Confiscation & Penalty Order Must Be Quashed If Quantification Of Stock Based On Eye Estimate: Allahabad High Court

The Allahabad High Court has held that once the Appellate Authority has recorded a specific finding that quantification of stock was based on eye estimate and not in accordance with law, the confiscation order as well as the penalty order are liable to be set aside.

“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,” held Justice Shekhar B. Saraf.

Petitioner challenged the order of confiscation passed under Section 130 of the Uttar Pradesh Goods and Services Tax Act, 2017 and the subsequent levy of penalty under Section 122 of the Act. Further challenge was raised to the order passed under Section 74 of the Act by the Assessing Authority for the liability on the additional stock which was present on the petitioner's premises. The petitioner also challenged the subsequent orders of the Appellate Authority which upheld the orders of the Assessing Authority.

Counsel for petitioner relied on M/s Maa Mahamaya Alloys Pvt. Ltd. vs. State of U.P. and others wherein the coordinate bench of the Allahabad High Court had held that even if the stock is lying in excess with the assesee, the liability to pay taxes arises only at the time of supply and not at any point before that. The Court held that under Section 130 (1)(ii) only when the goods on which taxes were to be paid have not been accounted would be liable for confiscation.

The Court in M/s Maa Mahamaya Alloys Pvt. Ltd had held that valuation of goods cannot be done based on eye estimation. Section 15 of the Act read with Rule 27 of GST Rules ought to be followed for valuing the goods.

Justice Saraf observed that the Appellate Authority had specifically recorded that the goods were valued based on eye estimate and was not specifically weighed and counted. The Court held that the reduction of penalty by the Appellate Authority was based on estimate which was not permissible in law.

Further, the Court held that the authorities had acted in a callous manner by issuing the confiscation order 11 months after the survey had been conducted. The Court held that such inordinate delay in issuing show cause notice goes to the root of the matter.

Holding that the confiscation and penalty orders were passed belatedly, the Court held that “the entire procedure followed by the authorities indicates 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.”

The Court held that confiscation of goods and subsequent levy of penalty cannot be made based on estimates when “the Department could have carried out a physical verification based on counting and weighing of the goods.”

Accordingly, the Court set aside the confiscation order passed under Section 130 of the Act as well as the penalty order under Section 122 of the Act. The Court also held that the order passed under Section 74 was also alible to be set aside as it was based on the same finding of excess stock based on estimates.

Case Title: M/S Eco Plus Steels Pvt. Ltd. v. State Of U.P. And 3 Others [WRIT TAX No. - 916 of 2022]

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