Section 130 proceedings cannot be initiated for excess stock; invoke sections 73/74 of GST Act instead

The HC held that initiation of proceedings under section 130 of the UPGST Act upon finding excess stock during a survey is impermissible. The Court reiterated that in cases of excess stock, proceedings under sections 73/74 of the GST Act should be invoked instead. Consistent with prior rulings, the HC ruled that section 130 proceedings cannot be initiated for excess stock. Consequently, the impugned order initiating such proceedings was quashed and the petition was allowed.

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ISSUES:

Whether proceedings under Section 130 of the GST Act can be initiated on finding excess stock during a survey.Whether proceedings under Sections 73/74 of the GST Act are the appropriate mechanism for tax assessment and penalty determination when excess stock is found.Whether tax can be assessed or determined under Section 130 of the GST Act.Whether penalty can be levied solely on the basis of finding excess goods during verification.Whether valuation of goods can be based on eye estimation or indirect factors such as production capacity or electricity consumption.Whether the service of notice complies with the requirements under Section 169 of the GST Act.Whether the provisions of Clauses (ii) and (iv) of sub-section (1) of Section 130 of the GST Act apply in cases of excess stock without intent to evade tax.

RULINGS / HOLDINGS:

The Court 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 SGST Act".It was held that the "proper officer is empowered to determine the amount of tax payable" on unaccounted goods under Section 35(6) "in accordance with the provisions of Sections 73 & 74 of the Act".The Court ruled that "the entire exercise resorted to under Section 130 of the GST Act for assessment/ determination of the tax and the penalty is neither stipulated under the Act, nor can be done in the manner in which it has been done".Penalty cannot be levied solely on the allegation of excess goods found during verification without establishing intent to evade tax.Valuation of goods cannot be done on the basis of eye estimation alone or indirect factors such as production capacity or electricity consumption.The service of notice must satisfy the requirements contemplated under Section 169 of the GST Act.Clauses (ii) and (iv) of sub-section (1) of Section 130 apply only where there is liability to pay tax arising after the time of supply or contravention coupled with intent to evade tax; mere excess stock without such intent does not attract these provisions.Consequently, the impugned orders passed under Section 130 were quashed as unsustainable in law.

RATIONALE:

The Court applied the statutory framework of the GST Act, particularly Sections 9, 12, 35, 73, 74, 130, and 169, and relevant Rules under the Act.Section 9 imposes tax on supply of goods or services, Section 12 fixes the time of supply, and Section 35 mandates maintenance of accounts and empowers determination of tax on unaccounted goods under Sections 73/74.Section 130 provides for penalty for specified contraventions but does not authorize tax assessment or determination of tax liability, which must be done under Sections 73/74.The Court relied on prior judgments emphasizing that "determination and quantification of the tax on the said 'deemed supply' has to be done in accordance with Section 73 or Section 74 of the Act".The Court noted that penalty under Section 130 requires proof of intent to evade tax or contravention of the Act, which was absent.The valuation methodology based on eye estimation or indirect metrics was rejected as insufficient and contrary to statutory requirements.No dissent or doctrinal shift was indicated; the decision reaffirmed established precedent and statutory interpretation.

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