2025 (6) TMI 1842 - HC - GST

Challenge to investigation proceedings - large-scale evasion of tax by availing the fraudulent input tax credit - HPGST/CGST Act does not provide for investigation and filing of the complaint - applicability of the provisions of Cr.P.C to GST Act - HELD THAT - The applicability of the provisions of Cr.P.C to GST Act was considered by Hon ble Supreme Court in Radhika Agarwal v. Union of India 2025 (2) TMI 1162 - SUPREME COURT (LB) and it was held that the provisions of Cr.P.C. apply to the proceedings conducted under GST Act if there is no provision to the contrary - the submission that the provisions of Cr.P.C. do not apply to GST Act and the Act is silent regarding the procedure for investigation inquiry or trial is not correct. It was submitted that the investigation was not properly conducted. The officials visited the addresses mentioned in the invoices and did not contact the GST Officials in Delhi to ascertain the proper names and addresses. This submission will not help the petitioners. When the officials went to the addresses mentioned in the invoices and found that no such entity existed it was sufficient to infer that the invoices were fake and the material shown to have been supplied as per the invoices could not have been supplied since no such person existed at the given address. The Court has to see a prima facie case while exercising inherent power and does not sift the evidence to determine its creditworthiness or value. This is for the learned Trial Court to see where the matter is pending; hence the complaint cannot be quashed simply because the investigation was not made with the GST authorities at Delhi. In Mukesh Singh 2020 (9) TMI 419 - SUPREME COURT the Hon ble Supreme Court held that the investigation is not vitiated simply because the informant is the investigator. The question of bias or prejudice would depend upon the facts and circumstances of the case; hence the cited judgment does not show that the complaint is liable to be quashed because the investigation was made by the officials of the department. Conclusion - The Court has to see a prima facie case while exercising inherent power and does not sift the evidence to determine its creditworthiness or value. This is for the learned Trial Court to see where the matter is pending; hence the complaint cannot be quashed simply because the investigation was not made with the GST authorities at Delhi. The present petition fails and the same is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the complaint filed under Section 69 read with Section 132 of the Himachal Pradesh Goods and Services Tax (HPGST)/Central Goods and Services Tax (CGST) Act read with Section 20 of the Integrated Goods and Services Tax Act (IGST) is maintainable and the proceedings before the Trial Court are justified.

- Whether the provisions of the Criminal Procedure Code (Cr.P.C.) apply to the investigation, arrest, and trial under the GST Acts, given that the GST Acts do not explicitly provide for investigation and filing of complaints.

- Whether the powers conferred upon the officers under the GST Acts, especially regarding search, seizure, investigation, and arrest, are arbitrary, unreasonable, or violative of Article 21 of the Constitution.

- Whether the Trial Court erred in ordering pre-charge evidence in the warrant case instituted under the GST Acts.

- Whether the investigation conducted by the departmental officials was proper and sufficient to sustain the complaint.

2. ISSUE-WISE DETAILED ANALYSIS

Applicability of Cr.P.C. to GST Acts and Validity of Complaint and Proceedings

The Court analyzed the applicability of the Cr.P.C. provisions to offences under the GST Acts. The petitioners contended that the GST Acts are silent on investigation, arrest, and filing of complaints, and that the departmental officers have been given unbridled powers, rendering the provisions arbitrary and violative of Article 21.

The Court relied on the authoritative precedent elucidating the relationship between special statutes and the Cr.P.C., particularly the Supreme Court's ruling in Radhika Agarwal v. Union of India, which clarified that the Cr.P.C. applies to offences under special Acts unless expressly or impliedly excluded. Section 4(2) and Section 5 of the Cr.P.C. were highlighted to show that investigation, inquiry, trial, and other procedural aspects are governed by the Cr.P.C. in the absence of contrary provisions.

Further, the Court noted that specific provisions in the GST Acts, such as Section 67(10) relating to search and seizure and Section 69 relating to arrest, expressly incorporate the application of Cr.P.C. procedures, albeit with certain modifications (e.g., substitution of "Commissioner" for "Magistrate" in some contexts). This demonstrates that the GST Acts are not a complete code in themselves and are to be read harmoniously with the Cr.P.C.

The respondent/State contended that the investigation and arrest provisions are regulated by the Cr.P.C., and the petitioners' claim of arbitrary powers was unfounded. The Court agreed, holding that the petitioners' submission that the GST Acts are silent or confer unguided powers was incorrect.

Quashing of Complaint and Principles Governing Exercise of Inherent Powers

The Court referred extensively to the principles governing quashing of criminal proceedings under Section 482 of the Cr.P.C., as summarized in the landmark decision in B.N. John v. State of U.P. and reiterated in Ajay Malik v. State of Uttarakhand. The relevant principles include:

• Where allegations do not prima facie constitute an offence;
• Where the offence is non-cognizable and investigation without Magistrate's order is impermissible;
• Where there is an express legal bar to institution or continuance of proceedings;
• Where the complaint is manifestly mala fide or an abuse of process.

The Court emphasized that these principles are to be applied sparingly and only to prevent abuse of process or to secure ends of justice, not to pre-empt the prosecution from building its case.

Applying these principles, the Court found that the allegations in the complaint, if taken at face value, disclose cognizable offences under the GST Acts punishable with imprisonment exceeding two years, justifying investigation and trial. Hence, the complaint was maintainable and the proceedings before the Trial Court were not an abuse of process.

Trial Procedure and Pre-charge Evidence

The petitioners challenged the Trial Court's order to record pre-charge evidence. The Court observed that Section 132 of the GST Acts provides for imprisonment up to five years, which classifies the offence as a warrant case under Section 2(x) of the Cr.P.C. Chapter 19B of the Cr.P.C. governs warrant cases instituted otherwise than on police reports, mandating recording of prosecution evidence after the accused's appearance.

Section 244 of the Cr.P.C. requires the Magistrate to hear the prosecution and record evidence in such cases. Therefore, the Trial Court's order to record pre-charge evidence was in accordance with the law and not erroneous.

Validity and Sufficiency of Investigation

The petitioners contended that the investigation was flawed because the officials did not contact GST authorities in Delhi to verify the suppliers' credentials and relied solely on physical verification of addresses. The Court rejected this argument, holding that the officials' discovery that the addresses mentioned in the invoices did not correspond to any real entity was sufficient to infer the invoices were fake.

The Court clarified that while exercising inherent powers under Section 482, it is not the function of the Court to sift evidence or assess its credibility, which is the domain of the Trial Court. The existence of a prima facie case is sufficient to sustain the complaint at this stage.

Regarding the petitioners' reliance on the Supreme Court's decision in Mukesh Singh v. State (Narcotic Branch of Delhi), the Court noted that the cited judgment does not support quashing merely because departmental officials conducted the investigation. The question of bias or prejudice depends on facts and circumstances, which cannot be presumed at this stage.

3. SIGNIFICANT HOLDINGS

"The provisions of the Code of Criminal Procedure are not excluded by the GST Acts but apply to the extent that there is no contrary provision in the GST Acts. Therefore, the submission that the provisions of Cr.P.C. do not apply to GST Act and the Act is silent regarding the procedure for investigation, inquiry, or trial is not correct."

"Section 132 of the GST Acts provides for imprisonment up to five years, which classifies the offence as a warrant case under Section 2(x) of the Cr.P.C. Accordingly, the Trial Court was justified in ordering the recording of pre-charge evidence under Section 244 of the Cr.P.C."

"While exercising inherent powers under Section 482 of the Cr.P.C., the Court is not to sift evidence or assess its credibility but to see whether a prima facie case is made out. The finding that the addresses mentioned in the invoices do not exist is sufficient to infer the invoices are fake and to sustain the complaint."

"The investigation conducted by departmental officials visiting the addresses mentioned in the invoices and finding no such entities is valid and sufficient to infer fraudulent input tax credit claims."

"The judgment in Mukesh Singh (supra) does not mandate quashing of the complaint merely because the investigation was conducted by departmental officials; the question of bias depends on facts and circumstances and is not established here."

"The complaint and proceedings are not an abuse of the process of law and do not warrant quashing under the principles laid down by the Supreme Court in B.N. John and Ajay Malik."