Section 130 of CGST Act: Limits on Excess Stock Confiscation

Can Excess Stock Lead to Section 130 Proceedings Under CGST?

The Hon’ble Allahabad High Court, in a landmark ruling, clarified the boundaries of Section 130 of the Central Goods and Services Tax Act, 2017 (CGST Act). The court stated that excess stock findings during inspections cannot automatically trigger proceedings under Section 130 unless the intent to evade tax is unequivocally proven. This ruling protects taxpayers from undue penal actions and sets critical procedural guidelines for authorities.

Understanding Section 130 of the CGST Act

Section 130 governs the confiscation of goods or conveyances and the levy of penalties in cases involving:

1. Contravention of CGST provisions with the intent to evade tax.
2. Unaccounted goods liable for tax under CGST.
3. Supply of taxable goods without registration.
4. Intentional violation of CGST rules or provisions.
5. Misuse of conveyances for transporting goods unlawfully.

Case Law: Vijay Trading Company v. Additional Commissioner

In the case of Vijay Trading Company v. Additional Commissioner (Writ Tax No. 1278 of 2024), the Hon’ble Allahabad High Court addressed the misuse of Section 130:

• Facts: The petitioner, a hardware manufacturer, faced proceedings under Section 130 following an inspection where "excess stock" was identified using eye measurement techniques.
• Contention: The petitioner argued that Sections 73/74, which deal with determination of tax liabilities, should have been applied instead of Section 130, as no intent to evade tax was established.
• Ruling: The court quashed the confiscation orders, highlighting that Section 130 requires conclusive evidence of fraudulent intent, which was absent in this case.

Significance of the Judgments

These rulings emphasize that Section 130 of the CGST Act cannot be invoked arbitrarily. Authorities must:

• Establish intent to evade tax.
• Follow proper procedural steps under Sections 73/74 for tax determination.
• Avoid misuse of Section 130 to penalize taxpayers unfairly.

Protecting Taxpayer Rights

This clarification safeguards businesses from excessive penalties and confiscation due to procedural overreach. It reaffirms the importance of intent in tax evasion cases and ensures fair treatment under GST laws.