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Liability in Case of Improper Accounting of Goods Is to Be Calculated Under the Provisions of S. 74 of the GST Act


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.


  • 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.


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.


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] 162 370 (Allahabad) dated 23.04.2024.

[ii] [2023] 150 158 (Allahabad).

Authored by Rosy Gupta, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.


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