initiation of proceedings under Section 130 (and levy of penalty thereunder) is permissible where a survey discloses excess stock - HELD THAT: - The Court held that where excess stock is found on survey, the department cannot proceed to quantify tax liability and impose penalties by resorting to Section 130. Clause (ii) of sub section (1) of Section 130 applies, at best, when the liability to pay tax arises after the time of supply and the assessee has not accounted for such supplies; Clause (iv) attracts penalty only when a contravention of the Act or Rules is established together with an intention to evade payment of tax. In the present facts there was no allegation or finding of such intent or of contraventions warranting use of Section 130 for assessment/quantification. Consequently the use of Section 130 for assessing/taxing excess stock detected on survey was held unsustainable and the impugned order based on that exercise was set aside. [Paras 8, 10]Proceedings under Section 130 could not be lawfully employed to quantify tax or levy penalty for excess stock found on survey; the impugned order based on Section 130 was set aside.Determination of tax on unaccounted goods under Section 35(6) must follow the assessment/determinative procedure under Sections 73 and 74 - survey findings of excess stock engage assessment proceedings under Sections 73 & 74 and not confiscation/penal provisions of Section 130 - Whether tax on unaccounted or excess goods (deemed supplies) must be determined in accordance with the procedure prescribed in Sections 73 and 74 pursuant to Section 35(6) - HELD THAT: - Relying on the statutory scheme and earlier decisions, the Court recorded that Section 35(6) deems unaccounted goods to be supplies but expressly empowers the proper officer to determine the tax payable by following the procedure laid down in Sections 73 and 74. The quantification of tax for such 'deemed supplies' must therefore be conducted under Sections 73/74 (with their mandated notice, opportunity and limitation safeguards) and not by ad hoc assessment under Section 130. The Court endorsed prior rulings to this effect and held that the department's exercise of quantification must conform to Sections 73/74. [Paras 8]Determination and quantification of tax on unaccounted goods under Section 35(6) must be undertaken in accordance with Sections 73 and 74; Section 130 cannot be used for that purpose.Final Conclusion: The impugned order in GST Appeal No.28/2020 (Assessment Year 2018-19) founded on quantification of tax and imposition of penalty under Section 130 following a survey that found excess stock was unsustainable; the order is set aside and the writ petition is allowed. Issues:Challenge to order dated 24.03.2022 passed in GST Appeal No.28/2020, Assessment Year 2018-19.Analysis:The petitioner, engaged in trading of Cement, Mauram, and Saria, challenged the order based on a survey conducted on 24.08.2018, where excess stock was found without proper procedure. The petitioner argued that proceedings should have followed Sections 73 & 74 of the UPGST Act instead of Section 130. The petitioner relied on a previous judgment (Writ Tax No. 1007 of 2022) to support the claim. The respondent, however, supported the impugned order. The Court noted the survey findings and emphasized that proceedings under Sections 73 & 74 should apply in cases of excess stock, not Section 130. Referring to previous judgments, the Court highlighted the need for proper assessment and penalty determination under the relevant sections of the Act. The Court specifically mentioned that Section 130 proceedings cannot be initiated even if excess stock is found, emphasizing the importance of following the correct legal procedures for tax assessment and penalty imposition. The Court set aside the impugned order, stating it cannot sustain under the law, and allowed the writ petition challenging the order.