Excess stock must be dealt with under GST Sections 73/74, not Section 130; orders under Section 130 quashed

The HC held that proceedings under sections 73/74 of the GST Act are applicable when excess stock is found during a survey, not proceedings under section 130. The impugned orders initiating action under section 130 were quashed as unlawful. The petition was allowed, affirming that excess stock must be addressed through sections 73/74, and not section 130 read with the relevant rules.

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ISSUES:

Whether proceedings under Section 130 of the GST Act can be initiated upon finding excess stock during a survey at the business premises.Whether proceedings under Sections 73/74 of the GST Act are the appropriate recourse for assessment and determination of tax liability arising from excess or unaccounted stock.Whether penalty can be levied solely on the basis of excess stock found during verification without following the procedure under Sections 73/74.Whether valuation of goods can be done on the basis of eye estimation or indirect factors such as production capacity or electricity consumption.Whether the service of notice under such proceedings complies with the requirements of Section 169 of the GST Act.Whether the provisions of Section 130(1)(ii) and Section 130(1)(iv) of the GST Act apply where excess goods are found without evidence of 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, read with rule 120 of the Rules framed under the Act."It was held that the "proper officer is empowered to determine the amount of tax payable" on unaccounted goods only "in accordance with the provisions of Sections 73 & 74 of the Act" and not under Section 130.The Court ruled that penalty and tax demand cannot be quantified or raised under Section 130 but must follow the procedure prescribed under Sections 73 or 74 of the GST Act.The valuation of goods solely on the basis of eye estimation or indirect factors such as production capacity or electricity consumption is impermissible.The service of notice must satisfy the requirements contemplated under Section 169 of the GST Act, which was not established in the impugned orders.Clauses (ii) and (iv) of sub-section (1) of Section 130 do not apply in the absence of an allegation of intent to evade tax; mere finding of excess stock is insufficient to invoke these provisions.The impugned orders passed under Section 130 of the GST Act were held to be "clearly unsustainable" and were quashed.

RATIONALE:

The Court relied on the statutory framework of the GST Act, particularly Sections 9, 12, 35, 73, 74, 130, and 169, and the Rules framed thereunder.Section 35(6) empowers the proper officer to determine tax payable on unaccounted goods, but such determination must be made by following the procedure under Sections 73 or 74, which provide detailed safeguards and timelines for assessment and penalty.Section 130 pertains to inspection, search, and seizure, and penalties for certain contraventions, but does not provide a mechanism for tax assessment or determination based on excess stock found during survey.The Court emphasized the need for adherence to procedural safeguards, including proper service of notice under Section 169 and the requirement of establishing intent to evade tax for penalties under Section 130.Precedents relied upon include judgments affirming that tax assessment and penalty quantification must follow Sections 73/74 and that Section 130 cannot be misused for such purposes.No dissent or doctrinal shift was noted; the Court affirmed established legal principles and prior authoritative rulings.

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