Recently, the Allahabad High Court ruled that the proceedings under Section 130 of the Goods and Services Tax ( GST ) Act cannot be initiated for the excess stock detected during the inspection under Section 67 of Central GST Act. The petitioner, M/s Kanha Detergent Pvt Ltd is a registered company involved in the manufacture and sale of detergent products, was subjected to a search under Section 67 of the GST Act. During this inspection, the authorities concluded that excess stock was present at the business premises based solely on eye measurement, without performing an actual weighment. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here The petitioner contended that the appropriate course of action should have involved proceedings under Sections 73 or 74 of the GST Act instead of invoking Section 130.

This argument was bolstered by referencing a prior judgment in M/s Dinesh Kumar Pradeep Kumar vs. Additional Commissioner, which set a precedent for the interpretation of excess stock situations. The Court noted that it was undisputed that a survey had been conducted and excess stock was found. However, the legal precedent established in various cases—including Metenere Limited—indicates that proceedings under Sections 73 and 74 should be initiated in cases of excess stock rather than the more severe provisions of Section 130.

The section 130 pertains to the confiscation of goods and conveys serious penalties for alleged intent to evade tax. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here Furthermore, the bench of Justice Piyush Agrawal clarified that while Section 35(6) allows for unaccounted goods to be deemed supplied, the assessment of tax on such goods must follow the procedural requirements laid out in Sections 73 or 74. Consequently, the High Court quashed both the orders issued by the first appellate authority and the adjudicating officer, ruling that excess stock findings during the inspection do not automatically lead to the application of Section 130 proceedings.