Facts of the Case

M/S Magma Industries, a registered Public Limited Company manufacturing bulk drug used in medicines, was subjected to a survey by the SIB team on 28.1.2021 at its business premises, where stock was assessed by eye measurement — not actual weighment — and excess stock was alleged. Proceedings were initiated under Section 130 of the GST Act (confiscation), resulting in an order dated 20.7.2021 by the Deputy Commissioner and a further order dated 31.5.2022 by the Additional Commissioner. The petitioner challenged both orders before the Allahabad High Court, contending that confiscation proceedings under Section 130 could not have been invoked for a mere excess-stock finding.

Issues Involved

  1. Whether proceedings for confiscation under Section 130, rather than assessment under Sections 73/74, can be invoked merely because excess stock was found during a survey.
  2. Whether valuation of stock based on eye estimation, without actual weighment, can sustain such proceedings.

Petitioner's Arguments

  • Actual weighment of stock was never done by the authorities — only an eye measurement was recorded.
  • Proceedings under Section 130 could not have been initiated for excess stock; only Sections 73/74 assessment proceedings were legally permissible.
  • Relied on M/s Vijay Trading Company vs. Additional Commissioner Grade-2 (Writ Tax No. 1278 of 2024, decided 20.8.2024), affirmed by the Supreme Court in SLP (Civil) Diary No. 5881 of 2025.

Respondent's Arguments

  • Learned Additional Standing Counsel for the State supported the impugned orders, without separately addressing the line of precedent cited by the petitioner.

Court Order / Findings

  • Reaffirming its consistent line of precedent (Metenere Limited, M/s Shree Om Steels, Dinesh Kumar Pradeep Kumar, M/s Maa Mahamaya Alloys), the Court held that even where excess stock is found during a survey, the department must proceed under Sections 73 or 74 — not Section 130 — since the liability to pay tax arises only at the point of supply.
  • Section 130(1)(ii)/(iv) requires either the point of supply to have occurred or a specific finding of intent to evade tax, neither of which was shown here; Section 35(6) itself mandates that determination of tax on unaccounted goods (deemed supply) follow the Section 73/74 procedure.
  • The entire exercise of assessing tax and levying penalty under Section 130 on the basis of a mere survey was held unsustainable; both impugned orders were quashed and the writ petition allowed.

Important Clarification

  • It is now well-settled before the Allahabad High Court that discovery of excess stock during a search/survey, by itself, cannot trigger confiscation proceedings under Section 130.
  • The proper recourse is determination of tax through the regular assessment machinery under Sections 73 or 74.
  • Section 130(1)(iv) additionally requires the department to specifically establish both a contravention and an intent to evade tax, which a bare stock discrepancy does not, by itself, establish.

Sections Involved

  • Section 130, CGST Act, 2017 — confiscation of goods/conveyances and levy of penalty, held inapplicable to bare excess-stock findings.
  • Section 73/74, CGST Act, 2017 — the correct machinery for determining tax on unaccounted or excess stock.
  • Section 35(6), CGST Act, 2017 — deems unaccounted goods to have been supplied and mandates that tax thereon be determined per Sections 73/74.

Decision – In Favour of

The decision is in favour of the assessee. Both impugned orders were quashed and the writ petition was allowed.

Case Details

Court: High Court of Judicature at Allahabad
Case No.: Writ Tax No. 1179 of 2022; Neutral Citation 2025:AHC:124028
Coram: Hon'ble Justice Piyush Agrawal
Date of Order: 28.7.2025

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