Confiscation Proceedings u/s 130 Cannot Bypass Tax Determination u/s 73/74

Confiscation Proceedings u/s 130 Cannot Bypass Tax Determination u/s 73/74

Issue

Whether the GST authorities can initiate confiscation proceedings under Section 130 (alleging intent to evade tax due to breach of accounts/records requirements) and seize goods/recover amounts directly, without first determining the tax liability through the mandatory adjudication process under Section 73 or 74 of the CGST Act.

Facts

• The Action: The petitioner filed a writ petition challenging a Show Cause Notice (SCN) that proposed penalty and confiscation of goods/conveyances.

• The Allegation: The department alleged a “breach of accounts and records requirements” (violation of Section 35) as the basis for invoking the confiscation provisions.

• The Recovery: Consequent to the notice, a seizure order in Form GST INS-02 was issued, and a recovery of approximately Rs. 2.16 crores was sought from the petitioner.

• Petitioner’s Contention: The petitioner argued that the power to confiscate under Section 130 is an extreme measure that cannot precede the determination of tax liability. The department must first quantify the tax due under Section 73 (non-fraud) or Section 74 (fraud) before moving to confiscation. Direct invocation of Section 130 for bookkeeping discrepancies was argued to be without jurisdiction.

Decision

• The Allahabad High Court ruled in favour of the assessee and quashed the impugned confiscation notice and seizure order.

• Jurisdictional Defect: The Court held that the law is settled: confiscation proceedings under Section 130 cannot be initiated without a prior determination of tax under the specific “determination-of-tax provisions” (Sections 73 and 74).

• Incorrect Route: Discrepancies in accounts and records (Section 35) should primarily lead to assessment/adjudication proceedings to quantify the tax evaded. Jumping straight to confiscation (Section 130) without this step is procedurally incorrect and lacks jurisdiction.

• Intervention at SCN Stage: Although courts usually do not interfere at the Show Cause Notice stage, the Court warranted intervention here because the notice itself was found to be “without jurisdiction and law.”

• Liberty to Department: The Court granted liberty to the department to proceed in accordance with the law, implying they should issue fresh notices under Section 73 or 74 to determine the tax liability first.

Key Takeaways

• Section 130 is Not a Substitute for Assessment: Tax authorities cannot use the threat of confiscation to bypass the detailed adjudication process required to determine tax liability.

• Sequence of Proceedings: For irregularities like stock mismatches or accounting errors, the correct sequence is: Investigation → Notice u/s 73/74 → Adjudication Order → Recovery. Confiscation is a separate, graver proceeding for specific intent-based offences, not a tool for regular assessment.

• Writ Against SCN: A Show Cause Notice can be challenged in a Writ Petition if it suffers from a fundamental jurisdictional error (like invoking the wrong section), bypassing the statutory alternative remedy.