Excess stock found during survey attracts Section 73/74 demand, not Section 130 confiscation

Issue

Whether the revenue authorities can invoke the confiscation provisions under Section 130 of the CGST Act solely on the basis of excess or unaccounted stock found at the business premises during a survey, or if they are mandated to proceed under Section 73/74.

Facts

Survey Operation: The revenue authorities conducted a survey at the petitioner’s business premises.
Discrepancy Found: The survey allegedly revealed a quantity of excess or unaccounted stock compared to the recorded books.
Confiscation Action: Based on this excess stock, Respondent No. 2 invoked Section 130 of the CGST Act and passed an order for confiscation.
Subsequent Order: Respondent No. 3 passed a subsequent order upholding the action against the petitioner.
Legal Challenge: The petitioner filed a writ petition challenging these orders, arguing that the invocation of Section 130 for stock found within the premises was legally unsustainable.

Decision

Statutory Mandate: The High Court examined Section 35 of the CGST Act, which mandates registered persons to maintain true and correct accounts.
Specific Mechanism: The Court highlighted Section 35(6), which specifically addresses determining tax liability for goods found unaccounted for at the principal place of business. This section explicitly mandates that provisions of Section 73 or Section 74 shall apply to determine the tax payable.
Misapplication of Law: Since the Act provides a specific mechanism (Section 73/74) for dealing with excess stock found during a survey/inspection, the general and harsher provision of confiscation under Section 130 cannot be invoked in such scenarios.
Orders Quashed: The impugned orders passed under Section 130 were quashed as they bypassed the mandatory procedure of adjudication under Section 73/74.
Refund Directed: The Writ Petition was allowed, and the Court directed that any amount deposited by the petitioner under the impugned orders be refunded within one month.

Key Takeaways

Section 35(6) Supremacy: For discrepancies in stock found at the business premises (not in transit), Section 35(6) clearly directs the officer to determine tax under Section 73 (non-fraud cases) or Section 74 (fraud cases), effectively barring the immediate use of confiscation under Section 130.

Confiscation vs. Adjudication: Confiscation under Section 130 is a severe measure generally reserved for cases with a clear intent to evade payment where goods are supplied or received in contravention of the Act. Mere excess stock in a warehouse primarily triggers a demand for tax and penalty, not seizure of the goods themselves.

Would you like me to draft a legal representation citing this judgment to object to a Show Cause Notice proposing confiscation of stock?

HIGH COURT OF ALLAHABAD

Siddhant Rana

Union of India

Sameer Jain, J.

CRIMINAL MISC. BAIL APPLICATION No. 36909 of 2025

NOVEMBER 7, 2025

Prem Narayan Singh and Ram Bahadur for the Applicant. Dhananjay Awasthi for the Respondent.

ORDER

1. Counter affidavit filed today on behalf of the Commissionerate (AntiEvasion) is taken on record.

2. Heard Sri Anil Kumar Srivastava, learned Senior Counsel assisted by Shri Ram Bahadur, learned counsel for the applicant and Sri Dhananjay Awasthi, learned counsel for the Commissionerate (Anti-Evasion).

3. The instant application has been filed seeking release of the applicant on bail in Complaint Case No.15890 of 2025, under Sections 132 (1)(b)(c)(d)(f)(1) of Central Goods and Service Tax Act, Police Station Hariparvat, District – Agra, during pendency of the trial in the court below.

4. Learned counsel for the applicant submits, as per allegation, applicant committed GST evasion on the basis of availment of ITC by creating fake firms but the entire allegations levelled against applicant are totally false and baseless.

5. He further submits, all the alleged offences are triable by Magistrate and all the alleged offences are punishable with maximum punishment of five years.

6. He next submits, even after investigation, complaint has been filed and, therefore, there is no need of further detention of the applicant in the present matter. He further submits, as the entire case of the Commissionerate (Anti-Evasion) is based on documentary evidence, therefore, there is no likelihood of early disposal of the trial.

7. He further submitted that applicant is not having any criminal history and he is in jail in the present matter since 18.06.2025.

8. Per contra, learned counsel for the Commissionerate (Anti-Evasion) vehemently opposed the prayer for bail and submitted that it is a GST evasion of about rupees 35 crore, but could not dispute the fact that applicant is having no criminal history and he is in jail since 18.6.2025 i.e. for the last more than five months and alleged offences are triable by Magistrate and all the offences are punishable with maximum punishment of five years.

9. I have heard learned counsel for the parties and perused the record of the case.

10. However, as per allegation, by fraudulent means, applicant committed GST evasion of more than about rupees 35 crore, but the alleged offences are triable by Magistrate and alleged offences are punishable with maximum punishment of five years.

11. Further, investigation in the case has been concluded and complaint has been made. Considering the fact that the entire case of Commissionerate (Anti-Evasion) is based on documentary evidence, this Court finds merit in the argument advanced by learned counsel for the applicant that the trial of the case will take considerable period of time.

12. Further, even after investigation, it appears there is no need of any further detention of the applicant.

13. The Apex Court in case of Ratnambar Kaushik v. Union of India (SC)/(2023) 2 SCC 671 enlarged the accused on bail considering the facts that prosecution case is based on documentary and electronic evidence and investigation has been completed and accused is in jail for four months and in paragraph no.8 the Apex Court observed as:-

“8. In considering the application for bail, it is noted that the petitioner was arrested on 21.07.2022 and while in custody, the investigation has been completed and the charge sheet has been filed. Even if it is taken note that the alleged evasion of tax by the petitioner is to the extent as provided under Section 132(1)(l)(i), the punishment provided is, imprisonment which may extend to 5 years and fine. The petitioner has already undergone incarceration for more than four months and completion of trial, in any event, would take some time. Needless to mention that the petitioner if released on bail, is required to adhere to the conditions to be imposed and diligently participate in the trial. Further, in a case of the present nature, the evidence to be tendered by the respondent would essentially be documentary and electronic. The ocular evidence will be through official witnesses, due to which there can be no apprehension of tampering, intimidating or influencing. Therefore, keeping all these aspects in perspective, in the facts and circumstances of the present case, we find it proper to grant the prayer made by the petitioner.”

14. The Apex Court recently in the case of Vineet Jain v. Union of India (SC)/MANU/SCOR/38321/2025 while granting bail to accused under the provisions of C.G.S.T. Act observed as:

“.The offences alleged against the appellant are under Clauses (c), (f) and (h) of Section 132(1) of the Central Goods and Services Tax Act, 2017. The maximum sentence is of 5 years with fine. A charge-sheet has been filed. The appellant is in custody for a period of almost 7 months.

The case is triable by a Court of a Judicial Magistrate. The sentence is limited and in any case, the prosecution is based on documentary evidence. There are no antecedents We are surprised to note that in a case like this, the appellant has been denied the benefit of bail at all levels, including the High Court and ultimately, he was forced to approach this Court. These are the cases where in normal course, before the Trial Courts, the accused should get bail unless there are some extra ordinary circumstances.”

15. Therefore, from the observation made by the Apex Court in case of Vineet Jain (supra) it reflects, ordinarily an accused should be released on bail for offence under Section 132(1) C.G.S.T. Act.

16. Further, applicant is not having any criminal history and he is in jail in the present matter since 18.06.2025.

17. Therefore, considering the facts and circumstances of the case discussed above, in my view applicant is entitled to be released on bail.

18. Accordingly, without expressing any opinion on the merits of the case, the instant bail application is allowed.

19. Let the applicant- Siddhant Rana be released on bail in the aforesaid case on furnishing a personal bond and two sureties each in the like amount to the satisfaction of the court concerned with the following conditions:-

(i)

The applicant shall appear before the trial court on the dates fixed, unless his personal presence is exempted.

(ii)

The applicant shall not directly or indirectly, make inducement, threat or promise to any person acquainted with the facts of the case so as to dissuade him from disclosing such facts to the Court or any police officer or tamper with the evidence.

(iii)

The applicant shall not indulge in any criminal and anti-social activity.

20. In case of breach of any of the above condition, the prosecution will be at liberty to move an application before this Court for cancellation of the bail of the applicant.

21. It is clarified that the observations made herein are limited to the facts brought in by the parties pertaining to the disposal of bail application and the said observations shall have no bearing on the merits of the case during trial.