2021 (1) TMI 796 - HC - GST

Validity of prosecution proceedings under GST - fake invoices - It is contended that all cooperation was given by the department to the Petitioners and when even summons was not issued, they rushed to the Court to prevent the officers from exercising their powers. Thus, it is the contentions of the department that there is admission on the part of the Petitioners that fake transactions were shown for aforesaid purpose and inadmissible ITC was availed in respect of fake transactions HELD THAT - In the present matters, there are allegations against the Petitioners and Munot that they created record of false invoices for input tax credit and by deceiving the authority they have committed the fraud of amount of more than ₹ 84,00,000/-. There are statements given under section 70 of the Act showing admissions given by concerned like one director of Petitioner's company and one Munot. It is the case of the department that after seizure of record, the company of he Petitioners voluntarily deposited the aforesaid amount and it was not deposited under protest. In Section 135 of the Act, it is provided that the presumption of culpable mental state is available against such persons. In Section 136 of the Act, it is made clear that the statement recorded under section 70 of the Act can be used in proceeding like prosecution as whey would be relevant. Thus, apparently, there is material to make out prima-facie case of fraud against the Petitioners. The provision of Section 138 of the Act shows that compounding of the offence is possible either before or after institution of prosecution. There are some provisos, which show that in some circumstances the compounding may not be possible. The proviso to Section 138(1) of the Act shows that such compounding shall not affect the proceeding, if any, instituted under any other law and the compounding can be done only after making payment of tax, interest and penalty involved in such offences - In view of the scheme of the Act, this Court has no hesitation to hold that in the cases of present nature, both adjudication and prosecution can be started simultaneously. Further, the aforesaid special provisions shall prevail over the provisions of the Code of Criminal Procedure and it cannot be said that all the provisions of the Code of Criminal Procedure like Sections 154 and 173 of he Code of Criminal Procedure need to be followed for prosecution under the Act. This Court is limiting the scope of discussion only to the extent of the offences committed under the Act and the observations are made only from that angle. If offences under the Indian Penal Code also are committed then different and more serious view can be taken. It needs to be kept in mind that the allegations make out the case of forgery. In the present matter, admittedly, no summons was issued against the Petitioners though one director gave statement of the nature mentioned and the amount of ₹ 84,00,000/- came to be deposited by the company of the Petitioners. Even when the matter could have been filed before the regular Court as search and seizure took place in November 2020, the matter came to be filed before the Vacation Court. This circumstance also cannot be ignored. Attempt is made to give explanation that the consultant of the company was infected due to Covid-19 virus. Such submission ordinarily cannot be accepted by the Court. On 11th January, 2021, there was insistence to grant interim relief and adjournment was sought. The interim relief was vacated by this Court by order dated 11th January, 2021. On 14th January, 2021 also, initially an attempt was made by the counsel, who argued the matter that only the Petitioner from Criminal Writ Petition No. 1716 of 2020 had instructed him to argue the matter. When the Court expressed that the Court will dispose of all the matters on merits if the Court finds that admission is not possible, then only argument was advanced in all the matters. Due to all these circumstances, this Court holds that some costs needs to be imposed on the Petitioners. Petition dismissed.

Summary

Issues Involved:
1. Quashing of illegal proceedings against the Petitioner.
2. Stay on the alleged illegal proceedings initiated against the Petitioner.
3. Restraint on the Respondents from taking any coercive steps against the Petitioner.

Issue-wise Detailed Analysis:

1. Quashing of Illegal Proceedings Against the Petitioner:
The Petitioners, directors of M/s. Ganraj Ispat Private Limited, sought relief under Article 226 of the Constitution of India to quash the proceedings initiated against them by the GST authorities. The Petitioners argued that the proceedings were illegal as the provisions of Sections 154, 157, and 172 of the Code of Criminal Procedure (CrPC) were not followed. They contended that these provisions must be applied for the registration of crime, investigation, and taking cognizance of the offence, and the non-compliance rendered the actions against them illegal.

The Respondent department countered that no summons were issued against the Petitioners and that the proceedings were conducted as per the GST Act, which is a special law with its own procedures. The department argued that fake invoices were issued by M/s. Rutu Enterprises to M/s. Ganraj Ispat Private Limited for availing input tax credit fraudulently, leading to a GST liability of ?84,00,046/-. The Petitioners had voluntarily deposited this amount, which was not under protest.

The Court held that the special provisions of the GST Act prevail over the CrPC. The GST Act provides specific procedures for investigation, search, seizure, and arrest, which were followed in this case. The Court found prima facie evidence of fraud against the Petitioners, making the proceedings valid.

2. Stay on the Alleged Illegal Proceedings Initiated Against the Petitioner:
The Petitioners sought an interim stay on the proceedings initiated against them. They relied on various interim orders from High Courts and the Supreme Court, arguing that the procedure under Chapter XII of the CrPC should be followed in GST cases. They cited the Supreme Court's order in Union of India v. Sapna Jain and others, which highlighted divergent views among High Courts and the need for clarification by a larger bench.

The Respondent department argued that the GST Act's special provisions allow for simultaneous adjudication and prosecution. They cited judgments from the Telangana and Gujarat High Courts, which upheld the application of the GST Act's procedures over the CrPC. The Gujarat High Court specifically held that the power of arrest under Section 69 of the GST Act could be invoked without completing the adjudication process.

The Court concluded that the GST Act allows for simultaneous adjudication and prosecution, and the special provisions of the Act take precedence over the CrPC. Therefore, the request for an interim stay was not justified.

3. Restraint on the Respondents from Taking Any Coercive Steps Against the Petitioner:
The Petitioners sought to restrain the Respondents from taking any coercive steps, including arrest, against them. They argued that no summons had been issued and that they had cooperated with the investigation by depositing the disputed amount. They also cited interim relief granted by the Supreme Court in similar cases.

The Respondent department maintained that they had followed the proper procedures under the GST Act and that the Petitioners had voluntarily deposited the amount after admitting to the fraudulent transactions. The department argued that the Petitioners' actions were premature as no criminal proceedings had been initiated yet.

The Court held that the special provisions of the GST Act, including Sections 67 (search and seizure) and 69 (arrest), were followed by the Respondents. The Court noted that the Petitioners had indirectly obtained relief akin to anticipatory bail, which is not ordinarily permissible in such cases. The Court emphasized the seriousness of white-collar crimes and the need to allow the investigation to proceed without undue interference.

Conclusion:
The Court dismissed all the petitions, holding that the special provisions of the GST Act prevail over the CrPC in matters of investigation, search, seizure, and arrest. The Court found sufficient prima facie evidence of fraud against the Petitioners and imposed costs on them for filing the petitions. The amount of ?25,000/- was to be deposited by each Petitioner within four weeks, to be given to the Respondents for their defense expenses.