Confiscation Under Section 130 Invalid for Excess Stock Found During Survey; Proceedings Must Follow Section 73/74
Issue
Whether the GST authorities can initiate confiscation and penalty proceedings under Section 130 of the CGST Act solely on the basis of “excess stock” found during a survey, or if they are mandatorily required to determine the tax liability under the adjudication mechanisms of Section 73 or 74.
Facts
A survey was conducted at the assessee’s registered business premises.
During the survey, the authorities recorded discrepancies in the stock and accounts, specifically alleging the presence of unaccounted/excess stock.
Based on these survey findings, the department initiated proceedings for confiscation of goods and levy of penalty under Section 130 and passed an order confirming the same.
The assessee challenged this order, arguing that for any goods not accounted for in the books, the statute mandates the determination of tax under Section 73 or 74 (demand/assessment provisions), and invoking the harsh confiscation provisions of Section 130 was impermissible.
The State did not dispute that the entire action stemmed from the discrepancies found during the survey.
Decision
The High Court ruled decisively in favour of the assessee.
Section 130 Inapplicable: It held that proceedings under Section 130 cannot be invoked merely because excess stock is found during a survey.
Mandatory Route via Section 73/74: The Court relied on Section 35(6) of the CGST Act, which specifically mandates that if a registered person fails to account for goods, the proper officer shall determine the tax payable on such goods under Section 73 or Section 74.
Supreme Court Precedents: The Court cited the binding judgments of the Supreme Court in Additional Commissioner v. Vijay Trading Company [2025] and Additional Commissioner v. PP Polyplast Private Limited [2025]. These judgments categorically held that Section 130 confiscation proceedings cannot be put to service for excess stock found at the time of a survey.
Order Quashed: Since the department failed to follow the specific statutory route prescribed for unaccounted stock, the impugned confiscation order was quashed, and the amount deposited by the assessee was ordered to be refunded.
Key Takeaways
Stock Discrepancies are Assessments, Not Confiscations: Finding excess stock implies that goods were not recorded in the books (violation of Section 35). The remedy for this is to demand the tax not paid (Section 73/74), not to confiscate the goods (Section 130).
Intent vs. Omission: Section 130 is a penal provision generally reserved for cases with a clear intent to evade tax or serious contraventions (like transporting goods without documents). It is not the default tool for stock mismatches found during surveys.
Binding Law: The 2025 Supreme Court rulings in Vijay Trading and PP Polyplast have settled this issue: authorities cannot bypass the assessment procedure to directly confiscate excess stock.
Refund of Deposits: Any tax or penalty collected under an invalid Section 130 order in such cases must be refunded to the taxpayer.