Summary: The Allahabad High Court, in the case of Raj Steel Vs. State of U.P. and 2 Others, ruled on May 28, 2025, that the mere presence of excess stock during an inspection does not automatically justify confiscation and penalty under Section 130 of the CGST Act. Raj Steel had challenged an ₹7.88 lakh penalty and confiscation order, arguing that such discrepancies, without evidence of tax evasion or fraudulent intent, should fall under Sections 73 or 74, which address tax recovery. The Court concurred, referencing its previous ruling in the Dinesh Kumar case, a decision affirmed by the Supreme Court. The High Court observed that an intent to evade tax is a prerequisite for invoking Section 130 and found no such intent in the Raj Steel case. Consequently, the impugned orders were quashed, reaffirming that tax recovery and confiscation are distinct remedies and Section 130 should not be applied broadly without proof of fraudulent intent.
Brief Background & Facts:
During an inspection, the department alleged that Raj Steel had excess stock and subsequently passed orders under Section 130 of the CGST Act, imposing confiscation and penalty to the tune of ₹7.88 lakhs.
The assessee challenged this action, arguing that mere excess stock, without any supporting evidence of tax evasion or fraudulent intent, does not warrant invoking Section 130. Instead, such discrepancies should be addressed under Section 73 or 74 which deal with recovery of tax.
The assessee relied on the well-known Dinesh Kumar case, previously decided by the same High Court and affirmed by the Hon’ble Supreme Court, where a similar stand was taken.
Importantly, the State did not contest this legal argument during the hearing.
Key Issue Before the Court:
Can excess stock found during inspection be considered enough reason to invoke Section 130 (confiscation) of the GST Act, or should it be dealt with under Sections 73/74 for tax recovery?
Court’s Verdict:
The Hon’ble High Court observed:
Mere presence of excess stock is not sufficient to invoke confiscation under Section 130.
There was no finding of intent to evade tax, which is a prerequisite for applying Section 130.
Therefore, the appropriate remedy lies under Sections 73/74, and the impugned orders were quashed.
The Court followed the ratio laid down in the Dinesh Kumar case and reaffirmed the position.
Analysis by the Author:
This ruling is a significant precedent against the blanket application of Section 130 by GST authorities. It re-emphasizes that tax recovery and confiscation are not interchangeable remedies.
As a tax professional, I’ve observed that in many routine inspections, officers directly jump to confiscation proceedings, often without examining whether mens rea (intention to evade) is present or not.
This case confirms that such action can be challenged successfully — especially when the taxpayer is cooperative and no fraud is evident.
Key Learnings:
Excess stock Fraud
Confiscation (Section 130) must be based on intentional evasion, not clerical or stock mismatches.
Dinesh Kumar case is now a strong legal precedent taxpayers can rely upon.
This decision brings clarity and prevents misuse of penal provisions.
Related Video:
Watch complete breakdown of this judgment on YouTube
Tax Gyaan with Shubham
https://youtu.be/60cMj7CPb_E?si=cpJOIbPAoAlJkzyE
Raj Steel Case – Video Analysis
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About the Author:
Shubham, Tax Consultant | Founder – Tax Gyaan With Shubham
Regularly simplifies GST & Income Tax law via video & written content for professionals, students & businesses.
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