Gopal Trading Company Vs State of U.P. And 2 Others (Allahabad High Court)

Allahabad High Court Rules Excess Stock Falls Under GST Sections 73/74, Quashes Orders Against Gopal Trading CompanyAllahabad High Court has set aside impugned orders against Gopal Trading Company, a proprietorship engaged in the business of paan masala, tobacco, cigarettes, and matchsticks. The court ruled that proceedings initiated for excess stock found during a GST inspection should have been under Sections 73 or 74 of the GST Act, rather than Section 130, which deals with confiscation of goods or conveyances and levy of penalty.The case stemmed from an inspection and search conducted under Section 67 of the GST Act at Gopal Trading Company’s premises on October 15, 2019. During this search, the Special Investigation Branch (SIB) assessed stock based on “eye measurement” and concluded that excess stock was present. This finding led to the initiation of proceedings under Section 130 of the GST Act against the petitioner. The initial order, dated June 19, 2020, was passed by the first appellate authority, and subsequently affirmed by a higher authority on July 20, 2022.Petitioner’s Arguments and Judicial PrecedentsShri Gauransh Mishra, counsel for the petitioner, argued that the actual weighment of the stock was not performed by the authorities. His primary contention was that proceedings under Section 130 of the GST Act were inappropriate for a case of excess stock. Instead, he asserted that actions should have been initiated under Sections 73 or 74 of the GST Act, which address determination of tax and penalties in cases of non-payment or short payment of tax, or erroneous refunds.In support of his submissions, Mr. Mishra cited two significant judgments from the Allahabad High Court:1. M/s Vijay Trading Company Vs. Additional Commissioner & Another (Writ Tax No. 1278/2024, decided on August 20, 2024).2. M/s Dinesh Kumar Pradeep Kumar Vs. Additional Commissioner, Grade – 2 & Another (Writ Tax No. 1082 of 2022, decided on July 25, 2024).These precedents, he argued, consistently held that Section 130 proceedings are not applicable when excess stock is merely found during a survey.Court’s Analysis and Affirmation of PrecedentsThe Allahabad High Court, after hearing both parties and reviewing the records, acknowledged that a survey was conducted on October 15, 2019, and that excess stock was indeed found. However, the court unequivocally stated that its consistent position has been that “if excess stock is found, then proceedings under sections 73/74 of the GST Act should be pressed in service and not proceedings under section 130 of the GST Act, read with rule 120 of the Rules framed under the Act.”Crucially, the court highlighted that its judgment in M/s Vijay Trading Company (supra), which explicitly held that Section 130 cannot be invoked in cases of excess stock found during a survey, had been affirmed by the Apex Court. The Supreme Court, in Special Leave Petition (Civil) Diary No. 5881/2025 (Additional Commissioner, Grade – 2 & Another Vs. M/s Vijay Trading Company), vide judgment and order dated April 04, 2025, upheld the Allahabad High Court’s stance. This affirmation by the Supreme Court provides a definitive judicial precedent on the matter.The High Court further buttressed its reasoning by referring to Section 35 of the GST Act, which pertains to the maintenance of accounts and other records. Specifically, Sub-section (6) of Section 35 stipulates that if a registered dealer fails to account for goods, the Proper Officer shall determine the amount of tax payable on such unaccounted goods, and the provisions of Sections 73 or 74 of the GST Act shall mutatis mutandis apply for such determination. The court emphasized that the GST Act is a “complete Code in itself,” and where a specific provision dictates the action to be taken (i.e., Sections 73/74 for unaccounted goods), the general provision of Section 130 cannot be invoked.ConclusionIn light of its consistent rulings and the Supreme Court’s affirmation, the Allahabad High Court concluded that the impugned orders dated June 19, 2020, and July 20, 2022, could not be sustained in law. Consequently, both orders were quashed. The writ petition was allowed, marking a significant win for Gopal Trading Company and reinforcing the proper application of GST provisions regarding excess stock.