Confiscation of stock under GST Act cannot be made on the basis of eye estimation only
Confiscation of stock u/s 130 of GST Act cannot be made on the basis of eye estimation only- Allahabad High Court quashed confiscation of goods and levy of penalty
ABCAUS Case Law Citation:
ABCAUS 3945 (2024) (04) HC
Important Case Laws relied upon:
M/s Metenere Ltd. vs. Union of India
M/s Maa Mahamaya Alloys Pvt. Ltd. vs. State of U.P. and others
Two writ petitions were filed challenging the orders passed under the Uttar Pradesh Goods and Services Tax Act, 2017 (the Act) in relation to confiscation under Section 130 of the Act and levy of penalty under Section 122 of the Act.
These orders had been passed under Section 74 of the Act for liability arising out of additional stock that was present with the petitioner.
The issue before the Hon’ble High Court was whether mere presence of additional stock would result in confiscation and subsequent penalty under the Act.
In support of his arguments, the petitioner relied on two judgments of the coordinate Bench of the Hon’ble High Court wherein the issue was decided against the GST Authorities.
The Co-ordinate Bench had held that even if it was assumed that the goods were lying in excess of the goods in record, the case against the petitioner would not fall under Clause (ii) of sub-section (1) of Section 130 (i.e. does not account for any goods on which he is liable to pay tax under this Act) for the simple reason that the liability to pay the tax arises at the time of point of supply, and not at any point earlier than that.
The Co-ordinate Bench said that on a plain reading, the scope of Clause (ii) of sub-section (1) of Section 130 is that any assessee who is liable to pay tax and does not account for such goods, after the time of supply is occasioned, would be liable to penalty under Clause (ii). Further, the Department may levy penalty invoking clause (iv) of sub-section (1) of Section 130, only when the department establishes that there were a contravention of the Act and Rules coupled with the ‘intent to make payment of tax’. When there was no such allegation in the show cause notice or any of the orders, even the Clause (iv) of sub-section (1) of Section 130 would not be attracted.
Confiscation of the stock cannot be done only on the basis of eye estimation
Further another Co-ordinate Bench had held that confiscation of the stock cannot be done only on the basis of eye estimation. The valuation of the goods is required to be done in terms of the mandate of Section 15(1) read with Section 15(2) and read with Section 15(3). In the said Section 15 or the Rules framed thereunder, there is no prescriptions for valuation of the goods on the basis of eye estimation as has been done by the department and has been repelled by the appellate authority. The valuation done without resorting to the mandate and manner prescribed in Section 15 read with the Rules made the impugned order not sustainable.
In the instant case the Hon’ble High Court observed that the Appellate Authority, after examining all materials, came to the conclusion that officials had not recorded the value of stock by actual count or weight but by eye estimation of quantity and weight of the confiscated goods. The Appellate Authority further observed that no proper weight was taken despite there being a weighing scale available.
The Hon’ble High Court expressed surprise as to when the Appellate Authority had come to a finding that the stock was not weighed or counted, specifically when the same could have very well been done in the premises of the petitioner, why did the Appellate Authority subsequently merely reduced the penalty by making a fresh assessment.
The Hon’ble High Court opined that the calculation of the stock done by the Appellate Authority was also on the basis of an estimate and without any basis in law. When the Appellate Authority had come to the finding that the officers in the survey did not carry out the quantification of the stock in the correct manner, there was no reason for the Appellate Authority to uphold the confiscation and penalty.
Delay leads to an inference that the authorities had acted in a callous manner
The Hon’ble High Court further noted that after the survey, the assessee raised the objection immediately. However, the order of confiscation was passed by the Assessing Authority almost after 11 months of the date of survey. In fact, the notice for confiscation was issued in August 2019, almost 10 months after the date of survey. This inordinate delay in issuing show cause notice goes to the root of the matter and is a factor to be considered as the delay leads to an inference that the authorities had acted in a callous manner.
The Hon’ble High Court opined that the entire procedure followed by the authorities indicated not only a lackadaisical approach but also showcases the incompetence and inefficiency of the authorities that had carried out the survey in a shoddy manner and thereafter issued the show cause notice and passed order of confiscation and penalty belatedly.
The Hon’ble High Court stated that it is trite law that the burden of proof for imposition of penalty and confiscation of goods is on the Department and the same cannot be done on estimates when it is clear that the Department could have carried out a physical verification based on counting and weighing of the goods. In light of the same, the entire finding with regard to excess stock, that is based on estimate, is liable to be rejected outrightly.
Accordingly, the Hon’ble High Court quashed and set aside the impugned orders with regard to penalty and confiscation. Similarly, the entire proceedings initiated under Section 74 was quashed and set-aside as the same was based on finding that there was excess stock.
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