The Allahabad High Court has ruled that excess stock found during a survey cannot lead to confiscation under Section 130 of the CGST Act. Instead, the appropriate procedure is to assess tax liability under Sections 73 or 74. This decision came in the case between M/s Harilaxmi Alloys Pvt. Ltd. and the State of Uttar Pradesh, where a survey conducted in December 2018 revealed excess stock at the petitioner’s premises, determined by eye estimation rather than actual measurement. Consequently, proceedings were initiated under Section 130, leading to an order imposing tax and penalties. This order was upheld on appeal in November 2021.
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The petitioner contested the use of Section 130, arguing that only Sections 73 or 74 should apply, citing the precedent set in Vijay Trading Company v. Addl. Commissioner, which was affirmed by the Supreme Court. The High Court agreed, referencing previous rulings that excess stock, especially when not accurately weighed, does not justify confiscation under Section 130. The court quashed the original and appellate orders imposing tax and penalties, and instructed that any deposits made by the petitioner be refunded according to the law. This ruling reinforces the legal stance that proper adjudication under Sections 73 or 74 is necessary when excess stock is identified without precise measurement.
Order date: 27 Aug 2025
Parties: M/s Harilaxmi Alloys Pvt. Ltd. v. State of U.P. & Ors.
Facts -
- On 11.12.2018, a survey was conducted at petitioner’s premises and excess stock was found, measured only by eye estimation rather than actual weighment.
- Based on this, proceedings under Section 130 CGST Act (confiscation) read with Section 122 were initiated, resulting in order dated 23.06.2020 imposing tax and penalty. Appeal was dismissed on 30.11.2021.
- Petitioner argued Section 130 was wrongly invoked; only Section 73/74 proceedings could be initiated. Reliance was placed on Vijay Trading Company v. Addl. Commissioner (All HC, 20.08.2024), affirmed by the Supreme Court.
Issue -
- Whether initiation of proceedings under Section 130 is valid when excess stock is found during survey, or whether action should lie only under Sections 73/74?
Order -
- The single bench of the Hon’ble High court held that excess stock detected in survey cannot justify confiscation under Section 130; the only valid recourse is adjudication of tax liability under Sections 73/74.
- The issue is settled by earlier rulings (Dinesh Kumar Pradeep Kumar, Vijay Trading Co.), with SC also affirming this view. Since stock was not properly weighed and only eye-estimated, reliance on Section 130 was legally unsustainable.
- Impugned appellate order dated 30.11.2021 and original order imposing tax/penalty under Section 130 were quashed; any deposit made by petitioner to be refunded in accordance with law.
