In the landmark ruling of Vijay Trading Company v. Additional Commissioner, (2024) 22 Centax 86 (All.), the Allahabad High Court held that the discovery of excess stock during a survey does not justify the invocation of confiscation proceedings under Section 130 of the CGST Act. The Court mandated that such discrepancies should be handled under the assessment provisions of Section 73 or 74. This principle was subsequently upheld by the Supreme Court of India in Additional Commissioner Grade-2 v. Vijay Trading Company, (2025) 30 Centax 214 (S.C.), which dismissed the Revenue’s Special Leave Petition, solidifying the protection of taxpayers against the arbitrary use of penal powers.

The petitioner, Vijay Trading Company, is a registered business entity primarily involved in the manufacture and sale of hardware goods. As a manufacturer, the petitioner is required to maintain detailed accounts of production, inventory, and supplies under the CGST/UPGST Act. The case arose following an enforcement action where the petitioner’s operational compliance and stock-keeping were scrutinized by the tax authorities.

The dispute was triggered by an inspection and search conducted by the Special Investigation Branch (SIB) on May 11, 2022. The authorities alleged a discrepancy in the form of excess stock found on the premises.

On January 24, 2023, the Adjudicating Authority passed an order invoking Section 130, directing the confiscation of goods and imposing heavy redemption fines and penalties.

The petitioner appealed this order before first appellate authority, but the dismissed the appeal on April 3, 2024, confirming the use of Section 130 for unaccounted stock.

The petitioner challenged the appellate order before the Allahabad High Court via a writ petition.

• High Court Finding: The High Court quashed the orders of both the original and appellate authorities. The main ground for this direction was that the department failed to follow the mandatory statutory procedure under Section 35(6) of the CGST/SGST Act, 2017 which directs the determination of tax on unaccounted goods via Section 73 or 74.

The Court observed that under Section 35(6), if a person fails to account for goods, the proper officer shall determine the tax payable as if they had been supplied, specifically by pressing into service Section 73 or 74 of the GST Act

• Supreme Court Decision: The Revenue challenged the High Court’s ruling. The Supreme Court dismissed the Special Leave Petition (Civil) Diary No. 5881 of 2025 on April 4, 2025. The Court stated it was not inclined to interfere with the High Court’s judgment, though it clarified that the department could still pursue appropriate remedies (i.e., tax determination under assessment sections) in accordance with the law.

Conclusion:

The Supreme Court’s affirmation in Vijay Trading Company mandates that excess stock discrepancies be adjudicated exclusively under the assessment framework of Section 73 or 74 via the “deemed supply” fiction of Section 35(6).