Goods cannot be conficated under GST Law if Excess Stock is Found During Survey: HC

The present writ petition (WRIT TAX No. 5577 of 2025), dated November 4, 2025, has been filed by a company named M/S Ganga Brick Field Umraipurwa/Gangamau (Petitioner) against the Additional Commissioner Grade-2 and Another (Respondent) in the High Court of Allahabad. The bench announcing the final decision comprised Honourable Justice Piyush Agarwal. The petitioner challenged orders dated July 31, 2025, and October 15, 2024, passed by the respondents.

Background of Case:

A survey was conducted at the business location of the petitioner on May 27, 2024. In conclusion to the survey conducted, the tax authority started proceedings against the petitioner under section 130/122 of the GST Act. On this, the petitioner said that the proceedings on the present matter should have been started under sections 73/74 of the GST Act and not under section 130/122 of the said Act. Hence, the proceedings are liable to be quashed.

To support its point, the petitioner also cited an earlier judgement of this present court, titled M/s Vijay Trading Company vs. Additional Commissioner and Another [Writ Tax No. 1278/2024, decided on 20.08.2024], which has also been confirmed by the Apex Court in Additional Commissioner, Grade – 2 & Another vs. M/s Vijay Trading Company [Special Leave Petition (Civil) Diary No. 5881/2025, decided on 04.04.2025].

Further submitted, this court has also used the aforesaid judgement to announce the decision in the case of the State of U.P. and Another vs. Additional Commissioner & Another [Writ Tax No. 1116/2023, decided on 12.05.2025].

Court’s Findings and Decision:

The aggrieved assessee took the matter before the Allahabad High Court. When the court analysed the arguments of both sides, it admitted that the survey was conducted at the business location of the petitioner and some discrepancies were found, based on which proceedings were initiated under section 130, read with section 122, of the GST Act.

Section 35 of the GST Act says companies registered under the GST Act are required to have a principal place of business and a true and correct account of things as specified in clauses (a) to (f). Sub-section (6) of section 35 of the GST Act, and is required to be maintained under the said section.

If a registered person fails to properly record any goods as required under this section, then, as per sub-section (6), the tax officer (Proper Officer) can calculate and demand the tax on those unaccounted goods.

In doing so, the officer will follow the same procedure given under Sections 73 or 74 of the GST Act, which are used for determining tax in cases of non-payment, short payment, or wrongful input tax credit, depending on whether there was fraud or not.

The GST Act clearly states that if goods are not properly recorded in the books of accounts, the Proper Officer must take action under Sections 73 or 74 of the Act. Since these sections already cover such situations, Section 130 of the GST Act cannot be applied in these cases.

The court held that proceedings under section 130 of the GST Act cannot be put to service in case excess stock is found at the time of survey.

In view of the aforementioned findings, the court ruled that the impugned orders cannot be upheld under the provisions of GST. Hence, quashed both the impugned orders. Meaning, overall, the petition has been allowed. Respondents have been directed to refund any amount deposited by the petitioner at the time of proceedings.