2025 (11) TMI 671 - HC - GST

Section 130 cannot be invoked for excess stock found in survey; Section 35(6) mandates tax under Sections 73/74

State of Up Through Deputy Commissioner Versus Additional Commissioner Grade-2 Appeal- Commercial Tax Aligarh And Another

The HC dismissed the petition, holding that proceedings under section 130 read with section 122 of the GST Act were improperly invoked after a survey that ... Unaccounted Stock - Initiation of proceedings under section 130, read with section 122 of the GST Act - whether the authorities below ought to have proceeded under sections 73/74 of the GST Act instead? - HELD THAT:- Admittedly, the business premises of the respondent 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 respondent - 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. 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 - Further, in M/s PP Polyplast Private Limited [2024 (8) TMI 144 - ALLAHABAD HIGH COURT], 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 by this Court in the impugned orders passed - petition dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether proceedings under section 130 (read with section 122) of the GST Act are maintainable where excess/unaccounted stock is discovered on survey of business premises. 2. Whether the Proper Officer is required to proceed under sections 73/74 of the GST Act (pursuant to section 35(6)) for determination of tax on goods not recorded in books, thereby excluding the applicability of section 130 in such cases. 3. Whether amounts deposited by respondents in relation to proceedings of the kind under challenge ought to be refunded where the impugned proceedings are held to be contrary to the statutory scheme. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of proceedings under section 130 (read with section 122) where excess/unaccounted stock is found on survey Legal framework: Section 130 authorises certain actions on detection of tax evasion or similar infractions; section 122 prescribes penalties/provisions related to inspection, search and seizure; section 35(1) requires maintenance of specified accounts by every registered person; section 35(6) prescribes the course where goods are not accounted for, directing the Proper Officer to determine tax on such goods and provides that sections 73/74 shall mutatis mutandis apply. Precedent treatment: Earlier decisions of the High Court established that proceedings under section 130 cannot be invoked where excess stock is discovered on survey, and those decisions have been affirmed by the Apex Court. Subsequent High Court rulings have followed the same principle. Interpretation and reasoning: The GST Act is a self-contained code. Section 35(6) is a specific statutory directive addressing the precise situation where goods are not recorded in the books. It mandates that the Proper Officer determine tax on unaccounted goods and apply the procedures in sections 73/74 for such determination. Where the Act provides a specific mechanism for unaccounted goods, invoking section 130 (a different provision) for the same factual matrix is inconsistent with the statutory scheme. The principle that a specific provision governs over a general provision is applied: once the Act specifically contemplates a course of action (sections 73/74 under s.35(6)), a general provision (section 130) cannot be pressed into service for the same eventuality. Ratio vs. Obiter: Ratio - For excess or unaccounted stock discovered on survey, the correct statutory route is under section 35(6) read with sections 73/74; section 130 is not the appropriate provision to determine tax liability for such goods. Observations that reiterate the completeness of the GST Code and the primacy of specific provisions over general ones are operative as reasoning supporting the ratio. Conclusion: Proceedings initiated under section 130 (read with section 122) in respect of excess/unaccounted stock found on survey are impermissible; the Proper Officer must proceed under sections 73/74 as contemplated by section 35(6). Issue 2 - Consequence of the statutory scheme (sections 35(6) and 73/74) and the exclusivity of that route Legal framework: Section 35(6) creates a statutory trigger for application of sections 73/74 where goods are not recorded; sections 73/74 provide the procedure for determination and recovery of tax and related consequences. Precedent treatment: The High Court's prior view that section 130 is not available in cases of excess stock was endorsed by the Apex Court; subsequent High Court decisions have followed that interpretation. Interpretation and reasoning: The Court emphasized that the GST Act being a complete code means statutory directions must be followed strictly. Where s.35(6) prescribes the application of ss.73/74 for unaccounted goods, any alternate route would frustrate the statutory design. The factual matrix - survey revealing discrepancies/ excess stock - is squarely covered by s.35(6), leaving no scope for invoking s.130. The Court treated the question as not res integra given controlling authority to that effect. Ratio vs. Obiter: Ratio - The statutory scheme is exclusive: s.35(6) read with ss.73/74 is the prescribed mechanism; resort to s.130 for the same facts is barred. Ancillary comments on the completeness of the code and the application of general interpretive principles are supportive but subordinate to the core holding. Conclusion: The statutory pathway under s.35(6) and ss.73/74 is mandatory and exclusive for determination of tax on goods not recorded; authorities must follow that route rather than invoke s.130. Issue 3 - Relief relating to deposits made under impugned proceedings Legal framework: Where proceedings are held to be contrary to the statutory scheme, restitution or refund of amounts deposited in relation to such proceedings is an appropriate consequence consistent with principles of restitution and statutory remedies. Precedent treatment: The Court relied on the controlling view established by earlier decisions (High Court and Apex Court) that invalid proceedings cannot be sustained; equitable relief by refund where amounts were deposited has been directed in analogous situations. Interpretation and reasoning: Given the conclusion that the impugned proceedings under s.130 could not properly be invoked for excess stock, any deposits collected in consequence of those proceedings are not supported by the correct application of statute. The Court therefore ordered refund of amounts deposited, subject to production of certified copy of the order, with a one-month timeline for refund. Ratio vs. Obiter: Ratio - Where proceedings are quashed as not in accordance with the statutory scheme, deposits made in pursuance of those proceedings shall be refunded within a specified time frame. Observations on procedure for refund are consequential to the primary holding. Conclusion: Amounts deposited under the impugned proceedings must be refunded within one month from production of a certified copy of the order. Disposition and Overall Conclusion The Court dismissed the writ petitions challenging the impugned orders to the extent consistent with the foregoing legal conclusions, holding that the proper statutory course for unrecorded/excess stock discovered on survey is under section 35(6) read with sections 73/74, and not under section 130; deposits made under the invalidly-invoked regime are to be refunded as ordered.