Excess stock discovery during GST survey requires proceedings under sections 73/74, not section 130

Allahabad HC allowed a petition challenging proceedings under section 130 of the GST Act after excess stock was found during a survey. The Court held that when excess stock is discovered, proceedings must be initiated under sections 73/74 of the GST Act, not section 130. Following established precedent, the Court ruled that section 130 proceedings cannot be initiated upon finding excess stock during surveys. Both the original order and first appellate authority's order were quashed for being legally unsustainable.

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Issues:
Challenge to impugned orders dated 30.11.2023 and 7.3.2020 under GST Act.

Detailed Analysis:
The petitioner, a registered Company engaged in the manufacture and sale of detergent products, challenged orders passed by the first appellate authority and another authority regarding excess stock found during an inspection under section 67 of the GST Act. The petitioner argued that proceedings under sections 73/74 of the GST Act should have been initiated instead of section 130. The petitioner relied on a previous judgment by the court in a similar case. The respondent, represented by the State Standing Counsel, supported the impugned orders.

The court noted that excess stock triggered the proceedings against the petitioner, emphasizing that proceedings under sections 73/74 should be initiated in such cases, not under section 130 of the GST Act. The court referred to recent judgments, including one involving a similar issue where it was held that proceedings under section 130 cannot be initiated based on excess stock alone. The court cited provisions of the Act and rules regarding tax determination and penalties under sections 73 and 74.

The court highlighted that the entire tax determination and penalty imposition based on a survey under section 130, without resorting to section 74, rendered the impugned orders unsustainable. It clarified the specific clauses of section 130 that should apply in cases of improper accounting of goods and intent to evade tax. The court emphasized that section 130 proceedings cannot be invoked solely based on excess stock findings during a survey.

Ultimately, the court ruled in favor of the petitioner, quashing the impugned orders dated 30.11.2023 and 7.3.2020. The court held that proceedings under section 130 of the GST Act cannot be justified solely on the grounds of excess stock found during a survey. The writ petition was allowed in favor of the petitioner, declaring the impugned orders unsustainable in the eyes of the law.

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