Allegation of excess stock based on estimations is liable to be set aside.

Case Title: Eco Plus Steels (P.) Ltd. v. State of U.P.

Court: High Court of Allahabad

Petition Number: Writ Tax Nos. 916 & 1600 of 2022

Date of Judgement: April 3, 2024

Relevant Sections: Section 130, Section 122, Section 74, Section 107 – Uttar Pradesh Goods and Services Tax Act, 2017

Category of Dispute: Confiscation, Penalty, and Tax Liability on Excess Stock (Input Tax Credit implications indirectly)

Facts of the Case [¶ 2–4, 7–10]:

1. Two writ petitions were filed by Eco Plus Steels (P.) Ltd. challenging orders passed by the Assessing Officer and Appellate Authority under the UP GST Act.
2. In Writ Tax No. 916 of 2022, the company challenged orders related to confiscation under Section 130 and penalty under Section 122 based on alleged excess stock found during a survey on 26.10.2018.
3. In Writ Tax No. 1600 of 2022, the company challenged orders under Section 74 alleging tax liability on unaccounted stock.
4. The authorities had confiscated goods and levied penalties based on eye estimation without physically weighing or counting the stock.
5. There was a significant delay in issuing the show cause notice (approx. 10 months after survey) and confiscation order (approx. 11 months).

Question(s) in Consideration [¶ 5, 12, 14]:

1. Whether mere presence of excess stock without physical verification or intent to evade tax justifies confiscation and penalty under Section 130 and 122?
2. Whether proceedings under Section 74 based on estimated excess stock are legally sustainable?

Observation of the Court [¶ 7–12]:

1. The Court relied on precedents including Maa Mahamaya Alloys (P.) Ltd. v. State of U.P. and Metenere Ltd. v. Union of India, which clarified that confiscation under Section 130 can only be invoked with intent to evade tax, which was not proven here.
2. The Court held that estimation by visual methods is not recognized under Section 15 of the Act or Rules 27–31, hence, valuation and confiscation based on eye estimation was legally flawed.
3. It was noted that burden of proof lies on the department, and failure to count/weigh goods invalidates their claim.
4. The Appellate Authority itself noted the stock was not properly quantified but still proceeded to reduce rather than nullify the penalty—this was criticized as arbitrary.

Judgement of the Court [¶ 13–16]:

1. The impugned orders in Writ Tax No. 916 of 2022 related to confiscation and penalty were quashed and set aside.
2. The orders in Writ Tax No. 1600 of 2022 invoking Section 74 based on alleged excess stock were also quashed.
3. All consequential proceedings were nullified and any amount deposited by the petitioner was directed to be refunded within eight weeks.
4. Both writ petitions were allowed in full.

Between Fine Lines

• The presence of unaccounted stock, if not verified physically or proven with intent to evade tax, cannot justify penalty or confiscation.
• Mere eye estimation is legally unacceptable for valuation under GST laws.
• Burden lies on the department to establish contravention under Section 130 with proper evidence.
• Delay in issuing notices weakens the credibility of departmental actions.
• Confiscation and penalty proceedings must comply strictly with procedural and substantive requirements under GST.

Summary of Referred Cases

Takeaway:

“Excess stock needs real count, not rough guess—GST actions must be founded on proof, not presumption.”