Excess Stock Case: Allahabad High Court Quashes GST Orders Issued Under Wrong Provision

The GST department has surveyed the business location of a company and found excess stock there, hence it started proceedings against the company under section 130 of the GST Act. The department passed orders imposing penalties, tax, and interest demand on the company. When approached to the High Court, the Allahabad High Court quashed the GST order passed under the wrong provision and allowed the writ petition.

The case has been filed by a company named M/S Shri Balaji Concast Unit Ii Private Limited, in the Allahabad High Court, challenging orders August 21, 2018, and July 20, 2022, passed by the tax authorities.

On March 19, 2018, a survey was conducted at the business location of the company by the GST department officials under section 67 of the GST Act, where the officials confiscated goods of the company. Thereafter, the authority passed an order against the company directing the company not to make any sales or purchases. After that, the authority issued a notice to the company on August 02, 2018, mentioning the details of the applicable penalties and tax on the company. The company furnished a detailed reply to the notice. The tax authority did not accept the reply of the company and passed the final order on August 21, 2018, confirming the proposed penalties and tax demand in the notice, additionally imposing interest on the company.

The aggrieved company, thereafter, filed an appeal before the lower authorities, where they partly allowed the appeal of the company through an order passed on July 20, 2022, which reduced the imposed amount of penalty and tax. The company claimed that the proceedings under the section
130 of the GST Act were wrongly started against the company; the correct proceedings should be held under section 73/74 of the GST Act. To support its claim, the company also cited an earlier judgment of the same court titled M/s Vijay Trading Company Vs. Additional Commissioner & Another [Writ Tax No. 1278/2024, decided on 20.08.2024].

When the court heard the arguments of both sides, it noted that in real survey was conducted at the business location of the company and excess stock was found, which ultimately led to the beginning of the present proceedings against the company. In several earlier judgments of this court, the judges have ruled that in the case of excess stock, proceedings should be begun under sections 73/74 of the GST Act and not under section 130 of the GST Act, read with rule 120 of the Rules framed under the Act. Therefore, in the final decision, the court allowed the petition and quashed the impugned orders.