Section 130 Confiscation Cannot Be Invoked for Excess Stock

Section 130 Confiscation Cannot explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

A survey finds more stock on the floor than in the books. The department's choice of provision at that moment decides whether the taxpayer faces a tax demand or the loss of the goods — and the courts have narrowed that choice.

"Proceedings under section 130 of the CGST/UPGST Act cannot be initiated merely on account of excess stock found during survey." — Janta Machine Tools v. State of U.P. [(2025:AHC:86609)]. And the Supreme Court "declined to interfere… and dismissed the SLP" in Additional Commissioner Grade-2 v. Vijay Trading Company, SLP (C) Diary No. 5881 of 2025.

Janta Machine Tools

The assessee, "a registered partnership firm engaged in trading machines and hardware, was subjected to a survey by the GST Department at its premises in Agra. During the course of the survey, excess stock was found."

The notice under section 130 proposed three amounts, each identical:

"An adjudication order was passed confirming the demand. On appeal, part relief was granted, and a reduced demand of ₹14,58,811 was confirmed."

The assessee's argument was about which chapter of the Act applied: "Excess stock, if any, should be dealt with under Section 73 or 74, not under Section 130 which deals with confiscation."

The Metenere framework

The Court applied its own earlier decision in M/s Metenere Limited, "wherein on the basis of a similar search conducted, the demand was quantified."

Two holdings were carried across:

On penalty. "for the infractions as contained in Section 122 of the GST Act and specified in Column 'A' of paragraph 35 of the said judgment… penalty has to be Rs.10,000/- or the amount of tax evaded whichever is higher, whereas for the infractions specified in Column 'B' of paragraph 35, the penalty that can be imposed is Rs.10,000/- only."

On tax. "the demand for tax can be quantified and raised only in the manner prescribed in Section 73 or Section 74 of the Act, as the case may be."

That second holding is the operative one. Section 130 is a confiscation provision; it is not a mechanism for quantifying a tax liability. Where the department's real complaint is unaccounted stock and therefore unpaid tax, the quantification must run through the assessment provisions, with their notice, reply and adjudication structure.

Earlier judgments relied on: "Dinesh Kumar Pradeep Kumar v. Addl. Commissioner Grade-2 – [2024]" and "Maa Mahamaya Alloys Pvt. Ltd. v. State of U.P. – [2024]."

Result: "Basis the above findings the adjudication order were quashed."

Vijay Trading: affirmed in the Supreme Court

The same question reached the Supreme Court on the Revenue's SLP against an Allahabad High Court ruling that "when excess stock is found, the correct route is to proceed under Sections 73/74 (relating to tax demand) and not under Section 130."

The provisions listed are section 130 (confiscation), sections 73/74 ("determination of tax not paid (73) and tax short paid or erroneously refunded (74)") and rule 120, the "Procedure for confiscation of goods or conveyances under Section 130."

The Court's disposal and its reasoning:

"The Supreme Court declined to interfere with the High Court's decision and dismissed the SLP."

"the department should ordinarily proceed under Sections 73/74 for tax demands rather than resorting to Section 130 for confiscation, unless the facts clearly fall within the mischief under Section 130."

"It underscores that confiscation is an extraordinary remedy and cannot be invoked by default where the statutory provisions provide for a tax demand route."

What the rulings do and do not decide

They do not abolish section 130. The qualifier — "unless the facts clearly fall within the mischief under Section 130" — preserves it for what it was written for: goods supplied or received in contravention with intent to evade, goods not accounted for with the accompanying statutory ingredients, conveyances used for carrying goods in contravention.

What they remove is the default. Excess stock discovered in a survey, without more, is evidence of a possible tax shortfall — and the shortfall is determined under section 73 or section 74, depending on whether fraud or wilful misstatement is alleged, with section 122 governing penalty.

The practical response to a section 130 notice following a survey is therefore to test the notice against these cases first: what, beyond the stock difference, brings the facts within section 130? If the answer is nothing, the proceeding is misconceived regardless of the merits of the underlying tax question — which still has to be answered under 73 or 74.

Key takeaways

• Section 130 cannot be invoked merely because excess stock was found in a survey or search.
• The correct route is section 73 or 74, depending on whether fraud or wilful misstatement is alleged.
• Janta Machine Tools: a notice proposing ₹7,17,560 each as tax, penalty and confiscation fine was quashed.
• Following Metenere, "the demand for tax can be quantified and raised only in the manner prescribed in Section 73 or Section 74".
• Penalty under section 122 is ₹10,000 or the tax evaded, whichever is higher, for one class of infraction, and ₹10,000 only for another.
• Vijay Trading: the Supreme Court dismissed the Revenue's SLP, affirming the Allahabad position.
• Confiscation is an extraordinary remedy and cannot be the default where a tax demand route exists.
• Section 130 survives "where the facts clearly fall within its mischief".

Read next

• Section 61 Scrutiny Limits and Improper Notice on the GST Portal
• Section 107 Pre-Deposit: Credit Ledger and Duplicated Demands
• Section 161 Rectification and Limitation for Appeal

Disclaimer: Positions stated as on 5 September 2026, based on Janta Machine Tools v. State of U.P. [(2025:AHC:86609)], Additional Commissioner Grade-2 v. Vijay Trading Company (SLP (C) Diary No. 5881 of 2025, Supreme Court), sections 73, 74, 122 and 130 of the CGST Act, 2017 and rule 120 of the CGST Rules, 2017, as summarised in the ICAI compilation Significant Judicial and Advance Rulings in GST (Second Edition, February 2026).