Section 130 invoked after tax, interest and penalty paid under section 74a

[Diksha Sabarwal]

Hi Experts,

Assessee paid taxation, interest and penalty(100c/o) under section 74A and the seized goods were released after payment on valuations approved by GST Department DGGI. Now next day after the release SCN was raised and confiscation was asked under section 130 and asking to pay penalty under section 122 for non recording of books. Just to heads up, no clandestine sales were found and only excess stock was found on which the liability was discharged under section 74A.

Please share your opinion on the same matter And if possible some relevant case laws so that department view can be challenged.

[Sanjeev Agarwal]

The assessee appears to have a strong case against the subsequent proceedings under Sections 130 and 122.

The key argument should not merely be that tax, interest and penalty have already been paid. The stronger argument is that the same excess-stock issue was investigated and quantified by DGGI, valuation was accepted, liability was discharged under Section 74A, and the goods were thereafter released.

Section 35(6) specifically deals with goods which are not accounted for and provides for determination of the applicable tax liability. The Allahabad High Court has consistently held that mere excess/unaccounted stock cannot, by itself, justify confiscation under Section 130.

Relevant decisions include:

• Dinesh Kumar Pradeep Kumar v. Additional Commissioner (Allahabad HC, 25.07.2024) - Section 130 proceedings relating to excess stock were quashed; subsequently affirmed at the Supreme Court stage.

• Vijay Trading Company v. Additional Commissioner (Allahabad HC, 20.08.2024) - Section 130 cannot be used as an alternative mechanism for determining tax on excess stock.

• J.H.V. Steels Ltd. v. Union of India (Allahabad HC, 24.10.2024) - excess stock alone does not justify Section 130; where Section 130(1)(iv) is invoked, intent to evade tax must be established.

• Maa Mahamaya Alloys Pvt. Ltd. - similar view concerning excess stock and Section 130.

The fact that the Section 130 SCN was issued immediately after release of the goods is also significant. If there was no fresh material or discovery, the Department should explain what independent statutory trigger arose after the liability had already been quantified and discharged.

The absence of clandestine sales, suppressed outward supplies, parallel invoices or other evidence of actual tax evasion materially strengthens the assessee's case, particularly against any allegation of intent to evade.

The proposed Section 122 penalty should also be challenged separately. The SCN should identify the exact clause, specific contravention and supporting evidence. Mere excess stock/non-recording should not automatically result in another penalty when the same factual issue has already been dealt with under Section 74A.

Conclusion: The strongest defence is that Section 130 cannot be used merely to re-characterise the same excess-stock discrepancy after liability has already been determined and discharged under Section 74A, particularly when the investigation found no clandestine sales or independent evidence of tax evasion.

AI Summary

Excess stock confiscation requires independent evidence of tax evasion where liability has already been discharged and goods released.
GST confiscation proceedings under Section 130 may be challenged where excess or unaccounted stock has already been investigated, valued, subjected to tax, interest and penalty under Section 74A, and released. Mere excess stock is insufficient by itself to support confiscation, and an alleged intent to evade tax requires supporting evidence. A subsequent confiscation notice requires an independent statutory basis where no fresh material has emerged. Any additional penalty for non-recording of stock must identify the precise contravention and supporting evidence.