The Goods and Services Tax Appellate Tribunal (GSTAT), State Bench at Lucknow, has held that proof of an intention to evade tax cannot be treated as a uniform requirement for every ground of confiscation under Section 130(1) of the GST law.

The bench of Santosh Kumar Srivastava (Judicial Member) and Arvind Kumar (Technical Member) observed that Section 130(1)(ii), concerning failure to account for taxable goods, does not contain the express requirement of “intent to evade payment of tax” found in clauses (i) and (iv).

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The Bench set aside an appellate order deleting approximately ₹2.67 lakh in penalty and fine imposed on a brick manufacturer. It remanded the matter to the First Appellate Authority for fresh adjudication after verification of the records and examination of the specific requirements of Section 130(1)(ii).

The order does not finally confirm the original penalty and fine. Those liabilities remain subject to fresh adjudication.

The appellant/assessee is a registered partnership firm engaged in manufacturing and retail sale of clay bricks in Hardoi, Uttar Pradesh.

According to the order, officers of the Special Investigation Branch, Range-A, Lucknow, inspected the manufacturing premises under Section 67.

During physical verification, officers counted 5,66,500 bricks valued at ₹22,25,798, comprising first-class, second-class, yellow and kharanja bricks.

The firm’s manager was present but could not produce the stock register and updated books of account. He explained that the accountant was on a three-day leave and the managing partners were away attending a family function.

Since the records were unavailable for immediate scrutiny, the department treated the stock as unaccounted and issued a seizure order in Form GST INS-02.

A show-cause notice dated May 2, 2025, proposed proceedings under Section 130, alleging failure to maintain statutory books of account under Section 35 read with Rule 56.

The taxpayer maintained that the raw materials and finished stock were accounted for through invoices and banking records, which would be produced upon the accountant’s return.

The adjudicating authority subsequently passed an ex parte order on June 18, 2025, imposing a penalty of ₹1,33,548 and a fine in lieu of confiscation of ₹1,33,547.88. The aggregate demand was recorded as ₹2,67,096.

The First Appellate Authority deleted the demand through an order dated September 4, 2025. It held that the department had failed to establish deliberate intent to evade tax and that the stock discrepancy should have been examined under Section 35(6), through the determination mechanisms of Sections 73 or 74.

The Revenue challenged that relief before GSTAT.

The department argued that the absence of books, stock ledgers and manufacturing logs during inspection justified proceedings under Section 130.

It alleged that the taxpayer subsequently adjusted its accounts to match the stock found during the inspection. The department disputed the explanation that records were temporarily unavailable because the accountant was on leave.

The Revenue also alleged that the manufacturing activity was being conducted from an undeclared place of business and defended the original penalty and confiscation fine.

These assertions formed part of the department’s case before the Tribunal; the matter was ultimately remanded for further examination.

The taxpayer disputed the allegations and argued that temporary inability to produce records did not establish clandestine supplies or tax evasion.

It explained that the kiln operated through 80 chambers, with a rolling production cycle of approximately 25 to 30 days. The bricks found during inspection, it submitted, represented normal accumulated production.

The taxpayer also challenged the allegation concerning undeclared premises. It argued that this allegation appeared for the first time in the Revenue’s appeal and was absent from the original inspection record, show-cause notice and adjudication order.

It further pointed to inconsistencies in the department’s description of the premises and the inspection date.

On procedure, the taxpayer submitted that the department issued a subsequent summons and recorded a partner’s statement after passing the confiscation order, indicating that the inquiry was still continuing when the order was made.

The taxpayer maintained that Section 35(6) required determination of tax through Sections 73 or 74 rather than direct resort to confiscation. It also questioned the legality of the cumulative penalty and fine.

Examining the statutory provisions, GSTAT held that the First Appellate Authority had conflated different clauses of Section 130(1).

The Tribunal noted that clause (ii) addresses failure to account for goods on which tax is payable. Unlike clauses (i) and (iv), it does not expressly require an intention to evade payment of tax.

On this interpretation, the Bench observed that failure to maintain or update records of taxable goods could attract examination under Section 130(1)(ii), independently of the express intent requirement applicable to the other clauses.

It therefore rejected the appellate authority’s approach of requiring proof of intent uniformly across the different statutory grounds.

The Tribunal’s reasoning requires the authority to identify the particular clause invoked and examine its individual ingredients against the evidence.

The Tribunal also found shortcomings in the factual examination undertaken during the first appeal.

It observed that the appellate authority had recorded failures relating to maintenance of day-to-day transaction records and production of primary books and the stock register. Despite those findings, it deleted the demand without identifying documentary evidence that satisfactorily accounted for the stock.

The Tribunal found no systematic examination or physical verification of the alleged books and production records in the appellate findings.

It held that uncorroborated explanations could not displace the findings recorded during inspection without proper scrutiny of the underlying documents.

The Bench consequently considered a fresh, evidence-based examination necessary.

The taxpayer relied on the Allahabad High Court decisions in Dinesh Kumar Pradeep Kumar, Vijay Trading Company and PP Polyplast.

The Tribunal distinguished those decisions on facts. It referred to the recorded absence of statutory books at the premises and the failure of the First Appellate Authority to verify the records before granting relief.

It held that precedents could not be applied mechanically without examining the factual circumstances, allegations and available evidence.

The order also referred to Kunhayammed & Others v. State of Kerala & Another while explaining the effect of dismissal of a special leave petition. It observed that a non-speaking dismissal without grant of leave does not, by itself, result in merger or make the High Court’s reasoning a declaration of law under Article 141 of the Constitution.

GSTAT set aside the appellate order and remanded the case to the Additional Commissioner (Appeals) for fresh adjudication on merits in accordance with its observations.

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