Case Law Details
Additional Commissioner Grade-2 and another Vs Shree Om Steels (Supreme Court of India)
In, the Supreme Court dismissed the Special Leave Petition filed by the tax authorities against the judgment of the Allahabad High Court in matters concerning confiscation proceedings initiated under Section 130 of the UPGST Act against registered dealers allegedly found with excess stock during survey proceedings. The Supreme Court noted that a similar matter had already been dismissed on 15.04.2025 and, in view of that dismissal, the present SLPs were also dismissed.
The underlying dispute before the Allahabad High Court arose from survey and inspection proceedings conducted at the business premises of a registered dealer engaged in trading iron and steel. During inspection on 21.10.2020, the authorities alleged that excess stock was found which was not properly recorded in the books of account. Based on the survey, proceedings under Section 130 read with Section 122 of the UPGST Act were initiated, and the goods were confiscated. A notice dated 04.11.2020 was issued proposing confiscation of goods and levy of penalty, followed by an order dated 20.11.2020 imposing tax and penalty. The appellate authority dismissed the dealer’s appeal, following which writ petitions were filed before the High Court.
The petitioner contended before the High Court that the proceedings under Section 130 were illegal because the inspection had been conducted under Section 67 of the UPGST Act and the allegation related only to excess stock allegedly found during survey. According to the petitioner, even if excess stock existed, proceedings for tax determination could only be undertaken under Sections 73 or 74 of the Act. It was also argued that Section 35(6) specifically governs situations involving unaccounted goods and requires tax determination to be made by following Sections 73 or 74. The petitioner further argued that the authorities had relied merely on eye estimation for stock determination.
The State defended the proceedings by alleging that the petitioner had indulged in malpractice and that excess stock was found without proper accounting entries. According to the authorities, confiscation and penalty proceedings under Section 130 read with Section 122 were therefore justified.
The High Court examined the statutory framework of the GST Act and relied extensively on earlier decisions including Metenere Limited Vs. Union of India & Another and M/s Maa Mahamaya Alloys Pvt. Ltd. Vs. State of U.P. & 3 Others The Court referred to Section 35(6), which provides that where a registered person fails to properly account for goods or services, the proper officer may determine the tax payable on such goods as if they had been supplied, but such determination must be undertaken in accordance with Sections 73 or 74 of the Act.
The High Court reiterated the findings in Metenere Limited, where it had been held that even if unaccounted or excess goods are discovered during survey proceedings, tax liability must still be determined through the adjudicatory procedure prescribed under Sections 73 or 74. The Court emphasized that Section 130 proceedings cannot be used as a substitute mechanism for assessment or tax determination. According to the Court, Section 35(6) specifically contemplates that the proper officer determine tax liability in the prescribed statutory manner, and confiscation proceedings under Section 130 cannot bypass that procedure.
The Court also referred to the judgment in M/s Maa Mahamaya Alloys Pvt. Ltd. Vs. State of U.P. & 3 Others, where similar questions had arisen regarding whether tax assessment and penalty could be imposed solely on the basis of excess goods allegedly found during survey. In that case, the High Court had held that tax cannot be assessed or determined by resorting to Section 130 proceedings and that confiscation provisions apply only in specific circumstances involving intent to evade tax. The Court had further held that mere excess stock found during verification does not automatically attract confiscation provisions under Section 130 unless the statutory ingredients are satisfied.
The High Court observed that liability to pay tax arises at the “time of supply” and not merely because goods are found during survey proceedings. It also held that invocation of Section 130(1)(iv) requires the department to establish contravention of the Act coupled with an intent to evade tax. Since no such allegation was properly established in the notices or orders, the Court held that confiscation proceedings under Section 130 were not sustainable.
Applying these principles, the High Court concluded that the authorities had improperly initiated proceedings under Section 130 instead of following Sections 73 or 74 for tax determination. Since tax and penalty had been imposed solely on the basis of survey proceedings and confiscation provisions, the impugned orders were held to be unsustainable in law. Accordingly, the High Court quashed the orders passed by the tax authorities and allowed the writ petitions.
The Supreme Court subsequently dismissed the Special Leave Petition filed against the High Court judgment, thereby leaving undisturbed the view that confiscation proceedings under Section 130 cannot be invoked merely because excess stock is found during survey and that tax determination must follow the procedure prescribed under Sections 73 or 74 of the GST law.
Read High Court Judgment in this case: Shree Om Steels Vs Additional Commissioner and Ors. (Allahabad High Court)
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay condoned.
2. A similar matter e. SLP(C) @Diary No.5880/2025 has been dismissed by this Court on 15.04.2025.
3. In view of the dismissal of the said order, this SLP(s) is/are dismissed.
4. Pending application(s), if any, shall stand disposed of.
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