M/S Vk Electricals vs Additional Commissioner Grade-2 ... on 23 August, 2024

Outcome**
The writ petition is allowed. The impugned order dated 26.12.2023, passed by the respondent no. 1 in Appeal No. 204 of 2021 under Section 130 read with Section 122 of the UP GST Act, is hereby quashed.

2. Core Issue
The core issue is whether proceedings under Section 130 of the UP GST Act, leading to confiscation and penalty, can be initiated for the determination of tax and penalty when excess stock is found during an inspection/survey, or if proceedings under Sections 73/74 of the GST Act are the appropriate legal mechanism.

3. Key Facts
* The petitioner, M/S Vk Electricals, is a registered company involved in the trading of electrical goods.
* On 14.09.2018, an inspection/search was conducted at the petitioner's business premises under Section 67 of the GST Act by the SIB.
* During the inspection, the stock was assessed based on eye measurement, and it was alleged that excess stock was found.
* The authorities did not conduct an actual weighment of the stock.
* Subsequently, proceedings were initiated against the petitioner under Section 130 read with Section 122 of the UP GST Act.
* The petitioner challenged the impugned appellate order dated 26.12.2023, which affirmed the findings of the initial proceedings.

4. Arguments
* Taxpayer (Petitioner):
* Submitted that the excess stock finding was based solely on eye measurement, without actual weighment.
* Contended that proceedings under Section 130 of the GST Act were improperly initiated.
* Argued that the appropriate proceedings should have been under Sections 73/74 of the GST Act, which provide the mechanism for determination of tax not paid or short paid.
* Relied on the judgment of the Allahabad High Court in S/s Dinesh Kumar Pradeep Kumar Vs. Additional Commissioner, Grade - 2 & Another.
* Revenue (Respondent):
* Supported the impugned orders passed by the lower authorities. (No specific detailed arguments beyond this general support were recorded).

5. Court’s Reasoning
The High Court reiterated its consistent position that proceedings under Section 130 of the GST Act cannot be invoked when excess stock is found during a survey. The Court relied heavily on its prior judgments, particularly:

• S/s Dinesh Kumar Pradeep Kumar Vs. Additional Commissioner, Grade - 2 & Another (Writ Tax No. 1082 of 2022, decided on 25.07.2024): This case, specifically quoted, stated that if excess stock is found, proceedings under Sections 73/74 of the GST Act should be initiated, not Section 130.
• Referencing M/s Shree Om Steels Vs. Additional Commissioner Grade-2 and Another (Writ Tax No. 1007 of 2022): This judgment explicitly held that even in cases of excess stock, Section 130 proceedings are inappropriate.
• Referencing Metenere Limited (supra): This judgment clarified that while Section 35(6) empowers a proper officer to determine tax on unaccounted goods (deemed to be supplied), this determination and quantification of tax must strictly follow the procedures outlined in Sections 73 or 74 of the Act.
• Referencing M/s Maa Mahamaya Alloys Pvt. Ltd. (supra): This case further established that:
  • Tax and penalty cannot be assessed or determined solely under Section 130.
  • The entire exercise of assessing/determining tax and penalty under Section 130 for such infractions is not stipulated under the Act.
  • Section 130(1)(ii) (for not accounting for goods liable to tax) is inapplicable because the liability to pay tax arises at the time of supply, not merely upon finding excess stock.
  • Section 130(1)(iv) (for contravention with intent to evade tax) is also not attracted unless there is a clear allegation and establishment of "intent to evade payment of tax" coupled with the contravention, which was absent in the show cause notice and orders.

The Court concluded that in light of these established precedents, the initiation of proceedings under Section 130 of the GST Act for finding excess stock during a survey is legally unsustainable.

6. Statutory References
* Uttar Pradesh Goods and Services Tax Act (UP GST Act):
* Section 67 (Power to inspection, search and seizure)
* Section 73 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for reasons other than fraud or any wilful misstatement or suppression of facts)
* Section 74 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts)
* Section 122 (Penalty for certain offences)
* Section 130 (Confiscation of goods or conveyances and levy of penalty)
* Central Goods and Services Tax Act (CGST Act):
* Section 9 (Levy and collection of CGST)
* Section 12 (Time of supply of goods)
* Section 35(1) (Accounts and other records)
* Section 35(6) (Power to determine tax if accounts are not kept properly)
* Section 50 (Interest on delayed payment of tax)
* Section 169 (Service of notice and communication)
* GST Rules:
* Rule 56 (Maintenance of accounts by registered persons)
* Rule 57 (Records of goods produced)
* Reference to "rule 120 of the Rules framed under the Act" in the judgment body appears to be a clerical error as the context and cited precedents refer to Sections 73/74 and other specific rules (56, 57) for assessment.

7. Precedents Cited
1. S/s Dinesh Kumar Pradeep Kumar Vs. Additional Commissioner, Grade - 2 & Another, Writ Tax No. 1082 of 2022, decided on 25.07.2024 (Allahabad High Court)
2. M/s Shree Om Steels Vs. Additional Commissioner Grade-2 and Another, Writ Tax No. 1007 of 2022 (Allahabad High Court)
3. Metenere Limited (supra) (Allahabad High Court)
4. M/s Maa Mahamaya Alloys Pvt. Ltd. (supra) (Allahabad High Court)