The Allahabad High Court has ruled that confiscation proceedings under Section 130 of the GST Act are not valid when excess stock is found during a survey. Instead, the court stated that such situations should be addressed under Sections 73 or 74 of the GST Act, which deal with tax determination on unrecorded goods. This decision was made in the case of State of U.P. v. M/s S.M.M. Infratech Pvt. Ltd. and related matters, where the business premises of the respondents were surveyed, revealing discrepancies and excess stock.
The authorities initially proceeded with penalties and confiscation under Sections 130 and 122, prompting the assessees to argue that these actions were inappropriate. They cited Section 35(6) of the GST Act, which specifies that any tax on unrecorded goods should be determined through the assessment procedures outlined in Sections 73 or 74, not through confiscation under Section 130.
Read More: GST – Allahabad High Court: No penalty under Section 129(3) for technical lapse from non-filling of Part B of the e-way bill [Order attached]
The court agreed with the assessees, referencing previous cases like Vijay Trading Co. and PP Polyplast Pvt. Ltd., which supported the interpretation that Section 130 is not applicable when only excess stock is found. Consequently, the court set aside the impugned orders under Section 130 and ordered refunds of any deposits made by the respondents pursuant to those orders. Additionally, all connected writ petitions were dismissed, reinforcing the legal position that Section 130 cannot be invoked in cases of excess stock detection.
Order date: 10 Nov 2025
Parties: State of U.P. v. M/s S.M.M. Infratech Pvt. Ltd. & connected matters
Facts –
- The respondents’ business premises were surveyed on 01.09.2022, during which excess stock and discrepancies were allegedly found.
- Based on this, proceedings were initiated under Sections 130 and 122 of the GST Act, 2017, resulting in penalty and confiscation orders.
- The assessees argued that, as per Section 35(6) of the GST Act, where goods are not properly recorded, the proper officer must proceed under Sections 73 or 74, not Section 130.
Issue –
- Whether proceedings under Section 130 of the GST Act can be invoked when excess stock is detected during a survey, or whether the proper course is assessment under Sections 73/74?
Order –
- The Court reiterated that Section 35(6) mandates determination of tax on unrecorded goods through Sections 73/74, making invocation of Section 130 legally unsustainable.
- Citing Vijay Trading Co. and PP Polyplast Pvt. Ltd., the Court affirmed that Section 130 cannot be used where only excess stock is found; the Act prescribes a complete code under Sections 73/74 for such situations.
- The impugned orders under Section 130 were therefore set aside, and the respondents were held entitled to refunds of any deposits made pursuant to those orders within one month.
- All connected writ petitions were dismissed, upholding the earlier legal position and barring use of Section 130 in such cases.
