Excess Stock? No GST Confiscation, Court Limits Action to Sections 73/74

In a case examining the boundary between tax irregularity and criminal liability, the petitioner company challenged the confiscation of goods and penalties imposed under Section 130 of the CGST Act, which is typically invoked in instances of tax evasion, smuggling, or fraudulent intent. During an inspection, authorities found excess stock in the petitioner’s premises and proceeded to initiate confiscation proceedings under Section 130. The petitioner approached the High Court, contending that the action was excessive and unsupported by legal precedent, particularly as the issue involved stock discrepancies, not fraudulent conduct.

Issue Raised: Whether the mere presence of excess stock during inspection justifies the initiation of confiscation proceedings under Section 130 of the CGST Act, which presupposes intent to evade tax.

HC’s Decision: The petitioner relied on the ruling in M/s Dinesh Kumar Pradeep Kumar v. Addl. Commissioner, where the court determined that the discovery of excess stock alone cannot trigger Section 130 confiscation procedures. Sections 73 or 74 should be used to handle cases that address underpayment or improper use of tax credits rather than criminal misconduct. The Court was informed that this very ruling had already been upheld by the Hon’ble Supreme Court in SLP (C) Diary No. 5879/2025 on 17.04.2025. With this binding precedent in hand and no counter affidavit filed by the State despite prior opportunity, the Court had no hesitation in declaring the action of the authorities as legally untenable. The High Court quashed all impugned orders, specifically dated 27.07.2022, 03.01.2023, and 27.11.2024, passed under Section 130, and allowed the writ petition. It further directed that any amount already deposited by the petitioner be refunded in accordance with the law.