Section 130 Cannot Be Invoked Merely On Account Of Excess Stock
Found During Survey– Allahabad High Court
Introduction
The Goods and Services
Tax (GST) framework prescribes different provisions for recovery of tax,
interest, and penalty depending on the nature of default. Sections 73 and 74
of the CGST/UPGST Act deal with recovery in cases of short payment or wrongful
availment of Input Tax Credit (ITC), while Section 130 is a more drastic
provision, invoked for confiscation of goods or conveyances in cases of
intent to evade tax.
In practice, tax
authorities sometimes invoke Section 130 even in cases of mere excess stock
found during surveys — a trend that courts have consistently frowned upon.
The recent judgment in M/s
Harilaxmi Alloys Pvt. Ltd. vs. State of U.P. & Others [Writ Tax No. 1484 of
2022, decided on 27 August 2025] by the Allahabad High Court
reinforces this principle. The Court quashed proceedings initiated under
Section 130 against the petitioner where excess stock was found, holding that
the proper course was to initiate proceedings under Section 73 or 74.
Case
Details
- Case Title:
M/s Harilaxmi Alloys Pvt. Ltd. vs. State of U.P. & 2 Others
- Court:
High Court of Judicature at Allahabad
- Case No.:
Writ Tax No. 1484 of 2022
- Date of Order:
27 August 2025
Summary of
the Case
The petitioner’s business
premises were surveyed on 11 December 2018, during which the officers
claimed to have found excess stock. Crucially, this was not based on
actual weighment but on eye estimation.
Relying on this, the
Department initiated proceedings under Section 130 (confiscation of goods)
read with Section 122, and imposed tax and penalty through an order
dated 23 June 2020.
The petitioner’s appeal
was dismissed on 30 November 2021. Aggrieved, the petitioner approached
the Allahabad High Court.
The High Court relied on
its earlier rulings in Vijay Trading Company (2024) and Dinesh Kumar
Pradeep Kumar (2022), both affirmed by higher courts, to hold that Section
130 cannot be invoked merely on account of excess stock found during survey.
The Court quashed the impugned orders and directed refund of any amount
deposited.
Facts of
the Case
1. Survey
at Business Premises
o On
11.12.2018, officials conducted a survey at the petitioner’s factory
premises.
o Stock
was not physically weighed but was measured on eye estimation.
2. Allegation
of Excess Stock
o On
the basis of eye measurement, it was alleged that excess stock was found,
triggering initiation of proceedings.
3. Invocation
of Section 130
o Instead
of initiating proceedings under Sections 73/74 for alleged suppression
or discrepancy, the Department invoked Section 130, treating it as a
case of confiscation.
4. Orders
Passed
o Order
dated 23.06.2020 imposed tax and penalty.
o Appeal
was dismissed on 30.11.2021 by respondent authorities.
5. High
Court Petition
o The
petitioner filed Writ Tax No. 1484 of 2022, challenging both orders as
arbitrary and beyond jurisdiction.
Submissions
by the Petitioner
The petitioner, through
learned counsel Mr. Vishwjit, argued:
- Improper Weighment
- The alleged “excess stock” was based
on eye estimation, not actual physical weighment, rendering the findings
unreliable.
- Wrongful Invocation of Section 130
- Even assuming excess stock existed,
the correct provision was Section 73/74 (determination of tax not
paid or short paid), not Section 130 which relates to confiscation.
- Precedent Support
- Relied on M/s Vijay Trading
Company vs. Addl. Commissioner (2024), affirmed by the Supreme Court
in SLP (Civil) Diary No. 5881/2025.
- Also cited S/s Dinesh Kumar
Pradeep Kumar (2022), where the Court held that proceedings under
Section 130 cannot be sustained merely on account of excess stock.
- Relief Sought
- Quashing of the orders dated
23.06.2020 and 30.11.2021.
- Refund of amounts deposited.
Defence by
the Respondents
The State, through ACSC
Mr. Ravi Shanker Pandey, defended the departmental action:
- Excess Stock Justified Action
- Argued that excess stock was found
during survey, warranting initiation of proceedings.
- Support of Impugned Orders
- Submitted that both the original
order and appellate order were passed in accordance with law.
- No Need for Interference
- Urged that the writ petition be
dismissed.
Observations
of the Court
The Allahabad High Court
made the following key observations:
1. Survey
& Excess Stock
o It
was undisputed that the survey was conducted on 11.12.2018 and that the finding
of excess stock triggered proceedings.
2. Correct
Provision to be Invoked
o The
Court emphasized that when excess stock is found, the appropriate provision is Section
73/74, not Section 130.
3. Precedent
Binding
o The
issue is no longer res integra.
o In
Dinesh Kumar Pradeep Kumar (2022), this Court categorically held that
Section 130 cannot be invoked for excess stock cases.
o Similarly,
in Vijay Trading Company (2024), affirmed by the Supreme Court, the same
principle was reiterated.
4. Impugned
Orders Unsustainable
o Applying
the above precedents, the Court held that the orders dated 23.06.2020 and
30.11.2021 were unsustainable.
Judgment of
the Court
- The High Court allowed the writ
petition.
- Quashed the impugned appellate order
dated 30.11.2021 and the original order dated 23.06.2020.
- Directed that any amount deposited
by the petitioner shall be refunded in accordance with law.
Conclusion
The ruling in M/s
Harilaxmi Alloys Pvt. Ltd. vs. State of U.P. is an important reaffirmation
of judicial discipline in GST enforcement. It makes clear that:
1. Excess
Stock ≠ Confiscation – Discovery of excess stock during a
survey does not justify invoking Section 130. The proper course is recovery
under Section 73/74.
2. Survey
Must Be Proper – Eye estimation is not a reliable method
of stock verification; actual weighment is necessary for valid findings.
3. Binding
Precedents – Authorities must align with judicial precedents
like Vijay Trading Company and Dinesh Kumar Pradeep Kumar;
failure to do so results in orders being quashed.
4. Refund
Ordered – Courts will not only quash wrongful orders but also
ensure refund of amounts collected.
5. Lesson
for Tax Authorities – Drastic powers like confiscation under
Section 130 cannot be misused; proportionality and proper legal provisions must
guide enforcement.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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