Confiscation Proceedings under Section 130 Cannot be Initiated for Allegations Regarding Excess Stock

By: Admin | September 26, 2024 | Categories: Important Pronouncements | 4 Min Read

In a significant ruling, the Hon’ble Allahabad High Court in the case of Shree Om Steels v. Additional Commissioner and Ors. [Writ Tax No. 1007 of 2022 dated July 19, 2024], held that confiscation proceedings under Section 130 of the Central Goods and Services Tax Act (“CGST Act”) cannot be initiated solely on the basis of excess stock found during a survey. Instead, the tax demand must be quantified under Section 73 or 74 of the CGST Act.

Case Facts:

M/s. Shree Om Steels (“the Petitioner”) challenged the orders passed by the Assistant Commissioner and the Additional Commissioner (Appeals) regarding the confiscation of goods based on excess stock found during a survey under Section 67 of the CGST Act. The authorities had issued notices under Section 130, claiming excess stock and imposing tax and penalties. The Petitioner contended that the proper course would have been to initiate proceedings under Section 73 or 74 to quantify the tax demand before pursuing confiscation.

Issue:

The key issue in this case was whether confiscation proceedings under Section 130 of the CGST Act can be initiated based solely on allegations of excess stock discovered during a survey.

Held:

The Allahabad High Court, relying on the judgment in Maa Mahamaya Alloys (P.) Ltd. v. State of U.P. [Writ Tax No. 31/2021], held that even if excess stock is found, the tax demand must first be assessed and quantified under Section 73 or 74 of the CGST Act. Confiscation proceedings under Section 130 cannot be initiated without this process.

The court allowed the writ petition, setting aside the Impugned Orders and ruling that the tax demand procedures must be followed before any confiscation actions.

Legal Context:

Section 130 of the CGST Act deals with the confiscation of goods or conveyances and the levy of penalties under certain conditions, such as the intent to evade taxes. However, for allegations of excess stock, the court clarified that the proper process involves quantifying the tax liability through Section 73 or 74, which govern the determination of tax not paid or short-paid.

Our Comments:

This ruling is in line with other decisions by the Allahabad High Court, including Banaras Industries v. Union of India and Ors. [Writ Tax No. 1233 of 2024] and Dinesh Kumar Pradeep Kumar v. Additional Commissioner and Ors. [Writ Tax No. 1082 of 2022], which held that Section 130 cannot be invoked in cases involving excess stock unless the tax demand is first assessed.

Key Takeaways:

• Proper Procedure: Tax demand must be quantified under Sections 73 or 74 before initiating confiscation under Section 130.
• Survey Limitations: Allegations based on excess stock discovered during surveys alone are insufficient for confiscation proceedings.
• Court Ruling: The court emphasized adherence to due process, ensuring taxpayer rights are protected.

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