Facts of the Case:

In this case, the four departmental appeals were filed under Section 112 of the CGST/UPGST Acts by the Assistant Commissioner, Special Investigation Branch, State Tax, Etawah, against orders passed by the First Appellate Authority setting aside orders issued under Section 130 read with Section 122 of the CGST/UPGST Acts. The disputes arose from surveys conducted at different brick kilns, during which substantial quantities of bricks and, in one case, coal were allegedly found in excess of the stock recorded in the books of account.

In the first case, 19,27,289 bricks and 60 metric tonnes of coal were found unaccounted for, resulting in an order under Section 130 imposing penalty of ₹7,57,866 and fine of ₹75,562. In the second case, 15,15,500 unaccounted bricks were found and penalty/fine of ₹5,33,882 was imposed. In the third case, 21,53,500 unaccounted bricks were detected, resulting in penalty/fine of ₹15,17,820. In the fourth case, 16,30,000 unaccounted bricks were found and penalty/fine of ₹5,65,151 was imposed.

The respective taxpayers challenged the orders under Section 107. The First Appellate Authority allowed the appeals and set aside the Section 130 proceedings and the consequential penalty/fine, holding that where excess or unaccounted stock is found during survey, the proper course is to determine the tax liability under Sections 73/74 rather than invoke the confiscation provisions of Section 130.

The Department did not challenge the finding that the Section 130 proceedings themselves were unsustainable. Instead, in the four second appeals, it sought only to preserve the fine imposed in lieu of confiscation, contending that the issue of fine had been left open by the First Appellate Authority.

Issue:

Whether the Department could maintain an appeal before the GSTAT confined only to the fine imposed under Section 130, when the First Appellate Authority had set aside the entire Section 130 proceedings on the ground that such proceedings were not legally sustainable in respect of unaccounted stock found during survey.

Held That:

The Tribunal noted that Section 35(1) requires registered persons to maintain true and correct accounts of the prescribed goods and transactions. More importantly, Section 35(6) specifically provides that where a registered person fails to account for goods or services, the proper officer may determine the amount of tax payable on such goods or services as if they had been supplied, and the provisions of Sections 73 or 74 would apply mutatis mutandis for determination of such tax.

The Tribunal relied upon the decisions of the Allahabad High Court in M/s Dinesh Kumar Pradeep Kumar v. Additional Commissioner, Gr. II, Writ Tax No. 1082 of 2022, decided on 25.07.2024; M/s Shri Om Steels v. Additional Commissioner, Gr. II, Writ Tax No. 1007 of 2022, decided on 19.07.2024; and V.K. Electricals v. Additional Commissioner, Gr. II, Writ Tax No. 957 of 2024, decided on 23.08.2024. These decisions held that where excess stock is detected during survey, the appropriate course is initiation of proceedings under Sections 73/74 for determination of tax and consequential liability, rather than invoking Section 130 merely because the goods were not accounted for.

Applying these principles, the Tribunal held that the proper officer was not authorised to invoke Section 130 and impose penalty/fine in lieu of confiscation merely because excess or unaccounted bricks and coal were found at the brick kilns. The First Appellate Authority had, therefore, correctly quashed the Section 130 proceedings and the consequential penalty and fine.

The Tribunal further rejected the Department’s attempt to maintain the appeals only in respect of the fine. It observed that once the First Appellate Authority had quashed the entire order-in-original on the fundamental finding that initiation of proceedings under Section 130 was not backed by law, there was no surviving independent question regarding the fine. The Tribunal found it difficult to accept the Department’s contention that the question of fine had been left open.

The Tribunal also criticised the Department for filing the four appeals in a perfunctory manner and without proper application of mind, observing that before directing subordinate officers to file an appeal under Section 112, the Commissioner was expected to examine the facts and applicable law. Since the Department had not challenged the fundamental finding regarding the illegality of Section 130 proceedings and had confined its appeals to the fine, the appeals were held to be without merit.

Accordingly, answering the formulated question in the negative, the GSTAT dismissed all four departmental appeals.

Case Name: Jitendra Kumar Versus M/s. R.V. Brick Field, Partner. Dated 17.09.2026

Citation No. 2026 Taxo.online 2969