GSTAT Upholds Quashing Of ₹5.63 Lakh Penalty And Fine On Tobacco Trader: Survey-Found Unaccounted Stock Cannot Be Confiscated Under GST Section 130

In brief

The question

Whether the first appellate authority correctly set aside penalties and fines imposed under Section 130(2) in lieu of confiscation where goods were found unaccounted during verification of business premises.

The court held

The Tribunal held that the first appellate authority had rightly set aside the orders imposing penalty and fine under Section 130(2) for unaccounted goods found during surveys.

It also directed

It dismissed the five Department appeals as lacking merit.

The order was pronounced on 30 October 2026.

01Facts

The State Tax Department brought five second appeals under Section 112 of the CGST/UPGST Acts against orders of the first appellate authority setting aside penalties and fines imposed under Section 130(2) in lieu of confiscation.

¶ 1–10

In four matters, inspections or surveys at business premises allegedly revealed unaccounted tobacco, tobacco dust or related stock; the fifth appeal concerned an order rectifying an omission in an earlier appellate order.

¶ 1–10

In the Raghav International matter, the inspection allegedly found 3,30,997 kg of unaccounted tobacco dust, and the adjudicating officer imposed penalty and fine totalling Rs. 5,63,396.

¶ 1–10

The first appellate authority set aside that order, prompting the Department’s appeal.

¶ 1–10

02Issues

i.Whether the first appellate authority correctly set aside penalties and fines imposed under Section 130(2) in lieu of confiscation where goods were found unaccounted during verification of business premises.

¶ 11

ii.Whether proceedings concerning such unaccounted stock should be taken under Sections 73 or 74, rather than Section 130.

¶ 13–17

03Law Applied

Section 35(1) of the CGST/UPGST Acts requires registered persons to maintain true and correct accounts; under Section 35(6), where accounts are not maintained for goods or services, the proper officer may determine the tax payable as if the goods or services had been supplied, applying the procedure in Sections 73 or 74 mutatis mutandis.

¶ 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 stock found during a survey is to be addressed through Sections 73 or 74 and not by invoking Section 130.

¶ 13–16

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

Central Goods and Services Tax Act, 2017 9 provisions

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

04Reasoning

Applying Section 35(6) and the cited Allahabad High Court decisions, the Tribunal held that the discovery of excess or unaccounted stock during a survey did not, by itself, authorise confiscation proceedings under Section 130.

¶ 15–17

The proper officer was required to determine any tax payable through the process under Section 73 or 74. Because the adjudicating officers had instead initiated Section 130 proceedings and imposed fines and penalties in lieu of confiscation, the first appellate authority had correctly set aside those orders.

¶ 15–17

05Holding

The Tribunal held that the first appellate authority had rightly set aside the orders imposing penalty and fine under Section 130(2) for unaccounted goods found during surveys.

¶ 18

It dismissed the five Department appeals as lacking merit.

¶ 18

The order was pronounced on 30 October 2026.

¶ 20

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