Confiscation of Excess Stock is Impermissible; Regular Assessment is the Correct Path.

Confiscation of Excess Stock is Impermissible; Regular Assessment is the Correct Path.

Issue

Can the GST authorities resort to the harsh measure of confiscating goods under Section 130 for an alleged excess of stock found during a survey of a business premise, or is the proper legal recourse limited to initiating assessment proceedings under Section 73 or Section 74 to determine any unpaid tax?

Facts

• Tax authorities conducted a survey at the petitioner’s place of business.
• During the survey, the stock quantity was not determined by actual weighment but was assessed through “eye estimation.”
• Based on this estimation, authorities alleged that there was excess stock and initiated confiscation proceedings under Section 130 of the CGST Act.
• The Deputy Commissioner passed a confiscation order, which was subsequently upheld by the appellate authority.
• The petitioner challenged both these orders before the High Court.

Decision

• The High Court quashed both the original confiscation order and the appellate order.
• The court held that the issue was squarely covered by a binding precedent in the case of Vijay Trading Company v. Additional Commissioner, a decision which has been affirmed by the Supreme Court.
• It ruled that invoking confiscation proceedings under Section 130 for discrepancies like excess stock found at the declared business premises is impermissible.
• The correct and lawful procedure in such a scenario is to determine the tax liability, if any, through the regular assessment mechanisms provided under Section 73 (for non-fraud cases) or Section 74 (for fraud cases).

Key Takeaways

• Section 130 is Not for Stock Discrepancies: Confiscation is an extreme measure intended for specific, severe violations (like goods in transit without documents) and cannot be used for discrepancies in stock found at a registered business premise.
• Assessment is the Proper Route: When authorities suspect that excess stock represents unaccounted purchases or potential tax evasion, they must follow the due process of assessment under Sections 73 or 74, which involves issuing a show-cause notice and determining the tax, interest, and penalty.
• Binding Supreme Court Precedent: The Supreme Court’s affirmation of this legal position makes it a settled principle of law, providing significant relief to businesses against arbitrary confiscation actions.
• Proper Verification is Essential: The fact that the stock was assessed by “eye estimation” further weakened the department’s case, highlighting the need for proper, evidence-based verification methods.