No Need To Prove Intent To Evade Tax For Confiscation Of Unaccounted Goods Under GST Act: GSTAT Lucknow

The Goods and Services Tax Appellate Tribunal (GSTAT), Lucknow Bench, has recently held that the department need not prove an intention to evade tax to initiate confiscation proceedings when a taxpayer fails to account for taxable goods.

A Bench comprising Judicial Member Santosh Kumar Srivastava and Technical Member Arvind Kumar observed that Section 130(1)(ii) of the GST Act does not require proof of such intent, unlike clauses (i) and (iv).

It held, "Crucially, unlike clauses (i) and (iv), clause (ii) does not contain the qualifying phrase 'with intent to evade payment of tax.' The mere objective failure to keep, maintain, or update records of taxable items found within a business unit satisfies the primary ingredient of this specific subsection."

The tribunal was hearing an appeal filed by the Revenue against an order of the First Appellate Authority, which had set aside a penalty of ₹1,33,548 and a fine of ₹1,33,547.88 imposed on Jay Jay Bricks, a brick manufacturing firm.

The dispute arose after GST officials conducted an inspection at the firm's manufacturing premises and found over 5.66 lakh bricks. During the inspection, the firm's manager could not produce the stock register or books of accounts. He explained that the accountant was on leave and the partners were out of station.

Treating the stock as unaccounted, the department initiated confiscation proceedings under Section 130 of the GST Act and subsequently imposed a penalty and fine.

However, the First Appellate Authority set aside the demand, holding that the department had failed to establish any deliberate intention to evade tax. It also observed that the stock discrepancy should have been examined under the regular tax determination provisions.

The Revenue challenged this decision before the GSTAT, arguing that failure to account for taxable goods independently attracts Section 130(1)(ii), even without proof of an intention to evade tax.

The Tribunal agreed that the First Appellate Authority had incorrectly treated intention to evade tax as a necessary requirement under every clause of Section 130(1).

It further noted that the First Appellate Authority had accepted the taxpayer's explanation without properly verifying the books of accounts or examining whether the stock found during inspection was genuinely accounted for.

It observed that the absence of stock records during inspection could not be overlooked merely on the basis of the taxpayer's explanation that the accountant was unavailable.

The Tribunal also distinguished the judicial precedents relied upon by the taxpayer, observing that those decisions could not be applied mechanically without examining the facts and evidence of the present case.

However, the Tribunal clarified that adjudication requires a balanced examination of the evidence. It found that the First Appellate Authority had failed to properly reconcile the records and examine the applicability of Section 130(1)(ii).

Accordingly, the Tribunal set aside the order of the First Appellate Authority and remanded the matter for fresh adjudication on merits. The penalty and confiscation fine were therefore not finally upheld, and the dispute will be reconsidered by the appellate authority.

For Revenue:  Assistant Commissioners Mahendra Pratap Singh and Ashutosh Mishra

For Respondent: Advocate Vishal Srivastava appeared for the respondent.