• Comments Off on GST – Case_Law – Inspection of Business Premises – Excess Stock Found

GST – Case_Law – Inspection of Business Premises – Excess Stock Found

Factual Background

During inspection or search proceedings conducted at the business premises under Section 67 of the CGST Act, the Proper Officer alleges discrepancy or excess stock vis-à-vis books of accounts and statutory records. Based on such alleged excess stock, proceedings are initiated directly under Section 130 (Confiscation) of the Act.

Core Legal Issue

Whether mere detection of excess stock or discrepancy during inspection justifies direct initiation of confiscation proceedings under Section 130, or whether the Proper Officer must first resort to tax determination proceedings under Section 73 or Section 74 of the CGST Act?

Governing Legal Propositions

1. Section 67 is Investigative in Nature
Section 67 empowers inspection, search, and seizure. It does not determine tax liability. Any findings during inspection, including excess stock, require reconciliation and adjudication through statutory determination proceedings.

2. Section 73 / Section 74 – Primary Adjudicatory Mechanism
Section 73 and Section 74 are the statutory routes for determination and recovery of tax not paid, short paid, or wrongly availed.

  • Section 73 – Applies where the case does not involve fraud, wilful misstatement, or suppression of facts.
  • Section 74 – Applies where non-payment or short payment is due to fraud, wilful misstatement, or suppression of facts with intent to evade tax.

3. Section 130 – Penal Provision
Section 130 (Confiscation) is penal in nature and cannot be invoked mechanically based merely on inspection findings. Confiscation cannot substitute assessment proceedings and cannot bypass the statutory process of tax determination under Sections 73 or 74.

Judicial Precedents

Additional Commissioner v. Dayal Products
98 G.S.T.L. 351 (All. High Court)

  • Survey conducted at business premises.
  • Alleged discrepancy in stock was found.
  • Proceedings were initiated directly under Section 130.
  • Hon’ble High Court quashed the order passed under Section 130.
  • Revenue filed SLP before Hon’ble Supreme Court – 2025 (102) G.S.T.L. 193.
  • SLP dismissed. Supreme Court declined to interfere with High Court order.

Supporting Case Laws:

  • Dinesh Kumar Pradeep Kumar – 2024 (89) GSTL 239 (All.)
  • Maa Mahamaya Alloys (P.) Ltd. – 2023 (73) GSTL 612 (All.)
  • Shree Om Steels – 2024 (89) GSTL 13 (All.)

Conclusion

Where excess stock is detected during inspection under Section 67, proceedings must be initiated under Section 73 or Section 74 for determination of tax liability. Direct invocation of Section 130 for confiscation without prior adjudication is legally unsustainable.

Contact: 079-48490128 / +91-9265885020
Email: info@pchhajed.com