56,735 Kg Unaccounted Tobacco Stock: GSTAT Upholds Quashing Of ₹3.38 Lakh Penalty And Fine, Says Sections 73/74—Not Section 130—Apply to Survey Findings

In brief

The question

Whether the First Appellate Authority was right to set aside the penalty and fine imposed under Section 130(2) for goods found unaccounted for during verification of the business premises.

The court held

The Tribunal answered the issue in the affirmative and dismissed the Department’s appeal as without merit.

It also directed

The First Appellate Authority’s order setting aside the Section 130 proceedings and the associated penalty and fine was upheld.

01Facts

On 30 November 2024, a State Tax investigation team found 56,735 kg of tobacco raw material unaccounted for at Anant Enterprises’ business premises.

¶ 1–3

The proper officer initiated proceedings under Section 130 read with Section 122 of the CGST/UPGST Acts and imposed penalty and fine totalling Rs. 3,38,823. The taxpayer appealed under Section 107; the First Appellate Authority set aside the original order and the resulting demand. The State Tax Department then brought this second appeal under Section 112.

¶ 1–3

02Issues

i.Whether the First Appellate Authority was right to set aside the penalty and fine imposed under Section 130(2) for goods found unaccounted for during verification of the business premises.

¶ 11

03Law Applied

Section 35(1) of the CGST/UPGST Acts requires registered persons to maintain true and correct accounts, while Section 35(6) provides that where goods or services are not accounted for, the proper officer may determine the tax payable as if they had been supplied; the tax determination is to follow the procedure under Section 73 or Section 74.

¶ 15

The Tribunal relied on M/s Dinesh Kumar Pradeep Kumar v. Additional Commissioner, Gr-II (Writ Tax No. 1082 of 2022, decided 25 July 2024), M/s Shri Om Steels v. Additional Commissioner, Gr-II (Writ Tax No. 1007 of 2022, decided 19 July 2024), and V. K. Electricals v. Additional Commissioner, Gr-II (Writ Tax No. 957 of 2024, decided 23 August 2024), for the principle that excess or unaccounted stock discovered at business premises should be dealt with through proceedings under Section 73 or 74, rather than confiscation proceedings under Section 130.

¶ 13–16

Provisions in the judgment · 9 · Linked ones open on LawLens

Central Goods and Services Tax Act, 2017 9 provisions

Section 130 Section 122 Section 112 Section 161 Section 107 Section 68 Section 73 Section 74 Section 35

04Reasoning

The Tribunal considered that the goods were found unaccounted for during a survey of the taxpayer’s business premises. Applying Section 35(6) and the cited Allahabad High Court decisions, it held that the proper officer’s route was to determine any tax payable under Section 73 or 74.

¶ 15–18

Initiating confiscation proceedings under Section 130 and imposing penalty and fine in lieu of confiscation was therefore not legally sustainable. The First Appellate Authority had correctly set aside the original order and the resulting demand.

¶ 15–18