Tobacco Firms Keep Relief From Section 130 Penalties As GSTAT Says Unaccounted Stock Must Be Addressed Under Sections 73/74

In brief

The question

Whether the First Appellate Authority rightly set aside penalties and fines imposed under Section 130(2) in lieu of confiscation where unaccounted goods were found during verification of business premises.

The court held

The Tribunal answered the framed question in the affirmative and dismissed all five departmental appeals as lacking merit, thereby leaving the First Appellate Authority’s orders undisturbed.

It also directed

The order was pronounced on 30 October 2026.

01Facts

The State Tax Department filed five second appeals under Section 112 of the CGST/UPGST Acts against orders of the First Appellate Authority.

¶ 1(i)–(v), 10

In four matters, the authority had set aside orders imposing penalty and fine under Section 130 in lieu of confiscation after unaccounted tobacco or tobacco-related goods were found during inspections of business premises.

¶ 1(i)–(v), 10

The fifth appeal, APL/82/AGR/2026, concerned an order rectifying an omission in an earlier appellate order.

¶ 1(i)–(v), 10

The Tribunal heard the appeals together because they raised similar questions.

¶ 1

02Issues

i.Whether the First Appellate Authority rightly set aside penalties and fines imposed under Section 130(2) in lieu of confiscation where unaccounted goods were found during verification of business premises.

¶ 11

ii.Whether proceedings concerning unaccounted or excess stock found at business premises should be initiated under Sections 73 or 74, rather than under Section 130.

¶ 13–17

03Law Applied

Section 35(1) of the CGST/UPGST Acts requires registered persons to maintain true and correct accounts of prescribed goods and transactions; Section 35(6) empowers the proper officer to determine tax payable on unaccounted goods as if they had been supplied, applying the procedure under Section 73 or 74, as applicable.

¶ 15

The Tribunal relied on M/s Dinesh Kumar Pradeep Kumar v. Additional Commissioner, Gr-II and others, Writ Tax No. 1082 of 2022, decided 25 July 2024; M/s Shri Om Steels v. Additional Commissioner, Gr-II and others, Writ Tax No. 1007 of 2022, decided 19 July 2024; and V. K. Electricals v. Additional Commissioner, Gr-II and another, Writ Tax No. 957 of 2024, decided 23 August 2024. Those decisions were treated as holding that excess stock found during a survey should be addressed through Sections 73 or 74, and that resort to Section 130 for confiscation in such circumstances is unsustainable.

¶ 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

The Tribunal found that the goods in the relevant matters were discovered as unaccounted or excess stock during inspections of business premises.

¶ 15–18

Applying Section 35(6) and the cited Allahabad High Court decisions, it concluded that the proper officer could determine the tax payable through the statutory process under Section 73 or 74, but could not directly impose penalty and fine under Section 130 in lieu of confiscation on the facts described.

¶ 15–18

The First Appellate Authority had therefore correctly set aside the orders imposing those amounts.

¶ 15–18

05Holding

The Tribunal answered the framed question in the affirmative and dismissed all five departmental appeals as lacking merit, thereby leaving the First Appellate Authority’s orders undisturbed.

¶ 18

The order was pronounced on 30 October 2026.

¶ 20

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