2025 (5) TMI 1516 - HC - GST

Excess Stock Discovery: GST Proceedings Under Section 130 Invalid, Sections 73/74 Deemed Appropriate Legal Recourse

State of U.P. & Another Versus Additional Commissioner & Another

The HC ruled that GST proceedings under Section 130 are not maintainable for excess stock found during a survey. The court held that Sections 73/74 are ... Seizure of goods - drums of mentha oil and caustic soda found unaccounted - discrepancies found in stock - Jurisdiction to initiate proceedings under section 130 of the GST Act - tax evasion - Challenged the release order directing to deposit penalty and fine on a total estimated value of goods seized - HELD THAT:- Section 35 of the GST Act clearly provides that every registered persons are required to keep and maintain at the principal place of business true and correct account of things as specified in clauses (a) to (f). Sub-section (6) of section 35 of the GST Act contemplates that if the registered dealer fails to account for the goods in accordance with the provision of sub-section (1), the Proper Officer shall determine the amount of tax payable on such goods that are not accounted for by such person and the provision of sections 73/74 of the GST Act, as the case may be, shall mutatis mutandis apply for determination of such tax. The GST Act is a complete Code in itself. A specific provision has been contemplated that if the goods are not recorded in the books of account, then the Proper Officer shall proceed as per the provision of sections 73/74 of the GST Act. Once the Act specifically contemplates that action to be taken, then the provision of section 130 of the GST Act cannot be pressed into service. The issue in hand is not res integra. This Court in M/s Vijay Trading Company [2024 (8) TMI 1039 - ALLAHABAD HIGH COURT] has categorically held that the proceedings under section 130 of the GST Act cannot be put to service in case excess stock is found at the time of survey. The said judgement of this Court has been affirmed by the Apex Court in Special Leave Petition (Civil) Additional Commissioner, Grade - 2 & Another Vs. M/s Vijay Trading Company [2025 (4) TMI 1644 - SC ORDER (LB)] Further, in M/s PP Polyplast Private Limited [2025 (5) TMI 1442 - SC ORDER] the Apex Court has held that 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. Thus, no interference is called for in the impugned orders. The writ petition fails and the same is hereby dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court include:Whether proceedings under Section 130 of the GST Act are maintainable against a registered dealer when excess stock of goods (mentha oil) is found during a survey at the business premises.Whether the proper legal recourse in case of unaccounted goods or discrepancies found in stock during survey is under Sections 73/74 of the GST Act rather than Section 130.The jurisdictional competence of the authorities to initiate proceedings under Section 130 in the facts of the case.The correctness of the impugned order exempting the levy of tax, penalty, and fine on mentha oil and restoring the release order passed by the Enforcement Officer.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Maintainability of proceedings under Section 130 of the GST Act for excess stock found during surveyRelevant legal framework and precedents: Section 130 of the GST Act empowers the Proper Officer to seize goods and initiate proceedings where goods are liable to confiscation for reasons including evasion of tax or other contraventions. However, Section 35 of the GST Act mandates registered persons to maintain true and correct accounts of goods and provides for determination of tax payable on unaccounted goods under Sections 73/74. Sub-section (6) of Section 35 specifically contemplates that if goods are not accounted for, the Proper Officer shall determine tax payable and apply Sections 73/74 mutatis mutandis.Precedents relied upon include the judgements of this Court in M/s Vijay Trading Company and M/s PP Polyplast Private Limited, both affirmed by the Apex Court. These judgements categorically hold that proceedings under Section 130 cannot be initiated merely because excess stock is found during a survey; instead, the provisions of Sections 73/74 are applicable for tax determination and recovery.Court's interpretation and reasoning: The Court emphasized that the GST Act is a self-contained code with specific provisions delineating the procedure for unaccounted goods. Since Section 35(6) directs that tax on unaccounted goods be determined under Sections 73/74, invoking Section 130 proceedings in such a scenario is impermissible. The Court held that the impugned order exempting tax, penalty, and fine on mentha oil was rightly passed as proceedings under Section 130 were not maintainable for excess stock found during survey.Key evidence and findings: The survey at the respondent's business premises found certain drums of mentha oil unaccounted. However, no actual measurement was conducted at the time of survey. The Enforcement Officer had initially passed a release order directing deposit of penalty and fine on the estimated value of seized goods. The appellate authority partly allowed the appeal by exempting tax and penalty on mentha oil, which was challenged in the present writ petition.Application of law to facts: The Court applied the legal principle that excess stock found during survey must be dealt with under Sections 73/74, not Section 130. Since the goods in question were found during a survey and not in circumstances warranting confiscation under Section 130, the initiation of Section 130 proceedings was improper.Treatment of competing arguments: The petitioner contended that the respondent was engaged in tax evasion and that the impugned order was passed without considering the material on record. The respondent argued that no proper measurement was done, and even assuming discrepancies, the proceedings should have been under Sections 73/74, not Section 130. The Court found the respondent's submissions supported by binding precedents and the statutory framework more persuasive.Conclusion: The Court concluded that proceedings under Section 130 were not maintainable for excess stock found during survey and upheld the exemption of tax, penalty, and fine on mentha oil.Issue 2: Jurisdictional competence to initiate proceedings under Section 130 in the present factsRelevant legal framework: The GST Act prescribes the circumstances and procedures for initiating proceedings under various sections. Section 130 is applicable primarily in cases involving confiscation of goods liable for evasion or contravention, while Sections 73/74 relate to determination and recovery of tax in cases of non-payment or short payment.Court's interpretation and reasoning: The Court noted that the Act explicitly contemplates that tax on unaccounted goods found during survey must be determined under Sections 73/74. Therefore, the initiation of Section 130 proceedings in such cases exceeds jurisdiction and is contrary to the statutory scheme.Key findings: The Court observed that the petitioner initiated Section 130 proceedings based on alleged unaccounted stock found during survey without proper measurement or evidence of evasion warranting confiscation.Application of law to facts: The Court applied the statutory mandate and binding precedents to hold that the petitioner lacked jurisdiction to initiate Section 130 proceedings in this factual matrix.Treatment of competing arguments: The petitioner's argument of tax evasion was not substantiated with material warranting confiscation proceedings. The respondent's reliance on judicial precedents emphasizing jurisdictional limits was accepted.Conclusion: The Court held that the petitioner had no jurisdiction to initiate proceedings under Section 130 in the present case.Issue 3: Correctness of the impugned order exempting tax, penalty, and fine on mentha oilRelevant legal framework and precedents: As discussed above, Sections 35, 73, 74, and 130 of the GST Act govern the treatment of unaccounted goods and related tax liabilities. The precedents of this Court and the Apex Court affirm the principle that excess stock found during survey is to be dealt with under Sections 73/74, and exemption from penalty and fine may be granted accordingly.Court's interpretation and reasoning: The Court found the impugned order consistent with the legal framework and precedents. Since the goods in question were found during survey and not in circumstances justifying confiscation, exemption from tax, penalty, and fine on mentha oil was justified.Application of law to facts: The impugned order restored the release order passed by the Enforcement Officer, which directed deposit of penalty and fine. The appellate authority rightly exempted tax, penalty, and fine on mentha oil, which the Court upheld.Conclusion: The impugned order was held to be legally sound and was not interfered with.3. SIGNIFICANT HOLDINGSThe Court reiterated the principle that 'the GST Act is a complete Code in itself. A specific provision has been contemplated that if the goods are not recorded in the books of account, then the Proper Officer shall proceed as per the provision of sections 73/74 of the GST Act. Once the Act specifically contemplates that action to be taken, then the provision of section 130 of the GST Act cannot be pressed into service.'The Court also emphasized the binding precedents where it was held that 'the proceedings under section 130 of the GST Act cannot be put to service in case excess stock is found at the time of survey.'Final determinations on each issue were:Proceedings under Section 130 of the GST Act are not maintainable for excess stock found during survey; the proper recourse is under Sections 73/74.The petitioner had no jurisdiction to initiate Section 130 proceedings in the facts of the case.The impugned order exempting tax, penalty, and fine on mentha oil was rightly passed and is upheld.