2024 (8) TMI 1265 - HC - GST

Excess stock found during GST survey cannot trigger Section 130 proceedings, must follow Sections 73/74 instead

M/s VK Electricals Versus Additional Commissioner Grade-2 Appeal-Ii And Another

HC quashed order passed under Section 130 read with Section 122 of UP GST Act following discovery of excess stock during survey. Court held that when ... Challenge to impugned order passed u/s 130 read with Section 122 of UP GST Act - excess stock found during inspection - proceedings u/s 73/74 of the GST Act or u/s 130 of the GST Act, read with rule 120 of the Rules framed under the Act - HELD THAT:- It is not in dispute that survey was conducted at the business premises of the petitioner on 14.9.2018. It is also not in dispute that excess stock was found, which triggered the initiation of the present proceedings against the petitioner. On various occasions, this Court has held that if excess stock is found, then proceedings under sections 73/74 of the GST Act should be pressed in service and not proceedings under section 130 of the GST Act, read with rule 120 of the Rules framed under the Act. The law is clear on the subject that the proceedings under section 130 of the GST Act cannot be put to service if excess stock is found at the time of survey. The impugned order dated 26.12.2023 passed by the respondent no. 1 under Section 130 read with Section 122 of UP GST Act, cannot be sustained in the eyes of law and same is hereby quashed. Petition allowed. Issues:Challenge to impugned order under Section 130 of UP GST Act based on excess stock found during inspection.Analysis:The High Court heard arguments from both parties regarding the writ petition challenging the order dated 26.12.2023 passed under Section 130 of the UP GST Act. The petitioner, a registered company trading in electrical goods, contested the initiation of proceedings under Section 130, arguing that proceedings under sections 73/74 of the GST Act should have been initiated instead. The petitioner cited a previous judgment by the Court in support of this argument. The respondent, represented by the Standing Counsel, supported the impugned orders. The Court noted that excess stock was found during a survey at the petitioner's premises, leading to the proceedings under Section 130. The Court referred to previous judgments emphasizing that proceedings under sections 73/74 should be invoked when excess stock is found, not Section 130.The Court referred to recent judgments, including one involving S/s Dinesh Kumar Pradeep Kumar, which reiterated that proceedings under Section 130 cannot be initiated solely based on excess stock. The Court also cited M/s Maa Mahamaya Alloys Pvt. Ltd., where similar issues were raised and the writ petition was allowed. The Court analyzed the provisions of the GST Act and highlighted that the quantification of tax and penalty must be done in accordance with Sections 73 or 74. The Court found that the proceedings under Section 130 for assessment and determination of tax and penalty were not stipulated under the Act and were unsustainable, especially when the department had quantified tax under Section 74. The Court emphasized that the liability to pay tax arises at the time of supply, not earlier, and the contravention of the Act or Rules must be coupled with an intent to evade payment for penalty under Section 130. The Court concluded that the impugned order under Section 130 of the UP GST Act could not be sustained in law and quashed it, allowing the writ petition.