High Court Clarifies: Section 130 of CGST Act Does Not Apply to Excess-Stock Findings

Why this ruling matters

A routine GST inspection that unearths “excess stock” often triggers panic—many businesses immediately receive show-cause notices threatening confiscation under Section 130 of the CGST Act. In a series of landmark judgments—most recently Raj Steel (2025) and PP Polyplast (2024)—the Allahabad High Court has drawn a bright line: mere excess stock cannot invite Section 130 confiscation or penalty unless the tax authority also proves intent to evade tax. 

These decisions recalibrate departmental practice and provide clear procedural safeguards for traders, manufacturers, and even freelancers holding inventory. Let’s unpack what changed, what stays, and how you should respond when excess stock is discovered.

Table of Contents

• Section 130 vs. Sections 73/74—quick refresher

• Key take-aways from the latest High Court rulings

• Practical checklist if excess stock is detected

• Case-law timeline (table)

• FAQs

• Conclusion & next steps

1️⃣ Section 130 vs. Sections 73/74—The Legal Basics 

Provision	Purpose	Triggers	Penalties
Section 130	Confiscation of goods, conveyance, and levy of heavy fine	Smuggling, clandestine supply, intent to evade tax	Up to 100% of tax + confiscation
Section 73/74	Determination of tax not paid/short-paid	Errors, excess stock, mis-classification	Tax + interest (Sec 73) or tax + 15–50% penalty (Sec 74)

High Court view: Excess stock alone does not satisfy Section 130 clauses (ii) or (iv) because liability to pay GST arises only at time of supply. Without proof of supply or intent, the proper course is an assessment under Sections 73/74.

2️⃣ Key Insights from Recent Judgments

2.1 Raj Steel v. State of U.P. (2025)

• Finding: Visual estimation showed un-recorded steel worth ₹2 cr.

• HC held: Authorities skipped Sections 73/74 and jumped to Section 130—illegal.

• Result: Confiscation order quashed; department directed to refund deposit with interest. 

2.2 PP Polyplast (2024)

• Key quote: “Liability arises at the point of supply, not merely on physical presence of goods.”

• Court emphasized that Section 130 requires mens rea (intent). 

2.3 Earlier Precedents

Year	Case	Court’s Finding
2024	Dinesh Kumar Pradeep Kumar	Excess stock → proceed under Sec 74, not 130.
2024	Banaras Industries	Eye-estimation cannot justify Section 130 notice.

These consistent rulings signal a judicial trend: confiscation is a last resort.

3️⃣ Practical Checklist for Taxpayers 

1. Insist on proper weighment/quantification. Visual estimates are weak evidence.

2. Ask which statutory provision is invoked. If officials cite Section 130 for mere excess stock, politely request clarification referencing the HC rulings.

3. Maintain contemporaneous purchase records and stock registers—even digital Excel files help.

4. File a prompt representation citing Raj Steel, PP Polyplast, etc. Attach certified copies where possible.

5. If a Section 130 order is served, consider writ remedy—Allahabad HC has quashed several within weeks.

6. Regularly reconcile books vs. physical stock (monthly for traders, quarterly for manufacturers).

4️⃣ Case-Law Timeline

Date	Case	Court	Outcome	Citation
19 Aug 2024	Banaras Industries v. UOI	Allahabad HC	Sec 130 inapplicable	taxguru.in
30 Jul 2024	PP Polyplast (P.) Ltd. v. Addl. Comm.	Allahabad HC	Penalty set aside	taxguru.in
25 Jul 2024	Dinesh Kumar Pradeep Kumar	Allahabad HC	Orders quashed	taxguru.in
7 Jun 2025	Raj Steel v. State of U.P.	Allahabad HC	Orders quashed, refund ordered	taxmann.com

5️⃣ Frequently Asked Questions

Q1. Does excess stock always mean undisclosed supply?
Not necessarily. Courts say tax liability crystallises only on supply, not on mere possession. 

Q2. Can officers still detain my goods?
Yes, under Section 129 (detention), but they must release goods upon payment of tax & 100% penalty if due.

Q3. What if intent to evade tax is later proved?
Department can shift to Section 130 after showing evidence of clandestine supply or forged documents.

Q4. Should I pay the demand first and litigate later?
If order is under Section 130 for excess stock, HC precedents support immediate writ—saving cash-flow.

Q5. How long do proceedings under Sections 73/74 take?
Statute allows 3 years (Sec 73) or 5 years (Sec 74) from annual return due date; early cooperation speeds closure.

Q6. Are these rulings binding outside Uttar Pradesh?
They have persuasive value; many other HCs have begun echoing similar reasoning.

6️⃣ Conclusion & Call-to-Action

The Allahabad High Court has delivered a clear message: Section 130 is a serious, confiscatory provision—not a shortcut for routine stock discrepancies. Businesses that prepare robust records and know their rights can avoid crippling penalties.

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Section 130 CGST Act, excess stock GST, GST confiscation penalty, Raj Steel case, PP Polyplast ruling, Section 73 vs 74, GST High Court judgment, GST survey excess stock, GST compliance tips.