The Goods and Services Tax Appellate Tribunal (GSTAT), State Bench at Agra, has held that excess or unaccounted stock discovered during a survey of business premises cannot justify directly invoking confiscation proceedings under Section 130 of the GST law. In such cases, the proper officer must follow the tax determination mechanism under Sections 73 or 74, as contemplated by Section 35(6).
The bench comprising Judicial Member Ajeet Singh and Technical Member Vivek Kumar dismissed five departmental appeals challenging orders that had set aside tax, penalties and fines imposed on tobacco businesses. The common order was pronounced on October 8, 2026.
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The Tribunal also criticised the authorisation of the appeals, observing that the Commissioner had directed their filing without adequately examining the facts and applicable law.
The central legal question was whether the first appellate authority had correctly set aside the tax, penalty and fine imposed by the adjudicating officers under Section 130(2) of the Central Goods and Services Tax Act and the corresponding Uttar Pradesh GST Act.
The dispute arose from inspections conducted by the Special Investigation Branch, State Tax, Etawah, at the business premises of five entities engaged in producing and selling tobacco and tobacco products. According to the department, verification of physical stock against the relevant books and registers revealed substantial quantities of goods that had not been accounted for.
Treating these discrepancies as violations of Section 35, the officers seized the goods and initiated proceedings under Section 130 read with Section 122. The resulting adjudication orders imposed penalties and fines in lieu of confiscation. In one case, tax was also demanded.
The affected businesses successfully challenged these orders before the Additional Commissioner, Grade II, Appeals, State Tax, Etawah. The first appellate authority held that the discovery of unaccounted goods at business premises required proceedings under Sections 73 or 74, rather than confiscation proceedings under Section 130.
The department then approached the Tribunal under Section 112(3). Since the facts and legal issue were substantially similar, all five appeals were decided together.
In the matter concerning Amir Ali Khan & Bros., the department alleged that 6,438 kg of “Sabut gadiya” and 38,705 kg of tobacco garda were absent from the books of account. The adjudicating officer imposed a penalty of ₹7,15,080 and a fine of ₹1,78,332.
In the case of S.K. Enterprises, the alleged discrepancies involved several categories of tobacco products, including tobacco stem powder, tobacco orchha and tobacco leaf powder. The original order imposed a penalty of ₹6,44,192 and a fine of ₹50,000.
For Janki International, the department alleged that multiple categories of tobacco stock were unaccounted for. The adjudication order imposed a penalty of ₹12,93,644 and a fine of ₹3 lakh.
In the matter involving Subhash Chand Ashish Kumar, the original order demanded tax of ₹11,87,346, along with an equal amount as penalty and another ₹11,87,346 as fine.
The fifth case concerned Krishan Kumar Agarwal & Brothers, where tobacco gadiya valued at ₹12,09,330 was allegedly unaccounted for. The officer imposed a penalty and fine of ₹60,466.50 each. The first appellate authority had set aside the respective adjudication orders and their consequential demands.
Explaining the statutory framework, the Tribunal noted that Section 35(1) requires registered persons to maintain true and correct accounts at their principal place of business.
Section 35(6), it explained, addresses the consequences of failing to account for goods or services. It empowers the proper officer to determine the tax payable on unaccounted goods or services as though they had been supplied by the registered person. For that determination, the provisions of Sections 73 or 74 apply.
Reading these provisions together, the bench concluded that the officer must determine the tax liability through the prescribed assessment process. Direct recourse to Section 130 on the basis of stock discrepancies found during a survey was unsustainable in the cases before it.
The Tribunal relied on three Allahabad High Court decisions: Dinesh Kumar Pradeep Kumar v. Additional Commissioner, Grade II and Others, decided on July 25, 2024; Shri Om Steels v. Additional Commissioner, Grade II and Others, decided on July 19, 2024; and V.K. Electricals v. Additional Commissioner, Grade II and Another, decided on August 23, 2024.
As recorded in the Tribunal’s order, these decisions established that excess stock discovered during a survey should lead to proceedings under Sections 73 or 74, rather than invocation of Section 130. Applying those rulings, the bench upheld the first appellate authority’s decision to quash the adjudication orders.
The Tribunal also rejected the suggestion that the question of imposing a fine remained open after the original orders had been set aside. Once the proceedings under Section 130 were held to lack legal backing in these circumstances, the associated orders imposing fines could not survive independently.
Addressing the department’s decision to pursue the appeals, the bench observed that the Commissioner was required to examine the facts and applicable law before directing a subordinate officer to file an appeal. It found that the appeals had been authorised in a “peripheral manner and without application of mind”.
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