2021 (9) TMI 552 - HC - GST

Fraudulent Input Tax Credit (ITC) - Seeking quashing of entire criminal proceedings of the complaint - sanction order has been issued by a competent authority or not - passing of fraudulent input tax credit - retraction of statements after long time - HELD THAT - It is evident and as admitted by Sri Mathur that the authority concerned had issued summons to the applicants on 26.02.2021. In terms of the summons, applicants had appeared before the summoning authority and had answered various questions, put-forth to him, and had signed the statement on 27.02.2021. Though, learned counsel for applicants submits that subsequently, by filing an affidavit, applicants had retracted his statement and copy of this affidavit dated 02.06.2021 is available on record. It is evident that applicant was given an opportunity to appear and explain the circumstances appearing to the appropriate officer under the Act to give evidence and produce documents. Retraction of this statement, after about more than three months, is not the subject matter of the adjudication in an Application U/S 482 Cr.P.C. - also, there is already an assessment, as is evident from the complaint filed by the department before the learned Special Chief Judicial Magistrate, Meerut, showing amount of input tax credit passed on to M/s M.F.P.L., as per the G.S.T.R.-2A of M/s M.F.P.L., to the extent of ₹ 31.64 crores, which has been fraudulently availed and utilized by the applicant-Sanjay Garg, even this argument that there has been no assessment and prosecution has been launched without any assessment, is not made out. There is no substance in the present application, calling for interference in either the complaint case or the order of cognizance or the order of the summoning - application dismissed.

Summary

Issues Involved:
1. Competency of the sanction order.
2. Assessment of tax liability.
3. Simultaneity of adjudication and prosecution.
4. Validity of the prosecution without prior assessment.

Issue-wise Detailed Analysis:

1. Competency of the Sanction Order:
The applicant sought quashing of the criminal proceedings on the ground that the sanction order was issued by the Additional Director General, Meerut Zonal Unit, who was not a competent authority. The applicant argued that under Section 132(6) of the Central Goods and Services Tax Act, 2017, prosecution requires previous sanction from the Commissioner of Central Tax. The applicant contended that the Additional Director General is not an authorized officer to accord necessary sanction for prosecution under Section 132.

2. Assessment of Tax Liability:
The applicant contended that there was no assessment of the liability of evasion of tax or misappropriation of tax. The applicant argued that without determining the quantum of evasion as envisaged under Section 74(1), prosecution under Section 132(1) cannot be initiated. The applicant relied on the judgment of the Madras High Court in Jayachandran Alloys (P.) Ltd. vs. Superintendent of GST & C. Ex., Salem, which held that prosecution can only be initiated post determination of the tax demand.

3. Simultaneity of Adjudication and Prosecution:
The opposite party argued that adjudication and prosecution can be initiated simultaneously under the GST Act. They relied on the judgment of the Bombay High Court in Tejas Pravin Dugad vs. Union of India, which held that special provisions of the GST Act prevail over the Code of Criminal Procedure, allowing both adjudication and prosecution to proceed simultaneously. The Supreme Court in Central Bureau of Investigation vs. Maninder Singh also supported this view, emphasizing that economic crimes affect society at large and prosecution should not be quashed merely on the ground of settlement.

4. Validity of the Prosecution Without Prior Assessment:
The opposite party submitted that the Additional Director General has been authorized to exercise powers of the Commissioner as per Government Notification No. 14/2007-Central Tax. Thus, the sanction order was valid. They also cited the Supreme Court's judgment in Standard Chartered Bank vs. Directorate of Enforcement, which held that criminal prosecution can be launched either during the pendency of adjudication or simultaneously.

Conclusion:
After hearing both sides, the court found that the Additional Director General was vested with the powers of the Commissioner, making the sanction order valid. The court also noted that there was an assessment showing fraudulent availing and utilization of input tax credit by the applicant. The court held that adjudication and prosecution can proceed simultaneously under the GST Act. Consequently, the application for quashing the criminal proceedings was dismissed.