2025 (11) TMI 296 - HC - GST

Section 130 read with 122 inapplicable to survey-found excess stock; proceedings must proceed under sections 73/74 instead

HC quashed the impugned orders and allowed the petition, holding that proceedings under section 130 read with section 122 of the GST Act cannot be invoked ... Initiation of proceedings u/s 130, read with section 122 of the GST Act on the basis of survey of business premises of petitioner - it is submitted that the authorities below ought to have proceeded under sections 73/74 of the GST Act - HELD THAT:- Admittedly, the business premises of the petitioner was surveyed, in which certain discrepancies were alleged to have been found and on the basis of the same, proceedings under section 130, read with section 122, of the GST Act were initiated against the petitioner - 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. 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 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. The impugned orders cannot be sustained in the eyes of law. The same are hereby quashed - Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether proceedings under section 130 of the GST Act are permissible where excess stock is found during a survey and the registered person has failed to account for goods in books of account. 2. Whether, upon discovery of unaccounted goods in a survey, the Proper Officer is required to proceed under sections 73/74 of the GST Act pursuant to section 35(6), rather than invoking section 130. 3. Whether earlier decisions of this Court and their subsequent affirmance by the Apex Court that restrict the use of section 130 in cases of excess stock found on survey are binding on the instant matter. ISSUE-WISE DETAILED ANALYSIS Issue 1: Permissibility of proceedings under section 130 where excess stock is found on survey Legal framework: Section 130 of the GST Act deals with provisional attachment and confiscation in specified circumstances; section 35(1) requires registered persons to maintain true and correct accounts; section 35(6) provides that if a registered person fails to account for goods, the Proper Officer shall determine tax payable on such goods and the provisions of sections 73/74 shall mutatis mutandis apply. Precedent Treatment: This Court has previously held that proceedings under section 130 cannot be invoked where excess stock is found during a survey. Those holdings have been affirmed by the Apex Court in subsequent appeals, and other decisions of this Court have followed the same principle and received similar affirmance. Interpretation and reasoning: The GST Act is a complete code providing a specific statutory mechanism for unaccounted goods discovered at survey: section 35(6) expressly directs the Proper Officer to determine tax under sections 73/74. Where the statute prescribes a particular remedial route for unaccounted goods, resort to section 130-which concerns separate remedial machinery-is inconsistent with the statutory scheme. The Court reasons that invoking section 130 in such circumstances circumvents the statutory procedure and relief contemplated by sections 73/74 and the accounting provisions of section 35. Ratio vs. Obiter: Ratio - The Court's determination that section 130 cannot be pressed into service when excess stock is found on survey, and that the statutory route under section 35(6) and sections 73/74 must be followed, constitutes the binding ratio on this issue. Conclusions: Proceedings initiated under section 130 in respect of excess stock discovered during a survey are not sustainable; the Proper Officer is required to proceed under sections 73/74 pursuant to section 35(6). Issue 2: Effect of section 35(6) - duty to determine tax under sections 73/74 for unaccounted goods Legal framework: Section 35(1) mandates maintenance of specified accounts by registered persons; section 35(6) prescribes the course of action where goods are not accounted for, directing application of sections 73/74 for determination of tax on such goods. Precedent Treatment: Courts have treated section 35(6) as a specific statutory directive triggering the assessment/methodology under sections 73/74 where goods are not recorded; that interpretation has been upheld at the Apex Court level in relevant appeals. Interpretation and reasoning: The statutory text contemplates a distinct process when goods are not recorded in books: the Proper Officer must determine tax and apply sections 73/74 mutatis mutandis. This specific provision within the code displaces ad hoc or alternative routes (such as confiscation/penal measures under section 130) for the same factual matrix. The Court emphasizes the completeness of the GST Act as a code and the primacy of the specific procedural provision over general or alternative provisions. Ratio vs. Obiter: Ratio - The requirement that sections 73/74 be applied for determination of tax on unaccounted goods discovered in survey under section 35(6) is treated as the operative rule. Conclusions: Section 35(6) obliges the Proper Officer to determine tax under sections 73/74 for goods not accounted in the books, and that statutory route must be followed in preference to invoking section 130. Issue 3: Precedential effect of prior rulings affirming limitation on section 130 use Legal framework: Principles of stare decisis and binding effect of higher court decisions inform the application of prior rulings to subsequent, factually similar cases under the same statutory provisions. Precedent Treatment: This Court's earlier rulings limiting the applicability of section 130 in cases of excess stock found on survey have been affirmed by the Apex Court; other similar decisions of this Court have been followed and affirmed as well. Interpretation and reasoning: Where the highest court has affirmed the interpretation that section 130 cannot be invoked in the factual scenario of excess stock discovered on survey and where the statute provides a different mandatory remedy, lower courts are bound to follow that interpretation. The Court treats those affirmances as determinative of the legal question presented and applies them to the instant facts without conflicting distinction. Ratio vs. Obiter: Ratio - The binding precedential effect of the Apex Court's affirmance on the limited applicability of section 130 is applied as the decisive authority governing the instant dispute. Conclusions: Earlier decisions of this Court, alongside their affirmance by the Apex Court, are binding and require quashing of orders that relied upon section 130 where excess stock was found on survey; the statutory scheme and appellate affirmances mandate proceeding under sections 73/74. Relief and consequential directions (legal conclusion applied to facts) Having found that the impugned orders premised on section 130 are unsustainable in law because the statutory mechanism under section 35(6) and sections 73/74 applies, the Court quashes those orders. Any amounts deposited in pursuance of such impugned orders are to be refunded within a stipulated period upon production of a certified copy of the order.