Excess stock found during survey: Navigating the Intricacies of UPGST / CGST Act and Invoking Wrong Provisions

Deciphering Legal Judgments: A Comprehensive Analysis of Case Law

Reported as:

2024 (7) TMI 1205 - ALLAHABAD HIGH COURT

Introduction

This article provides a comprehensive analysis of a recent judgement delivered by the High Court (HC) in a case related to the Uttar Pradesh Goods and Services Tax (UPGST) Act. The case revolves around the initiation of proceedings u/s 130, read with Section 122 of the UPGST Act, against a registered dealer engaged in the trading of iron and steel.

Arguments Presented

The petitioner, a registered dealer, challenged the impugned orders passed by the authorities u/s 130, read with Section 122 of the UPGST Act. The petitioner argued that once a survey was conducted and alleged excess stock was found, Sections 73 and 74 of the UPGST Act should have been invoked instead of initiating proceedings u/s 130.

The respondents, on the other hand, supported the impugned orders, contending that the petitioner was involved in malpractices, as evident from the survey where excess stocks were found without proper entries in the books of account. They argued that the proceedings u/s 130, read with Section 122 of the UPGST Act, were rightly initiated against the petitioner.

Discussions and Findings of the Court

The Court extensively discussed the judgements of the Allahabad High Court in M/s Metenere Ltd. Versus Union of India And Another - 2020 (12) TMI 790 - ALLAHABAD HIGH COURT and M/s Maa Mahamaya Alloys Pvt. Ltd. Versus State of U.P. And 3 Others - 2023 (3) TMI 1358 - ALLAHABAD HIGH COURT.

In the Metenere Ltd. case, the Court held that even if excess stock is found, proceedings u/s 130 of the UPGST Act cannot be initiated. The Court emphasized that the proper officer is empowered to determine the tax payable u/s 35(6) after following the procedure established u/s 74 of the Act.

Similarly, in the M/s Maa Mahamaya Alloys Pvt. Ltd. case, the Court reiterated that the demand for tax can be quantified and raised only in the manner prescribed in Sections 73 or 74 of the Act, as the case may be. The Court held that the entire exercise resorted to u/s 130 of the UPGST Act for assessment/determination of tax and penalty is neither stipulated under the Act nor can be done in the manner it was done.

Analysis and Decision by the Court

Based on the discussions and findings from the cited judgements, the Court held that the impugned orders passed by the authorities below in the present case cannot be sustained in the eyes of law. The Court quashed the impugned orders and allowed the writ petitions filed by the petitioner.

The Court observed that even if excess stock was found, the proceedings should have been initiated u/ss 73 and 74 of the UPGST Act, and not u/s 130. The Court upheld the principle that the determination of tax payable on unaccounted goods must be done in accordance with Sections 73 or 74 of the Act, as established in the Metenere Ltd. case.

Doctrine or Principle Discussed

The judgement primarily discussed the applicability of Sections 73, 74, and 130 of the UPGST Act in cases where excess stock is found during a survey or inspection. The Court upheld the principle that even if excess stock is found, the proceedings for determination of tax payable should be initiated u/ss 73 or 74 of the Act, and not u/s 130.

Relied upon or Followed Judgements

The Court heavily relied upon and followed the judgements of the Allahabad High Court in the following cases:

• M/s Metenere Ltd. vs. Union of India and Another [2020 (12) TMI 790]
• M/s Maa Mahamaya Alloys Pvt. Ltd. vs. State of U.P. & 3 Others [Writ Tax No. 31/2021, decided on 23.03.2023]

Comprehensive Summary

In this case, the High Court quashed the impugned orders passed by the authorities u/s 130, read with Section 122 of the UPGST Act, against a registered dealer engaged in the trading of iron and steel. The Court held that even if excess stock was found during a survey, the proceedings for determination of tax payable should have been initiated u/ss 73 or 74 of the UPGST Act, and not u/s 130.

The Court extensively discussed and relied upon the judgements of the Allahabad High Court in M/s Metenere Ltd. vs. Union of India and Another, and M/s Maa Mahamaya Alloys Pvt. Ltd. vs. State of U.P. & 3 Others, which established the principle that the determination of tax payable on unaccounted goods must be done in accordance with Sections 73 or 74 of the Act, and not u/s 130.

The Court upheld the petitioner's argument that once a survey was conducted and alleged excess stock was found, Sections 73 and 74 of the UPGST Act should have been invoked instead of initiating proceedings u/s 130. The Court allowed the writ petitions and quashed the impugned orders passed by the authorities.

Full Text:

2024 (7) TMI 1205 - ALLAHABAD HIGH COURT