2025 (1) TMI 519 - HC - GST

Permissibility of proceedings under Section 130 of the UPGST Act against a registered dealer when excess stock is found during a survey - HELD THAT - This Court on the various occasions has held that if the excess stock is found, the proceedings under Section 73 or 74 of the UPGST Act will come into play rather than under Section 130 of the UPGST Act read with Rule 122 of the UPGST Rule, 2017. This Court in the case of S/S Dinesh Kumar Pradeep Kumar 2024 (8) TMI 71 - ALLAHABAD HIGH COURT has held ' even if excess stock is found, the proceedings under section 130 of the UPGST Act cannot be initiated.' Conclusion - The proceedings under Section 130 are not applicable for cases of excess stock found during a survey and that proper tax determination procedures must be followed. The impugned orders cannot be sustained in the eyes of law and the same are hereby quashed - Petition allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether proceedings under Section 130 of the UPGST Act are permissible against a registered dealer when excess stock is found during a survey.
Whether the authorities should have proceeded under Sections 35(6), 73, or 74 of the UPGST Act instead of Section 130.
Whether the assessment and determination of tax and penalty under Section 130 are valid when based solely on a survey.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Appropriateness of Section 130 Proceedings

Relevant legal framework and precedents: Section 130 of the UPGST Act is typically invoked for confiscation of goods or conveyances and levy of penalty. The court referenced previous judgments, particularly the case of S/S Dinesh Kumar Pradeep Kumar, which clarified that Section 130 is not applicable for excess stock found during a survey.
Court's interpretation and reasoning: The court reasoned that excess stock should be addressed under Sections 73 or 74, which deal with determination of tax not paid or short paid due to reasons such as fraud or suppression of facts.
Key evidence and findings: The court noted that the survey conducted on the petitioner's premises alleged excess stock, but this alone did not justify proceedings under Section 130.
Application of law to facts: The court applied the legal principles from previous judgments to determine that the proceedings under Section 130 were inappropriate.
Treatment of competing arguments: The petitioner's argument that Section 130 was misapplied was upheld, while the respondent's defense of the proceedings was rejected.
Conclusions: The court concluded that the impugned order under Section 130 was unsustainable and should be set aside.

Issue 2: Correct Procedural Path for Tax Determination

Relevant legal framework and precedents: Sections 35(6), 73, and 74 of the UPGST Act provide the framework for maintaining accounts and determining tax liabilities, especially in cases of discrepancies like unaccounted goods.
Court's interpretation and reasoning: The court emphasized that tax determination and penalties should follow the procedures outlined in Sections 73 and 74, which require a proper assessment process.
Key evidence and findings: The court found that the authorities bypassed these procedures by directly invoking Section 130.
Application of law to facts: The court applied the statutory requirements for tax determination, highlighting the need for adherence to Sections 73 and 74.
Treatment of competing arguments: The court dismissed the respondent's justification for using Section 130, reinforcing the need for a structured assessment process.
Conclusions: The court concluded that the authorities should have proceeded under the appropriate sections for tax determination, rendering the impugned order invalid.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The demand for tax can be quantified and raised only in the manner prescribed in Section 73 or Section 74 of the Act, as the case may be."
Core principles established: The judgment reiterates that proceedings under Section 130 are not applicable for cases of excess stock found during a survey and that proper tax determination procedures must be followed.
Final determinations on each issue: The court set aside the impugned orders under Section 130, allowing the writ petition and affirming that the appropriate sections for tax determination are Sections 73 and 74.

In conclusion, the High Court of Allahabad held that the proceedings initiated under Section 130 of the UPGST Act against the petitioner were inappropriate and unsustainable in law. The court emphasized the necessity of following proper procedures for tax determination as outlined in Sections 73 and 74, thereby quashing the impugned orders and allowing the writ petition.

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