Summary: The Goods and Services Tax Appellate Tribunal (GSTAT), Agra Bench, dismissed four Revenue appeals arising from alleged excess stock discovered during inspections of brick-kiln businesses in Uttar Pradesh. In Jitendra Kumar Vs R.V. Brick Field and connected matters, the Tribunal held that the department could not seek restoration of confiscation fines after the first appellate authority had set aside the underlying proceedings under Section 130 of the CGST/UPGST Acts. The Tribunal examined the statutory framework under Section 35(6), which provides for determination of tax on unaccounted goods through the applicable demand provisions. Relying on Allahabad High Court decisions in Dinesh Kumar Pradeep Kumar, Shree Om Steels and V.K. Electricals, GSTAT upheld the finding that the confiscation route adopted in these cases was legally unsustainable. The Revenue had challenged only the fines, without contesting the findings invalidating the confiscation proceedings and penalties. GSTAT rejected that approach, observing that the fines could not survive independently of the orders through which they were imposed. The Tribunal also criticised the perfunctory authorisation of departmental appeals. The decision reinforces the distinction between tax determination and confiscation, while recognising that excess-stock allegations must still be examined under the applicable statutory provisions.
- Excess Stock Is Not a Licence to Confiscate: GSTAT Rejects Revenue’s Appeals in Four Brick-Kiln Cases
- Four Inspections, One Common Approach
- The Department Tried to Save Only the Fine
- Section 35(6): Determine the Tax Through the Prescribed Route
- The Allahabad High Court Decisions Behind the Ruling
- A Fine in Lieu of Confiscation Cannot Survive Without Its Foundation
- What Taxpayers Should Not Claim From This Order
- How the Decision Can Strengthen a Taxpayer’s Reply
- The Significance of the Ruling
Excess Stock Is Not a Licence to Confiscate: GSTAT Rejects Revenue’s Appeals in Four Brick-Kiln Cases
Once the confiscation proceedings were set aside, the department could not keep the fine alive.
A stock difference found during a survey requires an explanation. It may also require determination of tax. But that does not mean the department can automatically proceed to confiscation.
This distinction forms the basis of a useful GST Appellate Tribunal decision involving four brick-kiln businesses in Uttar Pradesh. The first appellate authority had set aside the confiscation proceedings and the resulting demands. The department approached GSTAT seeking to retain the fine, without challenging the findings which had brought down the confiscation proceedings themselves. The Tribunal rejected that attempt and dismissed all four appeals.
The order matters for two reasons. It follows the Allahabad High Court’s approach that excess stock discovered at business premises must be dealt with through the applicable tax-determination provisions rather than a mechanical resort to Section 130. It also makes clear that a fine cannot be separated from the legal foundation on which it was imposed.
Four Inspections, One Common Approach
The disputes concerned the following businesses:
| Business | Stock alleged to be unaccounted for |
|---|---|
| R.V. Brick Field, Farrukhabad | 19,27,289 bricks and 60 metric tonnes of coal |
| Kisan Ent Bhatta, Chhibramau | 15,15,500 bricks |
| Shri Shiv Shakti brick field, Etawah | 21,53,500 bricks |
| Gatimaan Brickfield, Farrukhabad | 16,30,000 bricks |
These were the department’s allegations as recorded in the order—not an independent finding by GSTAT that the quantities represented concealed taxable supplies.
According to the department, the persons present at the premises could not produce the relevant records, and the replies subsequently filed were not supported by adequate documents. The proper officer inferred an intention to evade tax and imposed penalty and fine through proceedings under Section 130.
The taxpayers succeeded before the first appellate authority. It held that, in these circumstances, the department should have followed the tax-determination route under Sections 73 or 74 instead of invoking confiscation. The original orders were accordingly set aside.
The Department Tried to Save Only the Fine
The scope of the Revenue’s appeals is central to understanding this decision.
The department did not challenge the first appellate authority’s findings quashing the Section 130 proceedings and the penalty. It sought relief only in respect of the fine, contending that this question had been left open.
The Tribunal found that position untenable. Once the original order had been set aside because the proceedings were not backed by law, there was no surviving basis for maintaining the fine imposed through that order.
This was not merely a disagreement over the amount payable. The legal foundation for the demand had already been removed.
Section 35(6): Determine the Tax Through the Prescribed Route
The Tribunal examined Section 35, which requires registered persons to maintain true and correct accounts.
It relied particularly on Section 35(6). Where goods or services are not accounted for as required, that provision directs determination of the tax payable as if they had been supplied, using the applicable statutory demand machinery. The Tribunal discussed this route through Sections 73 and 74.
The distinction is important. The law provides a mechanism to examine unaccounted goods and determine the resulting liability. An allegation of excess stock does not permit that mechanism to be ignored.
For present-day application, one amendment must be kept in view: the current text of Section 35(6) also refers to Section 74A. The correct demand provision must therefore be identified by reference to the relevant financial year and the law applicable to it. The Tribunal’s references to Sections 73 and 74 should not be copied into every later-period reply without that examination.
The Allahabad High Court Decisions Behind the Ruling
The Tribunal relied on three Allahabad High Court decisions:
1. Dinesh Kumar Pradeep Kumar v. Additional Commissioner (Allahabad High Court); Writ Tax No. 1082 of 2022; decided on 25 July 2024.
2. Shri Om Steels v. Additional Commissioner (Allahabad High Court); Writ Tax No. 1007 of 2022; decided on 19 July 2024.
3. V.K. Electricals v. Additional Commissioner (Allahabad High Court); Writ Tax No. 957 of 2024; decided on 23 August 2024.
As discussed in the Tribunal’s order, these decisions required excess-stock disputes arising from surveys to be addressed through tax-determination proceedings rather than the confiscation route adopted by the department. Applying that reasoning, GSTAT upheld the first appellate authority’s interference in the four cases before it.
The ruling therefore does not stand on a general appeal for leniency. It rests on the statutory route and the High Court authorities governing the disputes.
A Fine in Lieu of Confiscation Cannot Survive Without Its Foundation
A fine in lieu of confiscation is not an independent charge that can be retained regardless of what happens to the confiscation proceedings.
That was the defect in the departmental appeals. The Revenue left the setting aside of those proceedings unchallenged but asked the Tribunal to maintain the fine arising from them. GSTAT rejected the request.
The Tribunal also criticised the manner in which the appeals had been authorised. It observed that the Commissioner was required to examine the facts and applicable law before directing a subordinate officer to appeal. In its view, the directions in these cases had been issued perfunctorily and without application of mind.
For taxpayers defending a favourable appellate order, this part of the decision is useful. The department’s grounds of appeal must be read carefully: has it challenged the finding that defeats the demand, or only the financial consequence of that finding?
What Taxpayers Should Not Claim From This Order
The decision does not declare that excess stock is tax-free. Nor does it establish that stock records may be ignored without consequence.
Its protection concerns jurisdiction and the proper statutory procedure. The department must act through the provision legally available on the facts; the taxpayer must still explain the stock and support that explanation with records.
There is another necessary limit. Section 130(1)(ii) expressly refers to failure to account for goods on which a person is liable to pay tax. It would therefore be too broad to say that Section 130 can never have any application to unaccounted goods. The safer proposition is the one arising from this decision: in the survey-based excess-stock cases before the Tribunal, following the cited Allahabad High Court authorities, the department’s resort to Section 130 was held unsustainable.
The order is especially relevant to comparable disputes in Uttar Pradesh because it applies Allahabad High Court decisions. Outside that jurisdiction, it should be presented with the relevant local High Court position, rather than described as a universal bar on confiscation.
How the Decision Can Strengthen a Taxpayer’s Reply
The ruling supports a two-part defence.
First, address the stock allegation itself. Set out the book stock, physical stock, method of measurement and reconciliation. Explain any production-stage differences, damaged goods, unposted receipts or other adjustments only where the records support them. The obligation to maintain production and stock accounts remain material.
Second, examine the legal provision invoked. A reply should ask why Section 130 applies to the particular facts and address the Section 35(6) route considered in this order. If the dispute reaches appeal, separately identify the findings on confiscation, penalty and fine. That separation was decisive in these four departmental appeals.
The Significance of the Ruling
GSTAT did not excuse a failure to maintain accounts. It refused to sustain demands resting on proceedings which had been held legally unsustainable. It also refused to restore the fine when the department had not challenged the finding that removed its basis. All four Revenue appeals were dismissed as without merit.
For taxpayers facing confiscation merely because a survey records excess stock, the decision provides a substantial ground of defence. A stock discrepancy may call for investigation and tax determination. It does not, without the necessary legal basis, authorise the department to take the confiscation route.
Editorial note: The supplied order contains apparent inconsistencies in some notice and adjudication dates. This article therefore avoids relying on those disputed dates and confines the chronology to the common Tribunal order and its substantive findings.
