Facts of the Case

M/s Nikhil Trade & Exports challenged proceedings under Section 130 read with Section 122 of the GST Act, initiated after a survey of its business premises on 23.02.2024 allegedly revealed excess stock — an allegation made, the petitioner argued, without any actual weighment of goods. The impugned order dated 25.11.2024 passed by respondent no. 2 and the appellate order dated 24.05.2025 passed by respondent no. 1 (Additional Commissioner Grade-2 (Appeals), State Tax, Kanpur) were both under challenge before the Allahabad High Court. With the consent of parties, the writ petition was finally decided without exchange of affidavits.

Issues Involved

  1. Whether confiscation and penalty proceedings under Section 130 of the GST Act can be invoked merely because excess stock is alleged to have been found during a survey.
  2. Whether Section 35(6) read with Sections 73/74 provides the exclusive mechanism for determining tax on unaccounted goods, ousting Section 130 in such cases.

Petitioner's Arguments

  • Proceedings ought to have been initiated under Sections 73/74, not Section 130, since the case was one of alleged excess stock rather than confiscation-worthy conduct.
  • The issue was squarely covered by this Court's ruling in M/s Vijay Trading Company vs. Additional Commissioner & Another (Writ Tax No. 1278/2024, decided 20.08.2024), affirmed by the Supreme Court in Special Leave Petition (Civil) Diary No. 5881/2025 (decided 04.04.2025), and followed in State of U.P. vs. Additional Commissioner (Writ Tax No. 1116/2023) and M/s PP Polyplast Private Limited (Writ Tax No.1183/2024), the latter also affirmed by the Supreme Court.

Respondent's Arguments

  • Learned Additional Chief Standing Counsel for the State could not dispute the petitioner's submission regarding the covering precedents.

Court Order / Findings

  • The Court held that Section 35(6) of the GST Act specifically directs that where a registered person fails to account for goods, the Proper Officer must determine the tax payable and that Sections 73/74 shall mutatis mutandis apply — making the GST Act a complete code for such situations.
  • Once the statute specifically contemplates action under Sections 73/74 for unaccounted goods, Section 130 cannot be invoked, a position the Court held to be no longer res integra in light of Vijay Trading Company (affirmed by the Supreme Court) and PP Polyplast Private Limited.
  • The impugned orders were held unsustainable and were quashed, and the writ petition was allowed.

Important Clarification

  • Excess stock detected during a survey, by itself, cannot trigger confiscation proceedings under Section 130; the proper recourse is determination of tax under Sections 73 or 74 as the facts warrant.
  • This principle now stands affirmed by the Supreme Court (Vijay Trading Company and PP Polyplast Private Limited SLPs), making it settled law across GST authorities in Uttar Pradesh and persuasive elsewhere.

Sections Involved

  • Section 130, CGST Act, 2017 – confiscation of goods/conveyances and levy of penalty.
  • Section 122, CGST Act, 2017 – penalty for certain offences, invoked alongside Section 130 in the impugned proceedings.
  • Section 35(6), CGST Act, 2017 – consequence of failure to account for goods, directing application of Sections 73/74.
  • Sections 73 and 74, CGST Act, 2017 – determination of tax not paid, in non-fraud and fraud cases respectively.

Decision – In Favour of

The writ petition succeeded and was allowed in favour of the assessee, with both the original and appellate orders quashed.

Case Details

Court: High Court of Judicature at Allahabad. Case No.: Writ Tax No. 3812 of 2025. Neutral Citation: 2025:AHC:136586. Coram: Hon'ble Mr. Justice Piyush Agrawal. Date of Order: 12th August, 2025.

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