Confiscation Under Section 130 for Excess Stock Invalid; Section 73/74 Proceedings Are Applicable
Issue:
Whether proceedings for confiscation of goods and vehicles and levy of penalty under Section 130 of the Central Goods and Services Tax Act, 2017 (CGST Act), are maintainable merely on the finding of excess stock, or if such cases should be dealt with under the demand provisions of Section 73 or 74 of the CGST Act.
Facts:
The petitioner filed a writ petition challenging an order passed by respondent no. 2 and another order passed by respondent no. 3, both issued under Section 130 of the GST Act, which deals with confiscation of goods or conveyances and levy of penalty. The petitioner contended that the issue at hand was squarely covered by a previous decision of the same High Court in Dinesh Kumar Pradeep Kumar v. Additional Commissioner and by the Supreme Court’s decision in Additional Commissioner v. Dinesh Kumar Pradeep Kumar [SLP (Civil) Diary No. 5879 of 2025, dated 17-4-2025]. In these precedents, it was held that if excess stock is found, proceedings under Section 73 and 74 of the UPGST Act (or CGST Act) would come into play, and proceedings under Section 130 of the GST Act could not be initiated.
Decision:
The court ruled in favor of the assessee. For the reasons recorded in the Dinesh Kumar Pradeep Kumar case (supra), the instant writ petition was allowed. The impugned order passed by respondent no. 2, as well as the impugned order passed by respondent no. 3 under Section 130 of the GST Act, were quashed.
Key Takeaways:
- Section 130 (Confiscation) vs. Sections 73/74 (Demand): This judgment draws a critical distinction between the circumstances under which Section 130 (confiscation and penalty) can be invoked and those under which demand proceedings under Section 73 (tax not involving fraud) or Section 74 (tax involving fraud) are appropriate.
- Excess Stock: The core principle established is that the mere finding of “excess stock” does not automatically trigger confiscation under Section 130. Instead, it typically indicates that there might be a supply on which tax has not been paid, and therefore, it should be dealt with under the regular demand and recovery provisions (Sections 73 or 74) where tax, interest, and penalty can be determined.
- Purpose of Section 130: Section 130 is generally intended for more serious violations involving willful evasion, non-accounted goods during transport, or goods liable to confiscation for specific offenses. Simply having excess stock that might lead to a tax liability is not sufficient for invoking Section 130.
- Binding Precedent: The court heavily relied on its own previous decision and the Supreme Court’s affirmation in the Dinesh Kumar Pradeep Kumar case, underscoring the importance of judicial consistency and following higher court pronouncements.
- Quashing of Confiscation Orders: The direct consequence is that orders of confiscation and penalty passed solely based on the finding of excess stock under Section 130 are liable to be quashed.
- Favor of Assessee: The decision is significantly in favor of the assessee, protecting them from the harsher consequences of confiscation and allowing the matter to be dealt with under the less stringent demand provisions.