Facts of the Case:

The petitioner challenged a show cause notice dated 12.02.2026 issued under Section 122 read with Section 130 of the UPGST/CGST Act alleging stock discrepancies and violations relating to maintenance of records under Section 35 of the Act. Pursuant to the said notice, the department passed a confiscation order dated 27.02.2026 imposing penalty and fine, which was subsequently reflected in Form GST DRC-07 uploaded on 09.03.2026. During search proceedings, an amount of approximately Rs. 64.91 lakh was also recovered through DRC-03.

The petitioner contended that confiscation proceedings under Section 130 could not be initiated merely on allegations of stock discrepancy or record-keeping violations without prior determination of tax liability under Sections 73 or 74 of the GST Act. Reliance was placed on various decisions including M/s Metenere Ltd., M/s Maa Mahamaya Alloys Pvt. Ltd., and M/s Dayal Product, along with dismissal of SLPs filed against such judgments by the Supreme Court.

Issue:

Whether proceedings under Section 130 of the GST Act for confiscation of goods and imposition of penalty can be initiated directly on allegations of stock discrepancy and violation of Section 35, without prior adjudication and determination of tax liability under Sections 73 or 74 of the GST Act.

Held That:

The High Court held that the issue was no longer res integra and reiterated that proceedings under Section 130 of the GST Act cannot be initiated directly for alleged violation of Section 35 or stock discrepancies without first determining tax liability under Sections 73 or 74 of the Act. The Court observed that the impugned show cause notice issued under Section 122 read with Section 130 was wholly without jurisdiction.

The Court further held that where a notice is issued without jurisdiction, the writ petition is maintainable even at the show cause notice stage, notwithstanding availability of alternative remedies. Relying upon settled judicial precedents, the Court quashed the impugned show cause notice dated 12.02.2026 as well as the consequential confiscation order dated 27.02.2026 and DRC-07 proceedings. However, liberty was granted to the department to proceed afresh in accordance with law under the relevant statutory provisions. The petitioner was also granted liberty to seek refund of the amount deposited during the search proceedings in accordance with law.

Case Name: Kvn Fmcg (P.) Ltd. v. State of U.P. dated 18.05.2026

To read the complete judgement 2026 Taxo.online 1418