GST proceedings under section 130 quashed for excess stock found during survey, must use sections 73/74 instead

The Allahabad HC quashed GST proceedings initiated under section 130 against a petitioner following discovery of excess stock during a survey at business premises. The court held that when excess stock is found during surveys, proceedings must be initiated under sections 73/74 of the GST Act, not section 130. The HC ruled that section 130 proceedings cannot be invoked for excess stock discoveries, making both the original order and first appellate authority's order legally unsustainable. The petition was allowed and impugned orders were quashed.

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Issues:
Challenging impugned orders under GST Act - Proceedings under section 130 initiated - Excess stock found during survey - Applicability of sections 73/74 of GST Act - Interpretation of statutory provisions - Assessment of tax and penalty - Legal validity of orders.

Analysis:
The High Court heard a writ petition challenging orders passed by the first appellate authority and another authority under the GST Act. The petitioner, a registered company in the business of hardware goods, contested the initiation of proceedings under section 130 of the GST Act due to excess stock found during a survey without actual weighment. The petitioner argued that sections 73/74 of the GST Act should have been invoked instead. Citing a previous judgment, the petitioner sought relief based on the legal interpretation of the Act. The respondent, represented by the Additional Standing Counsel, supported the impugned orders.

The Court acknowledged the survey conducted at the petitioner's premises and the presence of excess stock triggering the proceedings. Referring to past decisions, the Court emphasized that in cases of excess stock, proceedings under sections 73/74 of the GST Act should be utilized, not section 130. Quoting a recent judgment, the Court highlighted the necessity to determine tax liability in accordance with the provisions of sections 73/74. The Court reiterated that the initiation of section 130 proceedings based solely on excess stock is legally untenable.

Further, the Court referenced previous cases to emphasize that the assessment and determination of tax and penalties under section 130 must align with the statutory framework. It clarified that the quantification of tax and penalties should adhere to the procedures outlined in sections 73/74 of the Act. The Court scrutinized the allegations against the petitioner, emphasizing that the provisions of section 130 should be invoked only in specific circumstances, such as intent to evade tax. Ultimately, the Court ruled in favor of the petitioner, quashing the impugned orders dated 03.04.2024 and 24.01.2023, as the proceedings under section 130 were deemed legally unsustainable in cases of excess stock found during a survey.

In conclusion, the Court upheld the legal principle that section 130 proceedings cannot be initiated solely based on excess stock discovered during a survey. The impugned orders were declared invalid, and the writ petition was allowed in favor of the petitioner, emphasizing the necessity to adhere to the statutory provisions under the GST Act for tax assessment and penalty determination.

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