Unaccounted Tobacco Stock: Agra GSTAT Upholds Setting Aside Of Section 130 Fines And Penalties, Says Sections 73/74 Apply Instead

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 penalty and fine imposed under Section 130(2) after unaccounted tobacco, tobacco products or related stock was found during inspections of the respondents’ business premises.

In the appeal concerning Nihal Tobacco Company, 27,029 kg of tobacco products, valued at ₹12,16,755, was found unaccounted; the proper officer imposed a total penalty and fine of ₹1,21,676.

The First Appellate Authority set aside that order, holding that proceedings under Section 130 read with Section 122 were not available on these facts and that proceedings under Sections 73/74 could instead be initiated.

Section 35(1) of the CGST/UPGST Acts requires registered persons to maintain true and correct accounts; under Section 35(6), where goods or services are unaccounted for, the proper officer may determine the tax payable as if they had been supplied, applying the procedure in Sections 73 or 74 mutatis mutandis.

Those decisions were applied for the principle that excess or unaccounted stock discovered at business premises should be addressed through proceedings under Sections 73/74, rather than confiscation proceedings under Section 130 on that basis alone.

The Tribunal treated the appeals as raising the same question: whether unaccounted stock discovered at business premises justified confiscation and penalties under Section 130.

Applying Section 35(6) and the cited Allahabad High Court decisions, it held that the statutory route for determining tax on unaccounted goods was Sections 73/74. Because the officers had proceeded directly under Section 130, the Tribunal found the original orders unsustainable and concluded that the First Appellate Authority had correctly set them aside.

The order was pronounced on 30 October 2026.