2025 (6) TMI 1783 - HC - GST

Seeking to quash the proceedings against the petitioner for the offences punishable under Section 132(6) of the CGST Act 2017 - large-scale fraudulent scheme under the Central Goods and Services Tax (CGST) Act 2017 - fraudulent availment of ITC - Challenge to summons issued - Challenge to adjudication based solely on statements recorded by the investigating officer - Fraudulent availment of ITC - fraudulent filing of invoices - HELD THAT - A reading of various statements on record particularly those made by individuals associated with other firms reveals that the petitioner was not just a passive consultant but actively managed GST filings and invoice generation for several entities including M/s. Mithra Enterprises. Even the proprietor of M/s. Mithra Enterprises has stated that no actual goods were involved and that the invoices were bogus. Therefore at this stage it cannot be said that the petitioner is not linked to the fraudulent filing of invoices and the matter requires adjudication. Challenge to summons issued - case of petitioner is that the summons issued by Respondent No.2 did not clarify whether he was being summoned as an accused or a witness thereby violating Instruction No.3/2022-23 - HELD THAT - It is noted that the summons in question were issued in the year 2020 while the cited instruction came into effect much later. Hence the instruction cannot operate retrospectively and there is no merit in this contention. Challenge to adjudication based solely on statements recorded by the investigating officer - It is contended that the department has already adjudicated the matter and imposed a penalty of Rs.1, 00, 000/- on the petitioner and such adjudication based solely on statements recorded by the investigating officer and he already filed appeal against the said finding whereas the said departmental finding is in force as on today - HELD THAT - It is not a ground to quash the proceedings against the petitioner and this is an issue to be determined during trial particularly in light of the multiple statements implicating the petitioner. It is well established that the High Court while exercising jurisdiction under Section 482 Cr.P.C. does not function as an appellate or revisional Court. The inherent powers under Section 482 are to be used sparingly and with caution. The present case involves incomplete and contested facts and the evidence is yet to be fully collected and presented before the trial Court. Where both factual and legal issues are of significant complexity and magnitude and where a complete picture cannot be formed without full material and examination the High Court should not prematurely interfere. Therefore this petition is not liable to be entertained at this stage and the same is liable to be dismissed. This criminal petition is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the petitioner, as a consultant, actively participated in the creation and circulation of fake invoices under the CGST Act, 2017, or merely acted as a passive agent executing instructions from the principal accused.

- Whether the investigation and criminal proceedings against the petitioner are legally sustainable, considering alleged procedural lapses including the nature of summons issued and the timing of departmental instructions.

- The impact and relevance of concurrent adjudication proceedings and penalty imposition on the criminal prosecution against the petitioner.

- The scope and appropriateness of the High Court's exercise of inherent jurisdiction under Section 482 Cr.P.C. to quash the criminal proceedings at this stage.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: The Petitioner's Role in the Alleged GST Fraudulent Scheme

The petitioner contended that he was engaged solely as a registered tax consultant, performing digitization and filing functions based on physical invoice copies provided by the principal accused (proprietor of M/s. Shakti Steel India). He argued that the principal accused admitted under Section 70 of the CGST Act that he prepared the invoices and merely handed them over to the petitioner for uploading, indicating the petitioner's passive role without independent fabrication or conspiracy.

The Court examined statements from multiple witnesses and accused individuals, including proprietors of several bogus firms such as M/s. Mithra Enterprises, which admitted the absence of actual goods and the issuance of fake invoices. The petitioner was found to have managed GST filings, controlled credentials, and coordinated invoice generation across multiple entities, thereby transcending the role of a mere consultant.

Relevant legal principles emphasize that involvement in the management and control of fraudulent GST filings, especially where the accused admits to creating firms solely for passing fake Input Tax Credit (ITC), constitutes active participation in the offence under Section 132(6) of the CGST Act. The Court noted that the petitioner's own voluntary statement admitted controlling operations and receiving commission for facilitating fake ITC, which aligns with the offence's mens rea and actus reus.

The Court rejected the petitioner's argument that statements implicating him were coerced, highlighting that such contentions are to be tested during trial through cross-examination and evidence evaluation, not at the stage of quashing proceedings.

Issue 2: Procedural Validity of Summons and Investigation

The petitioner challenged the summons issued by the GST department, asserting violation of CBIC Instruction No.3/2022-23, which mandates clarity on whether the summoned individual is called as an accused or witness. The petitioner argued that the summons were vague and issued without specification, rendering the investigation defective.

The Court observed that the summons were issued in 2020, whereas the cited CBIC instruction came into effect subsequently. As such, the instruction could not be applied retrospectively. The Court held that no procedural irregularity arose on this ground, and the summons were validly issued in accordance with the law prevailing at the time.

Issue 3: Impact of Concurrent Adjudication Proceedings and Penalty Order

The petitioner pointed to the adjudication order imposing a penalty of Rs.1,00,000 for aiding the fraudulent ITC claim, contending that the adjudication was mechanical, based solely on investigation statements, and that the appeal against this order was pending. He argued that this rendered the criminal proceedings unsustainable and liable to be quashed.

The Court clarified that criminal prosecution and departmental adjudication are independent processes under the CGST framework. The imposition of penalty in adjudication does not preclude criminal proceedings, especially where the allegations involve serious economic offences requiring trial. The Court emphasized that the correctness of the adjudication order and the extent of penalty are matters for appellate authorities and do not constitute grounds for quashing criminal proceedings.

Issue 4: Appropriateness of Quashing Proceedings under Section 482 Cr.P.C.

The petitioner sought quashing of the criminal complaint invoking the High Court's inherent jurisdiction under Section 482 Cr.P.C., asserting that the investigation was hasty, evidence insufficient, and proceedings unjustified.

The Court reiterated the settled principle that Section 482 powers are to be exercised sparingly and not as a substitute for trial or appellate remedies. The present case involved complex factual and legal questions, including disputed evidence and multiple accused persons. The Court noted that the investigation was ongoing, and the trial had not commenced, making premature interference inappropriate.

The Court underscored that the High Court is not an appellate or revisional authority in such matters and that the petitioner's contentions regarding evidence sufficiency and procedural propriety are better addressed during trial. The Court therefore declined to quash the proceedings.

3. SIGNIFICANT HOLDINGS

"A reading of various statements on record... reveals that the petitioner was not just a passive consultant but actively managed GST filings and invoice generation for several entities... Therefore, at this stage, it cannot be said that the petitioner is not linked to the fraudulent filing of invoices, and the matter requires adjudication."

"The summons in question were issued in the year 2020, while the cited instruction came into effect much later. Hence, the instruction cannot operate retrospectively, and there is no merit in this contention."

"The petitioner's contention regarding the adjudication proceedings is misconceived... the findings of the adjudicating authority cannot be brushed aside as being solely based on statements recorded during investigation."

"The High Court, while exercising jurisdiction under Section 482 Cr.P.C., does not function as an appellate or revisional Court... The present case involves incomplete and contested facts, and the evidence is yet to be fully collected and presented before the trial Court... the High Court should not prematurely interfere."

Core principles established include the distinction between independent departmental adjudication and criminal prosecution, the non-retrospective application of procedural instructions, and the circumscribed scope of inherent jurisdiction under Section 482 Cr.P.C. in economic offence trials involving complex factual matrices.

Final determinations concluded that the petitioner's role in the fraudulent GST scheme was prima facie active and material, procedural objections lacked merit, concurrent penalty proceedings did not bar criminal trial, and the criminal petition for quashing was not maintainable at the pre-trial stage. Consequently, the petition was dismissed.