2025 (11) TMI 826 - HC - GST

Section 130 inapplicable for unaccounted excess stock; tax must be assessed under Sections 73, 74 and Section 35(6)

HC held that proceedings under Section 130 of the GST Act were improperly invoked after a survey disclosed unaccounted excess stock; the proper route for ... Validity of proceedings initiated u/s 130 of the GST Act - Excess unverified stock was found on the basis of survey proceeding under Section 130 read with Section 122 of GST Act - Whether proceedings u/s 130 of the GST Act could not have been initiated against the petitioner, rather, proceedings u/s 73/74 of the GST Act to be initiated? - HELD THAT:- Admitted, the business premise of the petitioner was suryed in which certain discrepancies were alleged to have been found and on the basis of the same, proceeding under Section 130, read with Section 132, of the GST were initiated against the petitioner. Section 35 of the Act clearly provides that every registered person are required to keep and maintain at the principal place of business true and correct account of things as specified in Clause (a) to (f). Sub section 6 of Section 35 of GST Act contemplates that if the registered dealer fails to account for the goods in accordance with the provisions of sub Section 1, the proper official shall determine the amount of tax payable on such goods that are not accounted for by such person and the provision of Section 73/35 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 provisions of Section 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 proceeding under Section 130 of the GST Act cannot be put to service in case excess stock is found at the time of survey. The impugned order cannot be sustained in the eyes of law. The same is hereby quashed - Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether proceedings under Section 130 (penalty for confiscation and penalty) of the GST Act are maintainable where excess/unaccounted stock is detected during a survey/inspection of business premises, or whether Sections 73/74 (determination of tax and penalty for non/short payment and fraud/intentional evasion) are the exclusive provisions to be invoked in such circumstances. 2. Whether the statutory scheme and specific provisions of the GST Act, particularly Section 35(6) read with Sections 73/74, preclude initiation of proceedings under Section 130 when goods are not recorded in the books of account. 3. Whether the impugned order initiating proceedings under Section 130 (read with Section 132) is liable to be quashed where judicial precedent has held Section 130 inapplicable to excess stock found on survey and such precedent has been affirmed by a higher court. ISSUE-WISE DETAILED ANALYSIS Issue 1: Maintainability of proceedings under Section 130 where excess/unaccounted stock is found on survey Legal framework: Section 130 of the GST Act deals with confiscation, seizure and penalty where goods are liable for confiscation or property bears tax evasion attributes; Sections 73/74 govern determination of tax and imposition of penalty where tax is not paid or short paid, including cases of fraud or wilful misstatement. Section 35(1) requires registered persons to maintain prescribed accounts; Section 35(6) empowers the proper officer to determine tax on goods not accounted for and prescribes application of Sections 73/74 mutatis mutandis. Precedent Treatment: The Court relied on a prior decision of the High Court holding that Section 130 cannot be invoked for excess stock found during survey; that High Court judgment was affirmed by the Apex Court. The present Court follows and applies that precedent. Interpretation and reasoning: The Court reasons that the GST Act is a complete code; where the statute prescribes a specific mechanism (Section 35(6) directing recourse to Sections 73/74 for unrecorded goods), that specific scheme must be followed and cannot be supplanted by invoking Section 130. The existence of an express provision addressing unaccounted goods indicates legislative intent that tax determination and penalties for such facts be governed by Sections 73/74 rather than Section 130. Ratio vs. Obiter: The holding that Section 130 is not available where excess/unaccounted stock is found on survey is treated as ratio decidendi of the Court, being the central legal conclusion applied to quash the impugned order. Any observation about the completeness of the Code and requirement to follow specific provisions is part of the ratio supporting that conclusion. Conclusion: Proceedings under Section 130 cannot be initiated merely on the basis of excess/unaccounted stock detected during a survey; the proper course is to proceed under Sections 73/74 as mandated by Section 35(6). Issue 2: Effect of Section 35(6) and the statutory scheme on choice of provision to be invoked Legal framework: Section 35(6) expressly contemplates action when registered dealers fail to account for goods, directing the proper officer to determine tax payable on such unaccounted goods and to apply the provisions of Sections 73/74 mutatis mutandis. The GST Act's nature as a self-contained code is emphasised. Precedent Treatment: The Court treats earlier High Court and affirmed Apex Court rulings as controlling authorities that interpret Section 35(6) to mandate Sections 73/74 for unaccounted goods, thereby displacing reliance on Section 130 for such situations. Interpretation and reasoning: The Court interprets the express statutory scheme to require adherence to the procedure in Sections 73/74 for tax determination on unrecorded goods; because the Act provides a specific remedial path, resort to Section 130 would be contrary to the text and scheme of the statute. The determination follows statutory construction principles favouring specific provisions over general ones where the statute so provides. Ratio vs. Obiter: The conclusion that Section 35(6) precludes the use of Section 130 in cases of unaccounted goods is part of the operative ratio; ancillary remarks on the Act being a complete code are supportive reasoning rather than mere obiter. Conclusion: Section 35(6), read with Sections 73/74, exclusively governs tax determination and consequent proceedings for goods not recorded in books; invoking Section 130 in place of Sections 73/74 is impermissible under the statutory scheme. Issue 3: Quashing of impugned order where Section 130 proceedings were initiated and relevant precedent has been affirmed Legal framework: Judicial review of administrative action and adherence to statutory procedure; power of the Court to quash orders made without legal basis. Precedent Treatment: The Court applies its own prior decision, which has been affirmed by the Apex Court, holding that Section 130 is not the correct provision where excess stock is found on survey. That precedent is treated as binding for the facts at hand and followed by the Court. Interpretation and reasoning: On facts admitted in the record (survey found discrepancies; proceedings under Section 130 read with Section 132 were initiated), the Court finds that initiation under Section 130 was inappropriate in law. Given the controlling precedent and statutory direction to proceed under Sections 73/74, the impugned order cannot be sustained. Ratio vs. Obiter: The quashing of the impugned order is the direct application of the ratio that Section 130 is inapplicable to excess stock found on survey; the order quashing is a consequential and operative remedy flowing from that ratio. Conclusion: The impugned order initiating proceedings under Section 130 (read with Section 132) is quashed as legally unsustainable; the writ petition is allowed and the authority is directed to refund any deposited amount with interest at 4% per annum from deposit date until refund, to be paid within two months of production of a certified copy of the order. Cross-references See Issue 1 and Issue 2 for the statutory basis and reasoning precluding the invocation of Section 130 where excess/unaccounted stock is found on survey; Issue 3 applies those principles to quash the impugned order in the present proceedings.