Allahabad HC: Excess Stock Found in Survey Cannot Trigger GST Confiscation Proceedings Under Section 130

A batch of writ petitions were filed by the State of Uttar Pradesh challenging orders passed by the Additional Commissioner (Appeals), who had set aside proceedings started against the respondent-dealers under Section 130 read with Section 122 of the GST Act. The proceedings began after a survey conducted on 01.09.2022 at the respondents’ business premises, which revealed alleged excess stock amongst other discrepancies. But the Revenue Department, instead of proceeding under Sections 73 or 74, used the confiscation powers under Section 130.

The respondents argued that this approach was contrary to the statutory scheme, as Section 35(6) mandates that unaccounted goods must be subjected to tax determination strictly under Sections 73/74.

Question of Law: Whether excess stock found during a survey can justify invoking confiscation proceedings under Section 130 of the GST Act instead of tax determination under Sections 73/74.

HC Ruled: The High Court held that the statutory scheme leaves no ambiguity: where goods are unaccounted for, Section 35(6) expressly requires the Proper Officer to determine tax liability under Sections 73 or Section 74, as the case may be. Section 130 cannot be invoked merely because excess stock was found during a survey. The Court reaffirmed that the GST Act is a complete code and that its specific procedural mechanism cannot be bypassed.

Relying on the binding precedents in Vijay Trading Company and PP Polyplast Pvt. Ltd., both affirmed by the Supreme Court, the Court dismissed all writ petitions filed by the State. Directions were also passed that any amount deposited by the respondents during the impugned proceedings, which must be refunded within one month from the date the certified order is produced.

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