GST Confiscation Fine Cannot Survive When Section 130 Proceedings Are Invalid: GSTAT Agra

Shailendra Kumar Singh Vs S.K. Enterprises (GSTAT Agra)

Summary: The GST Appellate Tribunal, State Bench, Agra, dismissed five departmental appeals arising from inspections of tobacco businesses in Uttar Pradesh. The officers had found excess or unaccounted stock at the taxpayers’ business premises and initiated confiscation proceedings under Section 130 read with Section 122 of the CGST/UPGST Acts. The adjudicating authorities imposed penalties and fines in lieu of confiscation. However, the first appellate authority set aside the orders, holding that the Department should have proceeded under Sections 73 or 74 rather than invoking confiscation provisions. The Tribunal examined Sections 35(1) and 35(6), which require registered persons to maintain proper accounts and prescribe determination of tax on unaccounted goods. Relying on the Allahabad High Court decisions in Dinesh Kumar Pradeep Kumar, Shri Om Steels and V.K. Electricals, it held that the appropriate statutory procedure in the circumstances was tax determination under Sections 73/74. The Tribunal also rejected the Department’s contention that the redemption fine remained open for separate consideration after the confiscation proceedings had been set aside. It criticised the Commissioner’s decision to direct the filing of appeals without proper application of mind. All five departmental appeals were dismissed as devoid of merit, and the first appellate orders were upheld.

Confiscation Is Not Smuggling – The Department’s Fine Only Appeals Under GST and the Misuse of Customs Logic

1. Introduction

A new kind of appeal has started reaching the GST Appellate Tribunal in Uttar Pradesh. The dealer wins the first appeal. The order under Section 130 is set aside, and with it both the penalty and the redemption fine. The Department then files a second appeal under Section 112(3). It no longer defends the penalty. It asks only that the fine be restored.

The reason given in departmental circles is simple. The revenue must be kept alive. If the fine goes, the money deposited at the time of release has to be refunded, perhaps with interest. If an appeal is pending, the amount stays with the treasury.

Behind this approach lies an unspoken assumption. It is assumed that confiscation under GST carries the same weight as confiscation under the Customs Act, where a redemption fine is the price a smuggler pays to get his goods back. This article tests that assumption. It compares the two laws section by section, and then asks the more important question: what harm does each law guard the nation against? The answer shows why a trader’s stock lying at his own business premises cannot be treated as if it were smuggled goods, and why an appeal filed only to hold on to the fine has no footing in law.

2. The Department’s view

It is fair to set out the Department’s case first, as its officers would put it.

1. The goods were in fact seized. The dealer took them back by paying the fine. The fine was the price of release, and the dealer chose to pay it.

2. The fine is a separate head. Penalty under Section 122 and fine under Section 130(2) stand on different footings. The first appellate authority, it is said, did not deal with the fine separately.

3. The language is borrowed from customs. Section 130 uses the words of the Customs Act, and under customs a redemption fine stands on its own.

4. The Supreme Court has not decided the point on merits. Dismissal of a Special Leave Petition at the threshold does not declare the law under Article 141.

5. Audit and accountability. An officer who accepts an adverse order may face an audit objection. Filing an appeal is the safer course for the officer, even when it is weak on merits.

6. Refund liability. If the order is accepted, the deposit has to go back. Keeping an appeal pending postpones that outflow.

The last two reasons are rarely written into an appeal memo. They are, in practice, the real reasons. They are about the officer and the treasury, and they say nothing about whether the first appellate order is wrong in law. The third reason needs a fuller answer, and the next three parts of this article give it.

3. Where the GST power of confiscation comes from

The confiscation scheme of the CGST and UPGST Acts was not written on a clean slate. Section 67 on search and seizure follows Section 110 of the Customs Act, 1962. Section 130 follows Sections 111, 124, 125 and 126 of that Act, and its clause on goods not accounted for echoes Rule 25 of the Central Excise Rules, 2002. Even the expression “redemption fine”, now used freely in GST practice, comes from Section 125 of the Customs Act.

Borrowing words, however, does not borrow purpose. A provision takes its meaning from the law into which it is placed and the harm that law is meant to prevent. The section by section comparison below shows how much was borrowed, and how much was deliberately left out.

4. Customs and GST compared, section by section

Subject	Customs Act, 1962	CGST / UPGST Act, 2017
Key definitions	s.2(33) “prohibited goods”; s.2(39) “smuggling”	No concept of prohibited goods or smuggling
Search	ss.100 to 106; s.105 search of premises	s.67(1) inspection; s.67(2) search
Seizure	s.110(1)	s.67(2); s.129 for goods in transit
Notice after seizure	s.110(2): within 6 months, extendable by 6 months, else goods returned	s.67(7): within 6 months, extendable by 6 months, else goods returned
Provisional release	s.110A, on bond and security	s.67(6) read with Rule 140
Perishable goods	s.110(1A)	s.67(8) read with Rule 141
Grounds for confiscation	s.111 clauses (a) to (p), all tied to the act of import; s.113 for exports	s.130(1) clauses (i) to (v); four of the five require intent to evade or a contravention
Conveyance	s.115; owner’s defence of no knowledge	s.130(1)(v); same defence
Packages and concealing goods	ss.118 and 119	No equivalent
Goods changed in form; sale proceeds	ss.120 and 121: liability follows the goods	No equivalent
Burden of proof	s.123: reversed for notified goods such as gold	No equivalent; burden stays on the Department
Show cause and hearing	s.124	s.130(4); Form GST MOV-10
Order	s.122, by monetary limits	Proper officer; Form GST MOV-11
Fine in lieu of confiscation	s.125(1): discretionary for prohibited goods, mandatory for others; up to market price less duty	s.130(2): must be offered; up to market value less tax; fine and penalty together not less than 100% of tax (since 01.01.2022)
Duty or tax in addition to fine	s.125(2): payable in addition	s.130(3) made tax payable in addition; omitted from 01.01.2022
Lapse of the option	s.125(3): void if fine not paid within 120 days, unless appeal pending	No equivalent
Penalty	ss.112 and 114; s.114A mandatory penalty in fraud	s.122 read with s.130
Vesting and disposal	ss.126 and 150	s.130(5) to (7)
Criminal side	s.135: imprisonment up to 7 years; COFEPOSA preventive detention	s.132: prosecution above monetary thresholds; no preventive detention
Appeal	s.128 Commissioner (Appeals); s.129A CESTAT	s.107 first appeal; s.112 GSTAT

Six differences stand out from the table.

1. The grounds are narrower. Customs has sixteen grounds tied to the physical act of import or export. GST has five, and four of them turn on intent to evade or a contravention of the Act.

2. The reach is shorter. Under customs, liability follows the goods into changed form, into sale proceeds, and into the packages that hide them. GST carries none of these provisions.

3. The burden is not reversed. Customs places the burden on the possessor of notified goods. GST has no such rule.

4. The fine option is compulsory. Customs may refuse the option for prohibited goods. GST knows no prohibited goods, so the option must always be given.

5. The 2022 amendment moved GST further away. Separate tax liability under Section 130(3) was removed, and a floor of 100% of tax was set for fine and penalty together. Customs still adds duty to the fine.

6. There is no preventive detention. Parliament gave customs the support of COFEPOSA. It gave GST nothing of that kind.

Where Parliament copied, it copied the machinery of seizure and release. Where it chose not to copy, it left out every provision that treats goods as tainted in themselves. That choice is the clearest guide to the purpose of Section 130.

5. The nature of the wrong and its impact on the nation

The deeper difference lies not in the sections but in the wrong each law punishes. Smuggling is a wrong against the nation at its frontier. A GST default by a registered trader is, at most, a loss of tax on a domestic transaction.

Point	Customs smuggling	GST default by a registered trader
Constitutional source	Union List, Entry 83: duties on import and export	Article 246A: tax on supply
What the law guards	The national frontier	Revenue from transactions inside the country
Status of the goods	Tainted: often prohibited, restricted, or duty unpaid at the border	Lawful goods that anyone may trade
When the wrong is complete	When the goods cross the border unlawfully	For unsold stock, no supply has yet taken place
National security	Arms, explosives and counterfeit currency may enter	None; the goods are already within the country
Public health	Narcotics and unsafe drugs or food may enter	None; the same goods are sold lawfully every day
Foreign exchange	Hawala and undervaluation drain foreign exchange	None; the transaction is in rupees, within India
Domestic industry	Cheap smuggled goods undercut Indian makers	None; the trader is himself part of domestic industry
International obligations	Sanctions, CITES and trade agreements may be breached	None
Traceability of the wrongdoer	Usually unknown or abroad	Registered, with GSTIN, premises and bank account
Can the loss be made good?	Often not: narcotics or arms cannot be taxed and released	Yes: tax, interest and penalty recover it in full
Purpose of confiscation	Remove dangerous or unlawful goods from circulation	Secure tax, only where there is intent to evade

Parliament has itself recorded, in the preamble to COFEPOSA, that smuggling harms the national economy and through it the security of the State. That is why the customs law reverses the burden of proof, lets liability travel with the goods, and allows preventive detention. Confiscation there is a protective measure for the nation.

Nothing of that kind is present when a registered dealer’s stock does not match his books. The goods are lawful. The dealer is known and traceable. The only loss, if any, is tax, and the Act provides full recovery through assessment. Confiscation under GST is therefore a fiscal measure, and a measure of last resort. To bring customs severity to bear on such a dealer is to treat a fiscal lapse as an act against the nation. The penalty then bears no proportion to the harm, and the guarantee of proportionality under Article 14 is engaged.

A fair caveat should be added. Not every customs case touches national security; many concern only undervaluation of lawful goods. Even then, the goods have crossed the frontier unlawfully and the wrong is complete. A trader’s unsold stock under GST is in a different position, because no supply has yet occurred.

6. The GST scheme for goods not accounted for

The GST Act itself tells the officer what to do when goods at the business premises are not found in the books. Section 35(1) obliges every registered person to keep a true and correct account of stock at the principal place of business. Section 35(6) states the consequence of failure: the proper officer shall determine the tax payable on the unaccounted goods as if they had been supplied, and Sections 73 or 74 apply mutatis mutandis for that purpose.

This is a complete code for unaccounted stock at a declared place of business. The customs law has no such provision, because there is nothing to deem: the evasion is already complete when the goods cross the border. When the GST legislature has given a specific route for a specific situation, the general and harsher power of confiscation cannot be used to bypass it.

7. A fine cannot outlive the confiscation

The fine under Section 130(2) is described in the statute itself as a fine in lieu of confiscation. It is an option given to the owner when goods are liable to confiscation and an order of confiscation is made. It is not a tax, and it is not a penalty for a separate default. It exists only because confiscation exists.

1. A fine in lieu of confiscation presupposes a valid power to confiscate.

2. Where goods are found at the declared business premises during a survey, the power under Section 130 is not available. Section 35(6) read with Sections 73 and 74 governs.

3. If the power to confiscate was never available, the order of confiscation is without jurisdiction.

4. An option to pay a fine instead of a confiscation that could never lawfully be ordered has nothing to stand on.

The customs analogy does not help the Department here either. Under Section 125 of the Customs Act, the fine survives because the goods are tainted and liable to confiscation in their own right. Under GST, once the foundation of confiscation falls, nothing remains for the fine to rest on. Nor does the dealer’s payment change this. Goods are released on payment because the alternative is losing them. A payment made under that compulsion is not consent, and consent cannot confer jurisdiction where the statute gives none.

8. Settled law and judicial discipline

The Allahabad High Court has taken the same view again and again. Among the decisions most often cited are M/s Dinesh Kumar Pradeep Kumar v. Additional Commissioner Grade 2, Writ Tax No. 1082 of 2022, decided on 25.07.2024; M/s Shri Om Steels v. Additional Commissioner Grade 2, Writ Tax No. 1007 of 2022, decided on 19.07.2024; and V.K. Electricals v. Additional Commissioner Grade 2, Writ Tax No. 957 of 2024, decided on 23.08.2024. The rule is the same in each: excess stock found in a survey calls for proceedings under Section 73 or 74, not Section 130.

The Department’s Special Leave Petition in the Vijay Trading Company matter, SLP Diary No. 5881 of 2025, was dismissed by the Supreme Court on 04.04.2025, and the High Court has since relied on that dismissal.

The Department’s answer is Kunhayammed v. State of Kerala (2000) 6 SCC 359. A dismissal in limine does not merge the High Court’s order into the Supreme Court’s order, and it does not declare law under Article 141. That is correct as far as it goes, but it does not help the Department, for two reasons.

(a) The High Court’s judgments remain in force and unreversed. In East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1893, the Supreme Court held that the law declared by a High Court binds every tribunal and authority within its territorial jurisdiction.

(b) The dismissal shows that the Supreme Court saw no reason to interfere. A question open in theory is not open for an officer bound by the High Court.

On the duty of revenue officers, Union of India v. Kamlakshi Finance Corporation Ltd. 1992 Supp (1) SCC 443 is direct authority. Judicial discipline requires revenue officers to follow the orders of higher appellate authorities without reservation. The State, as the courts have often said, should not behave like a compulsive litigant.

9. The GSTAT Agra order of 08.10.2026

The State Bench of the Tribunal at Agra has now answered the fine argument directly. By a common order dated 08.10.2026 in APL/72, 81, 140, 141 and 157/AGR/2026, it dismissed five appeals filed by the Special Investigation Branch, Etawah, arising from surveys of tobacco businesses at Kaimganj and Farrukhabad.

1. The ratio. Reading Sections 35(1) and 35(6) together, the Tribunal held that for unaccounted goods found at the business premises, the officer can proceed only under Section 73 or 74, and has no authority to levy penalty in lieu of confiscation.

2. The fine. The Tribunal could not see how the fine could survive once the Section 130 proceeding itself was held to be without legal backing.

3. The Commissioner. The Tribunal found that the appeals had been directed without application of mind, and said this could not be appreciated.

Section 112(3) requires the Commissioner to examine the record and satisfy himself about the legality or propriety of the order. An appeal directed only to keep revenue alive is, almost by definition, an appeal directed without that satisfaction.

10. Where an appeal may still be justified

None of this means the Department can never appeal against the deletion of a Section 130 order. The closer the facts come to the customs model, where the goods themselves carry the evasion, the stronger the case. A genuine appeal may lie where:

(a) goods are found at a place not declared in the registration, such as an undisclosed godown;

(b) goods are in movement without valid documents;

(c) clandestine manufacture or removal is proved by independent evidence, not merely by a difference between physical stock and the books;

(d) the appellate order is perverse on facts.

In such cases the review order should identify the fact that takes the case outside the High Court’s rule. An appeal that simply repeats the original order and asks for the fine back does not meet that standard.

11. The real cost of keeping revenue alive

For the dealer, the deposit stays locked for years. In trades like tobacco, scrap or bidi, that is working capital, and small dealers borrow to replace it.

For the treasury, the refund is only postponed. When it goes, interest under Section 56 may go with it.

For the Tribunal, fine only appeals on a settled point take hearing dates away from cases that genuinely need decision.

For the Department, strictures like those in the Agra order go on record and weaken its credibility where it has a real point to make. What is kept alive is not revenue. It is a file.

12. The way forward

For the Department, the review under Section 112(3) should be a real review. Where the survey was at the declared business premises and the only charge is excess or unrecorded stock, the first appellate order should be accepted and the deposit refunded. If tax has escaped, Section 35(6) read with Section 73 or 74 is open, within limitation.

For dealers and their counsel, the reply before the Tribunal in a fine only appeal should:

1. show that the goods were at the declared place of business and that the case rests only on a stock difference;

2. place the High Court’s decisions, the SLP dismissal in Vijay Trading, and the Agra order on record;

3. argue that a fine in lieu of confiscation cannot survive once the power to confiscate is held unavailable;

4. answer any customs analogy by showing what Parliament chose not to borrow, and the difference between a wrong against the nation and a fiscal lapse;

5. point to the absence of real application of mind in the Commissioner’s review.

13. Conclusion

Customs confiscation protects the nation at its frontier against goods that are dangerous, prohibited or untraceable. GST confiscation protects only the tax on a domestic transaction, and the Act already provides full recovery through assessment. To borrow the severity of the first for the second is to treat a trader as a smuggler.

A fine in lieu of confiscation is a shadow of the confiscation. When the confiscation is held to be without authority, the shadow has nothing to fall from. Revenue is kept alive by sound assessment, not by appeals the law has already answered.

Cases Discussed

• Dinesh Kumar Pradeep Kumar Vs Additional Commissioner Grade 2 and Another (Allahabad High Court); Writ Tax No. 1082 of 2022; 25/07/2024. Relied upon for the proposition that excess stock discovered during a survey should be dealt with under Sections 73/74 rather than Section 130.
• Shri Om Steels Vs Additional Commissioner Grade II and Others (Allahabad High Court); Writ Tax No. 1007 of 2022; 19/07/2024. Relied upon for the appropriate statutory procedure concerning excess stock found during a survey.
• V.K. Electricals Vs Additional Commissioner Grade II and Another (Allahabad High Court); Writ Tax No. 957 of 2024; 23/08/2024. Relied upon for holding that proceedings under Sections 73/74, rather than direct confiscation under Section 130, were appropriate in the circumstances.

FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER

1. First Four appeals have been filed by Sh. Shailendra Kumar, Deputy commissioner, Special Investigation Branch, State Tax, Zone- Etawah, U.P and fifth one by Jitendra Kumar, Assistant Commissioner, Special Investigation Branch, State Tax, Zone- Etawah, U.P, u/s 112(3) of Central Goods and Services Tax, 2017/Uttar Pradesh Goods and Services Tax, 2017 (for brevity “CGST/UPGST”). In these appeals orders impugned have been passed as given below and as in all these appeals facts of the case are similar and question for determination is also identical, therefore, all are being disposed off by this common order.

Particulars of the appeals are as follows-

i) Appeal no. APL/72/AGR/2026 in which impugned order dated- 07.01.2026 has been passed by Additional Commissioner Gr. II, appeal, state tax, Etawah vide which order of Adjudicating officer passed u/s 130 read with section 122 of CGST/UPGST, Act, dated- 17.09.2025 has been set aside and amount of penalty imposed therein also has been quashed.

ii) Appeal no. APL/81/AGR/2026 in which impugned order dated- 08.05.2025 has been passed by Additional Commissioner Gr. II, appeal, state tax, Etawah vide which order of Adjudicating officer passed u/s 130 read with section 122 of CGST/UPGST, Act, dated- 03.03.2025 has been set aside and amount of penalty imposed therein has also been quashed.

iii) Appeal no. Apl/140/AGR/2026 in which impugned order dated- 07.01.2026 has been passed by Additional Commissioner Gr. II, appeal, state tax, Etawah vide which order of Adjudicating officer passed u/s 130 read with section 122 of CGST/UPGST, Act, dated- 19.09.2025 has been set aside and amount of penalty imposed therein has also been quashed.

iv) Appeal no. Apl/141/AGR/2026 in which impugned order dated- 14.10.2024 has been passed by Additional Commissioner Gr. II, appeal, state tax, Etawah vide which order of Adjudicating officer passed u/s 130 read with section 122 of CGST/UPGST, Act, dated- 16.07.2020 has been set aside and amount of penalty imposed therein has also been quashed.

v) Appeal no. Apl/157/AGR/2026 in which impugned order dated- 04.11.2025 has been passed by Additional Commissioner Gr. II, appeal, state tax, Etawah vide which order of Adjudicating officer passed u/s 130 read with section 122 of CGST/UPGST, Act, dated- 30.09.2025 has been set aside and amount of penalty imposed therein has also been quashed.

2. Facts in brief in appeal no. Apl/72/AGR/2026, are that special investigating team Etawah headed by appellant herein had inspected the business premises of respondent running for producing and selling of Tobacco and Tobacco Garda. On verifying the stock and relevant registers by appellant it was found that 6,438 kgs Sabut gadiya and 38,705 kg tobacco garda was not mentioned in in books of account and it was clear violation of section 35 of CGST, act. Appellant has seized the aforesaid goods found unaccounted. Show cause notice was accordingly issued by SIB incharge, to respondent but same was not responded, followed by order passed by appellant on 17.09.2025 vide which Rs. 7,15,080/- Penalty and Rs. 1,78,332/- fine was imposed. In lieu of confiscation of seized goods.

3. Being dissatisfied by the order passed by appellant, respondent/ taxpayer filed appeal u/s 107 of CGST/UPGST Act, 2017 before first appellate authority, which was allowed. Order impugned and consequential amount of penalty and fine has been set aside.

4. Facts in brief in appeal no. Apl/81/AGR/2026, are that special investigating team Etawah headed by appellant herein had inspected the business premises of respondent running for producing and selling of Tobacco and Tobacco products. On verifying the stock and relevant registers by appellant it was found that 24,775 kgs Tobacco stem powder, 31,055 kg tobacco Orchha, 31,055 kgs Nas Orchha, 6080kg Nas tobacco, 5000 kg fatkan tobacco and 7960 kg tobacco leaf powder was not mentioned in books of account and it was clear violation of section 35 of CGST, act. Appellant has seized the aforesaid goods found unaccounted. Show cause notice was accordingly issued by SIB incharge, to respondent and same was replied by taxpayer, proper officer declined the version of respondent in reply of notice and passed order in original by imposing amount of penalty of Rs. 6,44,192/- and fine of Rs. 50,000/-, In lieu of confiscation of seized goods.

5. Being dissatisfied by the order passed by appellant, respondent/taxpayer filed appeal u/s 107 of CGST/UPGST Act, 2017 before first appellate authority, which was allowed. Order impugned and consequential amount of penalty and fine have been set aside.

6. Facts in brief in appeal no. Apl/140/AGR/2026, are that special investigating team Etawah headed by appellant herein had inspected the business premises of respondent running for producing and selling of Tobacco and Tobacco products. On verifying the stock and relevant registers by appellant it was found that Tobacco nas 64,354, Tobacco Nas 10 Number 35,692 kgs, 2145 kg fatkan tobacco, 3557 kg tobacco dust, 11,131 kg tobacco Orcha, tobacco rawa 731 kg and tobacco gadiya 52593 were not mentioned in in books of account and it was clear violation of section 35 of CGST, act. Appellant has seized the aforesaid goods found unaccounted. Show cause notice was accordingly issued by SIB incharge, to respondent and same was replied by taxpayer, proper officer declined the version of respondent taken in reply of notice and passed order in original by imposing amount of penalty of Rs. 12,93,644/- and fine of Rs. 3,00,000/-, In lieu of confiscation of seized goods.

7. Being dissatisfied by the order passed by appellant, respondent/ Taxpayer filed appeal u/s 107 of CGST/UPGST Act, 2017 before first appellate authority, which was allowed. Order impugned and consequential amount of penalty and fine have been set aside.

8. Facts in brief in appeal no. Apl/141/AGR/2026, are that special investigating team Etawah headed by appellant herein had inspected the business premises of respondent running for producing and selling of Tobacco and Tobacco products. On verifying the stock and relevant registers by appellant it was found that Orcha 1090 bore 45kg/bag – 49050 kg, Orcha loose 18000 kg, Orcha 157 bore 45kg/bag- 7065 kg, Patti gadiya sabut 1250 bora 105kg/bag- 1,31,250kg, Nas 950 bore 45kg/bag- 42,750kg, Nas Rawa 42 bore 45kg/bag – 1890 kg, Bardana 240 bundle 21 bore- 5040 nos. were not mentioned in in books of account and it was clear violation of section 35 of CGST, act. Appellant has seized the aforesaid goods found unaccounted. Show cause notice was accordingly issued by SIB incharge to respondent which was not responded by taxpayer, proper officer passed order in original by imposing amount of tax 11,87,346/- penalty of Rs. 11,87,346/- and fine of Rs. 11,87,346/-, In lieu of confiscation of seized goods.

9. Being dissatisfied by the order passed by appellant, respondent/ Taxpayer filed appeal u/s 107 of CGST/UPGST Act, 2017 before first appellate authority, which was allowed. Order impugned and consequential amount of tax, penalty and fine have been set aside.

10. Facts in brief in appeal no. Apl/157/AGR/2026, are that special investigating team Etawah headed by appellant herein had inspected the business premises of respondent running for producing and selling of Tobacco and Tobacco products. On verifying the stock and relevant registers by appellant it was found that Tabacco gadiya worth of Rs. 12,09,330/- was not mentioned in in books of account and it was clear violation of section 35 of CGST, act. Appellant has seized the aforesaid goods found unaccounted. Show cause notice was accordingly issued by SIB incharge, to respondent which was not responded by taxpayer, proper officer passed order in original by imposing amount penalty of Rs. 60,466.50/- and fine of Rs. 60,466.50/-, In lieu of confiscation of seized goods.

11. Being dissatisfied by the order passed by appellant, respondent/ Taxpayer filed appeal u/s 107 of CGST/UPGST Act, 2017 before first appellate authority, which was allowed. Order impugned and consequential amount of penalty and fine have been set aside.

12. Before embarking to the facts of the appeals it is worthy to note that in all the five matters under consideration, learned proper officer had imposed penalty and fine u/s 130(2) in lieu of confiscation of seized goods. In first appeals filed by respondents herein orders-in-original passed by proper officer were set aside by holding that seizure and confiscation cannot be made if, like in the present matters, goods were found unaccounted on business premises and instead thereof department should launch proceedings u/s 73/74 of CGST/UPGST, act. Thus, all these five appeals have been directed by the revenue in respect of amount of tax, fine and penalty imposed by adjudicating officer and set aside by first appellate authority.

13. We have heard the learned authorized representatives of appellants and perused the records of appeals uploaded on the GSTAT Portal, the common question for determination before us may be formulated as under-

i) Whether first appellate authority has rightly allowed the first appeals by setting aside the amount of tax, penalty and fine imposed by proper officer u/s 130(2) of CGST/UPGST, Act?

FINDINGS WITH REASONS

14. In case of M/s Dinesh Kumar Pradeep Kumar V/s Additional commissioner, Gr-II and others writ tax no. 1082 of 2022 date of decision 25.07.2024, it was held by Allahabad High court that whereon survey of business premises excess stock of goods was found which triggered the initiation of the proceedings u/s 130 of CGST act against petitioner then proceedings u/s 73/74 of CGST/UPGST act, should be initiated and not proceedings u/s 130 of the UPGST/CGST, Act read with rule 120 of the rules framed under the act.

15. Further in a recent case M/s Shri Om steels vs Additional Commissioner Gr. II and others writ tax no. 1007 of 2022 dated 19.07.2024, It is also held that if excess stock is found during a survey, tax and penalty proceedings must be initiated under Section 73 or 74 of the CGST Act, rather than invoking the harsh confiscation provisions under Section 130.

16. Section 35(1) of the CGST, Act provides that all the registered persons are required to keep and maintain at the principal palace of business a true copy and correct account of things specified in clause (a) to (f). The second proviso to this section and rule 56 and 57 makes it further necessary to keep the said documents in electronic form. Further section 35(6) of the CGST, act enumerates the consequences if such person fails to keep his account for the goods or services, the proper officer is empowered to determine the amount of tax payable on the goods or the services which are unaccounted for as if such goods or services had been supplied by such person and the provisions of section 73 or 74 shall mutates mutandis apply for determination of the said tax. Thus, by bare perusal of the section 35(1) and 35(6) conjointly makes it clear that proper officer is empowered to determine the taxes payable and while determine the said tax he is bound to determine the same in-accordance with the provisions u/s 73 and 74 of CGST act/ UPGST act.

17. Apart from above, in case of V. K electricals vs Additional commissioner Gr-II and another writ tax no. 957/2024 date of decision 23.08.2024, Allahabad High court has held that in case of excess stock found at the time of survey proceeding u/s 73/74 of CGST/UPGST, Act should be initiated and in place or in addition to launching proceedings u/s 130 read with rule 120 unsustainable and liable to be quashed.

18. Thus, on going through the principle laid down in above quoted ratios established by Hon’ble Allahabad High court as well as on bare perusal of section 35 of CGST/UPGST, Act, it is crystal clear that where at the time of survey of business premises excess or unaccounted goods are found the proper officer is only empowered to initiate proceedings u/s 73/74 of CGST/UPGST, Act, against business entity concerned, he is not authorised by law to initiate proceedings u/s 130 and levy the penalty in lieu of confiscation of goods. In the present matters same is the position where on the survey of business premises which were being used by appellants for producing and selling of tobacco and its edible products excess/unaccounted stocks of such items are said to be found but instead of initiation proceedings u/s 73/74 of CGST/UPGST, act. Learned proper officer initiates the proceedings u/s 130 of the CGST Act directly, which is not sustainable in law and by holding so and quashing the order passed by Adjudicating officer, Learned First Appellate Authority has rightly allowed and quashed of set aside the Orders-in-Original passed by proper officer resulted set aside the demand of Tax, penalty and fine.

19. We are unable to understand that how question of imposing the amount of fine by adjudicating officer is said to be left open where learned first appellate authority has quashed and set aside the Orders-in-Original passed by learned A.O by holding that launching of proceedings u/s 130 of CGST/UPGST, Act is not backed by law. In second appeal before Goods and Services Tax Appellate Tribunal, commissioner of State Tax department is required to direct his subordinate officer to file the appeal by going through the facts of the case and law applicable thereto. In our opinion learned commissioner has directed the appellants to file the appeals in peripheral manner and without application of mind, which cannot be appreciated.

20. Therefore, in view of discussion of facts of the cases in hand and law applicable thereto, by answering the question formulated in positive, we are of the considered opinion that all these five appeals are liable to be dismissed as sans merit, which this bench directs.

21. There is no pending interim application in the appeals.

22. Order is pronounced in open court on this day of 08th of October, 2026.

23. Copy of order be communicated to all concerned, as per rules.