Introduction
The Allahabad High Court ('HC') has, in the case of Sapphire International v. Additional Commissioner Grade 2, State Tax, and Another[i], discussed the applicability of ss. 130 and 74 of the Uttar Pradesh Goods and Service Act, 2017 (‘UGST Act’) in the event of the accounting inventory being improper in nature.
Facts
A writ petition was filed by Sapphire International (‘Petitioner’), under A. 226 of the Constitution of India against the ex parte order passed by the Appellate Authority, in which the accruing GST liability was quantified as per the provisions of s. 130 of the UGST Act.
The Petitioner relied upon the judgment of HC passed in the matter of Maa Mahamaya Alloys (P.) Ltd. v. State of U.P.[ii], the facts were similar to the Petitioner’s case, and the applicability of ss. 130 and 74 of the UGST Act, for quantification of the GST liability, were discussed by the Court.
Held
The HC, while deciding in favour of the Petitioner/assessee, quashed the ex-parte order passed by the Appellate Authority and reiterated the following:
The appeal filed by the Petitioner was in pursuance of the observations made in the case of Maa Mahamaya Alloys (P.) Ltd. (supra), wherein it was held that the quantification of tax liability is not to be done under s. 130 of the UGST Act. The quantification of tax demand should be done under s. 74 of the Act.
Analysis
In the aforementioned case, while discussing the applicability of ss. 130 and 74, observes that the Assessee's non-maintenance of proper accounts of goods or inventory does not raise a liability under s. 130 of the Act. The liability under s. 130 arises if a person is liable to pay tax on such goods, i.e., at the 'point of supply', which does not occur if the goods are lying as stock. Further, in the absence of the ‘intention to evade tax,’ the provisions of s. 130(1)(iv) do not become applicable.
However, S. 35 of the UGST Act provides that every registered person shall maintain a true and correct record of the inward and outward supply of goods or services or any stock of goods. The penalty for contravention of s. 35 is to be calculated under 74 of the Act.
Therefore, if the assessee has not maintained the correct record of goods in its books, the penalty for any such error in accounting is to be calculated in accordance with the provisions of s. 74 of the UGST Act.
End Notes
[i] [2024] 162 taxmann.com 370 (Allahabad) dated 23.04.2024.
[ii] [2023] 150 taxmann.com 158 (Allahabad).
Authored by Rosy Gupta, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
More Insights
10-07-2026
7
min read
Faceless Reassessment after S. 147A: What the Supreme Court Did – and Did Not – Decide
The Supreme Court's decision in Tej Pratap Singh does not settle the JAO–FAO controversy. Following Parliament's retrospective insertion of s. 147A, it remands the issue to the High Courts for fresh consideration. Faceless reassessment was never merely about moving tax files from paper to portal; it fundamentally changed the statutory authority responsible for communicating with the taxpayer, examining the record, drafting the order and completing the assessment. The real question now is how far a retrospective legislative clarification can go.
22-06-2026
8
min read
Claim Admission is not Debt Acknowledgement: Supreme Court on RP’s Role & Limitation under the IBC
Can admission of a claim by a Resolution Professional extend limitation under section 18 of the Limitation Act? In Shankar Khandelwal v. Omkara Asset Reconstruction Pvt. Ltd., the Supreme Court answered this question in the negative, holding that claim admission during CIRP is merely a statutory claim-verification process and not an acknowledgement of debt. The ruling clarifies the RP’s non-adjudicatory role and reinforces important principles governing limitation under the IBC.
2026-04-23
18
min read
Mandatory Pre-Deposit for Appeals in Indirect Tax Laws: A Barrier to Justice?
Mandatory pre-deposit has become a defining feature of indirect tax litigation, balancing revenue protection with access to appellate remedies. While the shift to a fixed statutory framework has improved procedural efficiency, it also raises concerns regarding financial barriers and effective access to justice. This insight examines the legal evolution, judicial interpretation, and practical implications of the regime.