Facts of the Case:

In this case, the dispute originated from a survey conducted on 30.04.2019 at the petitioner’s business premises, during which the authorities alleged that “excess stock” was found. The petitioner contended that the allegation was baseless as no actual physical counting of stock was undertaken during the survey. Despite this, the authorities initiated proceedings under Section 130 of the GST Act, alleging that the excess stock amounted to goods liable for confiscation.

The petitioner argued that the statutory scheme of the CGST Act mandates that such cases must be adjudicated only under Sections 73 or 74, which deal with tax short-payment and wrongful availment of ITC. The petitioner also placed strong reliance on previous binding judgments of the Allahabad High Court in Vijay Trading Company and PP Polyplast Private Limited, both of which were subsequently affirmed by the Supreme Court in 2025. These cases held that Section 130 cannot be invoked merely because excess stock is found during survey.

Issue:

Whether excess stock detected during a survey at the business premises empowers the department to initiate confiscation proceedings under Section 130 of the GST Act. Whether the statutory scheme under Section 35(6), read with Sections 73/74, mandates that such discrepancies must be adjudicated only through the assessment process under those sections

Held that:

The Court noted that Section 35 mandates every registered person to maintain true and correct accounts of goods at their principal place of business. Importantly, Section 35(6) explicitly provides that if a registered dealer fails to account for goods in accordance with Section 35(1), the proper officer “shall determine the amount of tax payable… and the provisions of Sections 73 or 74 shall mutatis mutandis apply.”

The Court emphasized that the CGST Act is a self-contained code, and where a specific mechanism is prescribed for a particular situation, the authorities are bound to follow that mechanism. Thus, when the statute expressly provides that unaccounted goods must be assessed under Sections 73/74, the authorities cannot bypass the statutory mandate and resort to confiscation under Section 130, which is a drastic penal provision meant for cases involving intent to evade tax or wrongful transportation, not simple accounting discrepancies.

The Court held that the invocation of Section 130 on the basis of alleged excess stock found during survey is illegal and contrary to the statutory scheme. The proper course of action in such circumstances is assessment under Sections 73 or 74, as mandated by Section 35(6). The impugned orders dated 30.09.2019 and 24.10.2024 were accordingly quashed. The writ petition was allowed.

Case Name: Vidyarthi Dresses Versus State Of Uttar Pradesh Through Principal Secretary (Finance) And 2 Others dated 17.11.2025

To read the complete judgement 2025 Taxo.online 2986