2019 (5) TMI 310 - HC - GST

Prosecution u/s 132 - without determining tax , default, adjudication and penalty, straightway prosecution permissible - comparison with service tax law - HELD THAT - This Court has carefully considered the submissions made on either side. This Court is in complete agreement with the stand taken by the department that. Section 132 of the Act. can be directly resorted, wherever offence is committed and it is not necessary to follow the procedure of assessment, demand and recovery or penalty proceedings. In the scheme of the Act, Section 132 stands independently and the moment a competent officer on inspection and search, finds any offence committed under Section 132 of the Act, prosecution can be directly launched. The Court was also dealing with the scheme of the service Act, wherein the Court found that both the penalty proceedings and prosecution proceedings will have to be preceded by adjudication for the purposes of determining the evasion of service tax. It was so held because the case involved non-payment of service tax collected which according to the Delhi High Court should have involved a process of determination of the tax payable and only thereafter the prosecution should have been launched. Both the above judgments are clearly distinguishable from the facts of the present case end under the scheme of the present Act. Grant of Anticipatory Bail - Outward supply of goods from 02.06.2018 to 09.01.2019, was shown without, movement, of goods on the basis of false and bogus E-way bills - inward supply from 02.06.2018 to 09.01.2019, was also fraudulently shown without actual movement of goods by bogus E-way bills - HELD THAT - Section 132 of the Act will apply with all force the moment an invoice or a bill is issued without, movement of goods or Input Tax Credit has been wrongly availed. In the present case the preliminary investigation reveals that the entities have formed a cartel by doing circular trading between seven Companies whereby nearly 98 per cent of the transactions are among themselves and 2 per cent of the supply have been wade to other entities. In other words, the very same goods are being repeatedly shown as being supplied by way of purchase/sales amongst the entities only with a view to defraud the revenue and to distribute the credit illegally and fraudulently. There are also prima facie materials to show that the E-way bills generated by the entities are found to be totally false since on verification it was found the so-called movement of goods which is Iron and Steel has been done in vehicles which are two wheelers/three wheelers, vehicles which have already been seized by the finance companies and vehicles where the transporter himself says that no such movement of goods took place - The total turnover shown by the petitioners and the corresponding tax paid by them after adjusting the Input Tax Credit is almost minuscule. This Court in the light of the nature and gravity of the accusations put forth by the prosecution and also the fact that the investigation is at a very early stage, is not inclined to entertain these anticipatory bail petitions - Petition dismissed.

Issues Involved:
1. Anticipatory Bail Petition
2. Alleged Offences under Section 132 of the CGST Act
3. Fraudulent Input Tax Credit and E-way Bills
4. Prosecution and Arrest Procedures under GST Law
5. Distinction from Service Tax Provisions

Detailed Analysis:

1. Anticipatory Bail Petition:
The petitioners, a husband and wife duo involved in various business entities, sought anticipatory bail from the Court as they faced prosecution under Section 132 of the Central Goods and Services Act, 2017. The Court noted that the petitioners were involved in multiple entities engaged in the supply of Iron and Steel, all registered under the CGST and TNGST Act.

2. Alleged Offences under Section 132 of the CGST Act:
The respondent department, during an inspection under Section 67 of the Tamil Nadu Goods and Services Act, 2017, discovered fraudulent distribution of Input Tax Credit among the petitioners' entities. The inspection revealed that the movement of goods was falsely represented through bogus E-way bills. The Joint Commissioner (Enforcement), Salem, authorized the inspection and seizure of documents and goods from the petitioners' premises.

3. Fraudulent Input Tax Credit and E-way Bills:
The prosecution's case highlighted that from 02.06.2018 to 09.01.2019, the petitioners showed outward and inward supply of goods without actual movement, using false E-way bills. The total assessable value for the outward supply was ?2,639,283,519 with tax payable of ?475,071,033, and for inward supply, ?3,378,861,838 with tax payable of ?607,854,399. The interim report indicated that the petitioners' entities were involved in circular trading, issuing invoices among themselves without actual goods movement to fraudulently avail and distribute Input Tax Credit.

4. Prosecution and Arrest Procedures under GST Law:
The petitioners' counsel argued that the petitioners had been compliant with GST provisions, regularly filing returns, and that the department should not resort to criminal prosecution and arrest without a preliminary enquiry. They contended that the Act provides for self-assessment (Section 59), scrutiny (Section 61), demand and recovery (Sections 73 and 74), and penalties (Section 126), and that prosecution should follow these procedures. The counsel also highlighted that the offence must involve tax evasion or wrongful Input Tax Credit exceeding ?5 crores to attract punishment under Section 132 of the Act.

5. Distinction from Service Tax Provisions:
The respondent's counsel emphasized that filing returns does not mitigate fraudulent activities and that prosecution under Section 132 can be initiated independently of assessment and recovery procedures. The Court agreed, referencing the Rajasthan High Court judgment in Bharat Raj Punj v. Commissioner of Central Goods and Services Tax Department, Jaipur, which stated that determination of tax under Sections 73 and 74 is not required before invoking Section 132.

The Court noted that the petitioners' entities engaged in circular trading to defraud revenue, with significant discrepancies between bank entries and monthly returns. The Court distinguished the present case from service tax cases cited by the petitioners' counsel, where prosecution followed adjudication and compliance with specific circulars.

Conclusion:
The Court concluded that Section 132 of the CGST Act applies independently when invoices are issued without goods movement or wrongful Input Tax Credit is availed. The Court found prima facie evidence of fraudulent activities by the petitioners' entities and denied the anticipatory bail petitions, emphasizing the need for the department to conduct a thorough investigation without hindrance. The petitions were dismissed, allowing the department to proceed with their investigation as per law.

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