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2025 (5) TMI 634 - HC - GSTInitiation of proceedings u/s 130 of the GST Act against a dealer when excess stock is found during a survey or inspection u/s 67 of the GST Act - stock was assessed on the basis of eye measurement - HELD THAT - It is not in dispute that survey was conducted at the business premises of the petitioner on 15.10.2019. It is also not in dispute that excess stock was found which triggered the initiation of the present proceedings against the petitioner. On various occasions this Court has held that if excess stock is found then proceedings under sections 73/74 of the GST Act should be pressed in service and not proceedings under section 130 of the GST Act read with rule 120 of the Rules framed under the Act. The law is clear on the subject that the proceedings under section 130 of the GST Act cannot be put to service if excess stock is found at the time of survey. This Court in M/s Vijay Trading Company 2024 (8) TMI 1039 - ALLAHABAD HIGH COURT has categorically held that the proceedings under section 130 of the GST Act cannot be put to service in case excess stock is found at the time of survey. Further section 35 of the GST Act prescribes about the maintenance of account and other records. Sub-section (6) thereof contemplates that if the registered dealer fails to account for the goods in accordance with the provision of sub-section (1) the Proper Officer shall determine the amount of tax payable on such goods that are not accounted for by such person and the provision of sections 73/74 of the GST Act as the case may be shall mutatis mutandis apply for determination of such tax. The GST Act is a complete Code in itself - Once the Act specifically contemplates that action to be taken then the provision of section 130 of the GST Act cannot be pressed into service. Conclusion - If excess stock is found at the time of survey then proceedings under sections 73/74 of the GST Act should be pressed in service and not proceedings under section 130 of the GST Act read with rule 120 of the Rules framed under the Act. Petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legality of initiating proceedings under section 130 of the GST Act when excess stock is found during survey under section 67 Relevant legal framework and precedents: Section 67 of the GST Act empowers authorities to conduct survey or inspection of business premises. Section 130 of the GST Act, read with rule 120 of the Rules framed under the Act, provides for provisional attachment of property in certain cases. Sections 73 and 74 of the GST Act deal with determination of tax not paid or short paid, including cases of fraud or willful misstatement. The Court referred to its prior rulings in M/s Vijay Trading Company and S/s Dinesh Kumar Pradeep Kumar, which held that proceedings under section 130 cannot be invoked when excess stock is found during survey; instead, sections 73/74 must be invoked. Court's interpretation and reasoning: The Court emphasized that the GST Act is a self-contained code with specific provisions for different scenarios. It is settled law that the discovery of excess stock during survey triggers the procedure under sections 73/74 for tax determination and recovery, not the provisional attachment under section 130. The Court noted that the impugned orders incorrectly initiated proceedings under section 130, which is impermissible. Key evidence and findings: The survey dated 15.10.2019 found excess stock at the petitioner's premises. The authorities assessed stock based on eye measurement without actual weighment, but the excess stock finding was undisputed. Application of law to facts: Given the undisputed fact of excess stock, the authorities should have initiated proceedings under sections 73/74. The initiation of proceedings under section 130 was contrary to the statutory scheme and judicial precedent. Treatment of competing arguments: The petitioner argued that section 130 proceedings were wrongly initiated and relied on binding precedents. The State respondents supported the impugned orders but failed to provide convincing legal basis for invoking section 130 in these circumstances. Conclusion: The Court held that initiating proceedings under section 130 in case of excess stock found during survey is impermissible and contrary to the statutory framework and judicial pronouncements. Issue 2: Interpretation and application of section 35(6) of the GST Act regarding maintenance of accounts and determination of tax on unaccounted goods Relevant legal framework and precedents: Section 35(1) mandates registered dealers to maintain proper accounts and records. Section 35(6) provides that if a dealer fails to account for goods as required, the Proper Officer shall determine the tax payable on such goods, applying the provisions of sections 73/74 mutatis mutandis. Court's interpretation and reasoning: The Court underscored that section 35(6) explicitly directs that unaccounted goods discovered during inspection or survey must be dealt with under sections 73/74 for tax determination. This statutory provision reinforces that section 130 cannot be invoked in such circumstances. Key evidence and findings: The petitioner's failure to account for excess stock triggered the applicability of section 35(6). The Court found that the authorities did not follow the prescribed procedure under this provision. Application of law to facts: Since excess stock was not accounted for, the authorities were obliged to proceed under sections 73/74 as mandated by section 35(6). The deviation from this statutory mandate rendered the impugned orders unsustainable. Treatment of competing arguments: The petitioner relied on section 35(6) and supporting case law to argue against the use of section 130. The State did not effectively counter this statutory interpretation. Conclusion: The Court concluded that section 35(6) clearly mandates the use of sections 73/74 for tax determination on unaccounted goods, precluding the use of section 130 in such cases. Issue 3: Validity of the impugned orders passed by the first appellate authority and respondent authority Relevant legal framework and precedents: The impugned orders dated 19.06.2020 and 20.07.2022 involved initiation and continuation of proceedings under section 130 against the petitioner. The Court's prior rulings and the Apex Court's affirmation of the M/s Vijay Trading Company judgment are relevant. Court's interpretation and reasoning: The Court found that the impugned orders were contrary to settled law and statutory provisions, as they upheld the initiation of section 130 proceedings despite the presence of excess stock. The Apex Court's affirmation of the binding precedent reinforced this position. Key evidence and findings: The record showed no weighment of stock, only eye measurement, but the finding of excess stock was undisputed. The impugned orders failed to apply the correct legal provisions. Application of law to facts: Given the statutory mandate and judicial precedent, the impugned orders were legally untenable and thus liable to be quashed. Treatment of competing arguments: The petitioner challenged the orders based on legal grounds and precedent. The State supported the orders but did not provide sufficient legal justification to sustain them. Conclusion: The Court quashed the impugned orders as unsustainable in law. 3. SIGNIFICANT HOLDINGS The Court held: "If excess stock is found at the time of survey, then proceedings under sections 73/74 of the GST Act should be pressed in service and not proceedings under section 130 of the GST Act, read with rule 120 of the Rules framed under the Act." It further held: "Section 35(6) of the GST Act contemplates that if the registered dealer fails to account for the goods in accordance with the provision of sub-section (1), the Proper Officer shall determine the amount of tax payable on such goods that are not accounted for by such person and the provision of sections 73/74 of the GST Act, as
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