Background
The Supreme Court, on 4 April 2025 in Additional Commissioner Grade-2 v. Vijay Trading Company, dismissed the Department’s Special Leave Petition against an Allahabad High Court judgment.
The High Court had ruled that merely finding excess stock during an inspection/survey does not justify confiscation of goods under Section 130 of the GST law.
Legal Framework
Section 35(6) of the CGST Act requires that when unaccounted goods are found, their tax liability must be determined first, treating them as if supplied.
Sections 73/74 provide the machinery for assessment and adjudication of tax liability, depending on whether fraud or suppression is involved.
Section 130 is a penal/confiscation provision that applies only when there’s a contravention with intent to evade tax.
Court’s Findings
The High Court held that excess stock alone — especially when assessed on eye measurement — is not sufficient to trigger confiscation under Section 130.
The proper route is to assess tax under Sections 73/74 via Section 35(6), not to invoke confiscation.
The Supreme Court’s dismissal of the Department’s appeal affirmed and strengthened this position.
Practical Implications
For taxpayers:
You can challenge confiscation proceedings under Section 130 where the only basis is excess stock.
Adjudication must follow Sections 73/74, which include procedural safeguards and opportunities to adjudicate tax liability.
For tax authorities:
Confiscation under Section 130 should be used only if there is evidence of tax evasion and intent, not merely an inventory mismatch.
Conclusion
The Supreme Court’s order confirms that excess stock ≠ automatic confiscation under GST. Instead, statutory assessment procedures apply first, and confiscation powers under Section 130 are restricted to cases with established intent to evade tax.
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