The Allahabad High Court ruled in favor of Vidyarthi Dresses in a case concerning the improper initiation of confiscation proceedings under the Goods and Services Tax (GST) laws. The case arose from a survey conducted on April 30, 2019, during which authorities claimed to have found excess stock and subsequently initiated confiscation proceedings under Section 130 of the GST Act. However, the petitioner argued that such excess stock should first be assessed for tax liability under Sections 73 or 74, as per Section 35(6), before any confiscation could be considered.
The court examined whether the authorities could initiate confiscation proceedings based solely on the discovery of excess stock without conducting a prior tax assessment. Citing multiple precedents, including those affirmed by the Supreme Court, the court determined that confiscation under Section 130 is not permissible without first establishing tax liability through the assessment procedures outlined in Sections 73 or 74.
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In its decision, the court quashed the confiscation orders from September 30, 2019, and October 24, 2024, and ordered that any deposits made by the petitioner in connection with these proceedings be refunded within one month. The ruling reinforces the legal requirement for tax assessment prior to confiscation and aligns with established precedents, thereby providing clarity on the procedural requirements under GST law.
Case Title: Vidyarthi Dresses v. State of U.P. & Ors.
Order Date: 17 November 2025
Facts
- During a survey on 30.04.2019, authorities claimed to find excess stock and directly initiated Section 130 confiscation proceedings.
- No determination of tax liability under Sections 73 or 74 was made prior to issuing the confiscation notice.
- The petitioner argued that excess stock is governed by Section 35(6), and confiscation cannot be resorted to without assessment.
- Multiple High Court and Supreme Court-affirmed precedents (including Vijay Trading Co. and PP Polyplast) were cited showing confiscation cannot be invoked at the threshold.
Issue
- Whether confiscation under Section 130 can be initiated solely on the basis of excess stock found during survey without prior tax assessment under Sections 73 or 74?
Order
- The Court held that unaccounted or excess stock must be adjudicated strictly through Sections 73/74, as mandated by Section 35(6).
- Invocation of Section 130 without such assessment is legally impermissible.
- Past precedents binding on the department reaffirm the same principle.
- The orders dated 30.09.2019 and 24.10.2024 were quashed, and any deposit made by the petitioner must be refunded within one month.
- Writ petition allowed.
