In M/s Janta Machine Tools v. State of Uttar Pradesh & Others, the Allahabad High Court examined the legality of confiscation and penalty proceedings initiated under Section 130 of the GST Act solely on the basis of excess stock found during a survey.

The petitioner, a partnership firm engaged in the purchase and sale of machinery, machinery parts, and hardware goods, was subjected to a search at its business premises on 4 May 2022. Following the survey, the authorities initiated proceedings under Section 130 read with Section 122 of the CGST/UPGST Act, proposing tax, penalty, and confiscation fine of equal amounts. Despite the petitioner submitting a reply, an adverse order was passed, which was partly modified in appeal, leaving a substantial demand confirmed against the petitioner.

The principal contention raised before the High Court was that initiation of proceedings under Section 130 was legally impermissible in cases where excess stock alone is detected during a survey. It was argued that even assuming the existence of excess stock, the statutory framework mandates that the tax liability must be determined only by invoking Sections 73 or 74 of the GST Act, and not through confiscation provisions. Reliance was placed on the decision in S/s Dinesh Kumar Pradeep Kumar v. Additional Commissioner Grade-2, which had since been affirmed by the Supreme Court.

The Court observed that the legal position on the issue stood conclusively settled. It reiterated that Section 35(6) of the Act permits unaccounted goods to be treated as deemed supplies; however, the quantification of tax and imposition of penalty must strictly adhere to the procedure prescribed under Sections 73 or 74. Confiscation under Section 130 can be invoked only in circumstances expressly contemplated by the statute and not merely because excess stock is found during a survey.

Reaffirming the principles laid down in Metenere Limited, Shree Om Steels, and Maa Mahamaya Alloys Pvt. Ltd., the Court held that confiscation proceedings based solely on survey findings, without establishing intent to evade tax or following the statutory mechanism for tax determination, are legally unsustainable.

Accordingly, the Allahabad High Court quashed the impugned orders passed by the authorities and allowed the writ petition. The Court further directed that any amount deposited by the petitioner pursuant to the impugned proceedings be refunded in accordance with law.

This judgment once again underscores that GST authorities must operate strictly within the contours of the Act and cannot bypass Sections 73 and 74 by directly invoking confiscatory provisions under Section 130.


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