GST proceedings under section 130 quashed where excess stock found during survey without proper verification

The Allahabad HC quashed proceedings initiated under section 130 of the GST Act against a petitioner where excess stock was found during a survey. The court held that when excess stock is discovered, proceedings under sections 73/74 of the GST Act should be initiated, not under section 130 read with rule 120. The court noted that survey authorities relied on eye estimation without physical verification or video recording of the alleged stock. Following established precedent, the HC ruled that section 130 proceedings cannot be invoked when excess stock is found during surveys, and quashed both the original order and the appellate authority's decision.

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Issues:
Challenging impugned orders under UPGST Act - Section 130 read with Section 122; Excess stock found during survey triggering proceedings; Initiation of proceedings under wrong sections; Reliance on previous court judgments.

Analysis:
The writ petition challenges the impugned orders dated 18.07.2019 and 19.08.2023 passed under the UPGST Act. The petitioner, a Limited Company engaged in iron and steel business, faced proceedings after a survey on 30.11.2018 revealed excess stock. The petitioner argues that proceedings under sections 73/74 of the GST Act should have been initiated instead of section 130. The petitioner relies on the judgment in S/s Dinesh Kumar Pradeep Kumar case to support this contention. The respondents, including the State Standing Counsel and Union of India, support the impugned orders.

The High Court notes that excess stock was indeed found during the survey, leading to the initiation of proceedings against the petitioner. Previous court decisions have emphasized that proceedings under sections 73/74 of the GST Act should be used when excess stock is discovered, not section 130. Citing the judgment in S/s Dinesh Kumar Pradeep Kumar case, the court highlights that section 130 of the UPGST Act cannot be invoked in such situations.

Referring to the case law, the court delves into the provisions of the GST Act, specifically Section 35(6), which empowers the proper officer to determine tax liability. The court emphasizes that quantification of tax on unaccounted goods must align with Sections 73 or 74 of the Act. The court further discusses the necessity of proper procedures and grounds for imposing penalties under the Act.

In light of the legal principles and precedents, the court concludes that the impugned orders under section 130 of the UPGST Act, dated 18.07.2019 and 19.08.2023, cannot stand. The court quashes these orders, ruling in favor of the petitioner. The judgment affirms that proceedings under section 130 cannot be justified solely based on the discovery of excess stock during a survey, emphasizing the importance of following the correct legal procedures under the GST Act.

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