Allahabad High Court Rules: Excess Stock Found During GST Survey Cannot Be Confiscated Under Section 130
Fact and Issue of the Case
In the case of Janta Machine Tools v. State of U.P. and Others, the petitioner, a partnership firm engaged in the purchase and sale of machinery parts and hardware goods, faced legal action following a search conducted at its registered business premises in Agra. During this search, authorities claimed to have discovered excess stock. Subsequently, proceedings were initiated under Section 130 read with Section 122 of the Central Goods and Services Tax (CGST) and Uttar Pradesh Goods and Services Tax (UPGST) Acts, leading to a proposed tax demand, penalty, and confiscation fine.
The petitioner contested these proceedings, arguing that the mere presence of excess stock did not warrant action under Section 130, which pertains to the confiscation of goods. They contended that there was no intent to evade tax and that any discrepancies should be addressed under Sections 73 or 74, which deal with tax determination in cases of non-payment or short payment of tax, either with or without fraudulent intent.
Observation by the Court and Tribunal
The Allahabad High Court, presided over by Justice Piyush Agrawal, examined the circumstances surrounding the case. The Court noted that Section 35(1) of the CGST Act mandates all registered persons to maintain true and correct accounts of specified items at their principal place of business. However, the Court emphasized that the liability to pay tax arises at the point of supply, not merely from the possession of excess stock.
Furthermore, the Court highlighted that penalty and confiscation under Section 130 require the establishment of contravention of the Act and Rules, coupled with an intent to evade tax. In this case, the authorities failed to demonstrate such intent. The Court observed that the proceedings were initiated based solely on the presence of excess stock, without concrete evidence of tax evasion or fraudulent activity.
Law Applicable
Section 130 of the CGST and UPGST Acts deals with the confiscation of goods or conveyances and the levy of penalties in cases where goods are supplied or received in contravention of the Act with the intent to evade tax. However, the Court clarified that this section is not applicable in situations where excess stock is found without evidence of such intent.
Instead, the appropriate legal provisions in such cases are Sections 73 and 74 of the CGST Act. Section 73 pertains to the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for reasons other than fraud or willful misstatement. Section 74 addresses similar issues but includes cases involving fraud or willful misstatement. The Court emphasized that these sections provide the correct framework for addressing discrepancies related to excess stock.
Conclusion by the Tribunal or Court
In conclusion, the Allahabad High Court ruled that the initiation of proceedings under Section 130 in the case of Janta Machine Tools was unwarranted. The Court quashed the orders passed under Section 130 read with Section 122, stating that they could not be sustained in the eyes of the law. The Court directed that any further proceedings should be conducted under the appropriate sections, namely Sections 73 or 74, depending on the presence or absence of fraudulent intent.
This judgment reinforces the principle that the mere presence of excess stock does not automatically imply tax evasion or justify the confiscation of goods under Section 130. Authorities must establish a clear intent to evade tax before invoking such stringent measures. The ruling provides clarity for taxpayers and ensures that legal provisions are applied appropriately, safeguarding the rights of businesses while maintaining the integrity of the tax system.
