Penalty Proceedings Under Section 130 of CGST Act Cannot Be Initiated for Excess Stock: Allahabad HC
The Allahabad High Court has clarified that penalty proceedings under Section 130 of the Central Goods and Services Tax Act, 2017 (CGST Act), cannot be initiated solely based on excess stock. Instead, tax authorities must proceed under Sections 73 or 74 when there is prima facie evidence of discrepancies.
Case Overview
- Case Name: PP Polyplast (P.) Ltd. v. Additional Commissioner Grade 2
- Decision Date: July 30, 2024
- Key Issue: Can excess stock justify penalty proceedings under Section 130 of the CGST Act?
Key Facts
- Survey Findings:
A survey at the premises of PP Polyplast (P.) Ltd. revealed alleged excess stock, though no actual weighment was conducted. - Department’s Action:
The Revenue Department initiated penalty proceedings under Section 130, alleging excess stock. - Petitioner’s Argument:
The company argued that proceedings should occur under Sections 73 or 74 to determine tax liability and penalties, making the current action unsustainable.
Court’s Findings
1. Improper Use of Section 130
- Section 130 penalties require evidence of intent to evade tax or deliberate contravention of the Act’s provisions.
- Excess stock alone does not demonstrate such intent.
2. Reliance on Precedents
- The Court referred to Dinesh Kumar Pradeep Kumar v. Additional Commissioner Grade 2, which established that initiating Section 130 proceedings without invoking Sections 73 or 74 is unsustainable.
3. Tax Liability at Supply Point
- Tax liability arises at the time of supply, not before. Excess stock identified during surveys does not constitute a violation under Clause (ii) or (iv) of Section 130(1).
4. Lack of Intent to Evade Tax
- Penalties under Clause (iv) of Section 130 require proof of intentional contravention, which was absent in this case.
Conclusion
The Allahabad High Court quashed the penalty proceedings initiated under Section 130 and directed the Revenue Department to follow Sections 73 or 74, if necessary. This ruling reaffirms the need for clear evidence of intent to evade tax before invoking severe penalty provisions.
Implications
- For Businesses: Prevents arbitrary penalties based on stock discrepancies without proper investigation.
- For Tax Authorities: Reinforces adherence to procedural fairness in assessing tax liabilities.
- For GST Law: Strengthens the principle of due process in imposing penalties.
