TMI Blog2019 (5) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf was false. Therefore, the Joint Commissioner (enforcement), Salemr authorised officials to conduct inspection and search in the business premises of the petitioners and also seized the necessary documents and goods. This exercise was conducted pursuant to the powers given under Section 67 of the Act. The inspection was conducted on 09.01.2019. Parallelly, inspection was also conducted at Bangalore and the premises was sealed. 4. It is the further case of the prosecution that summons were issued to the petitioners for enquiry. In the meantime, the petitioners filed the anticipatory bail petition before this Court and this Court directed the petitioners to appear for interrogation as and when required by the respondent. 5. It is the case of the respondent that the preliminary investigations revealed that 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. Similarly inward supply from 02.06.2018 to 09.01.2019, was also fraudulently shown without actual movement of goods by bogus E-way bills. The total assessable value for the Outward supply was identified as ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nadu Goods and Services Tax Act, 2017 warranting punishment as provided under Section 132(1) (i) of Tamil Nadu Goods and Services Tax Act, 2017. 12. The preliminary investigation also furnishes reasons to believe the following:- a . The above groups of entities had forced a cartel whereby 98 per cent of the transactions are among themselves and only 2 per cent of supplies were made to other entities. In other words, the very same goods are being repeatedly shown as being supplied by way of purchase/sales amongst the above entities only with a view to defraud the revenue and to distribute the credit illegally/fraudulently. In other words, these entities were engaged in what is commonly known, as circular sales. The invoices are issued among themselves, without there being involvement of any goods. The same is done only for the purpose of fraudulently availing anddistributing credit illegally without involvement of any goods and also to effect supplies without invoices, though the primary objective is to illegally avail the credit- b. The above entities had manipulated the records to ensure that the tax actually paid to the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrutiny under Section 61 of the Act in order to find out if there is discrepancy in the returns and to take corrective measures for realisation of short payment. The learned Senior counsel further submitted that Sections 73 and 74 of the Act also provides for demand and recovery for tax not paid or Input Tax Credit wrongly availed or utilised by reason of fraud or willful mis statement or suppression of facts. The learned Senior counsel further submitted that the Act also provides for levying penalty under Section 126 of the Act and a procedure is also prescribed for levy of penalty. The learned Senior counsel also brought to the notice of the Court that the offence is made compoundable under Section 138 of the Act. even after the institution of the prosecution, and therefore, the main purport of the Act is only the collection of the tax and resorting to arrest should not be done in a mechanical manner. The learned Senior counsel further submitted that in order to attract the punishment under Section 132 of the Act, the respondent has to satisfy itself that there has been a tax evasion or an Input Tax Credit wrongly availed or utilised which exceeds ₹ 5 crores. In order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and Services Tax Department, Jaipur made in W.P.No. 75 of 2019 dated 12.03.2019, and submitted that it is not necessary to determine the case under Section 73 and 74 of the Act, before resorting to Section 132 of the Act and the said provision can be directly invoked wherever an offence has been committed. Para 21 of the said judgment is extracted hereunder: ' 21. The contention that the tax is to be first determined under Sections 73 74 of the Act does not have any force for the very reason that in an offence committed under Section 132 of the Act de termination of tax is not required and the Department can proceed straight away by issuing: summons or if reasonable grounds are available by arresting the offender . 12. The learned Special Government Pleader further submitted that the respondent has found that there was a circular trading of seven Companies which involved the relatives of the petitioners and there is a complete mismatch between the total turnover and actual tax paid. The learned counsel further reiterated the stand taken by the respondent in the interim report which has been extracted supra. 13. This Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94. The circular also acknowledges at para 4.3 that sanction of prosecution has serious repercussions for the assessee and therefore along with the above monetary limits the nature of evidence collected during the investigation should be carefully assessed. The evidences collected should be adequate to establish beyond reasonable doubt that the present company or individual had guilty mind, knowledge of the offence, or had fraudulent intention or in any manner- possessed mensrea (guilty mind) for committing the offence.? 95. There is a detailed procedure set out in para 6 regarding procedure to sanction a prosecution. Paras 6.2, 6.3 and 6.4 of this circular are significant and read as under: 6.2 Prosecution should not be launched, in cases of technical nature, or where the additional claim of duty/tax is based totally on a difference of opinion regarding interpretation of law. Before launching any prosecution, it is necessary that the department should have evidence to prove that the person, company or individual had guilty knowledge of the offence, or had fraudulent intention to commit the offence, or in any manner possessed mens re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this circular again underscores is that there should be a comprehensive analysis of the evidence gathered before deciding to go in for prosecution. Importantly, prosecution should not be launched merely because a demand has been confirmed or particularly where the cases are of technical nature or where interpretation of law is involved. It is also not to be launched where additional claim of duty/tax is only based on difference of opinion regarding interpretation of law. Importantly, it has to be normally taken only immediately upon completion of adjudication proceedings . 97. There is a reason behind this stipulation that prosecution should normally be launched only after the adjudication is complete. The 'adjudication' in this context is the adjudication of the penalty under Section 63 A of the FA. That provision mandates that there must be in the first place a determination that a person is liable to a Penalty , which cannot happen till there is in the first place a determination in terms of Section 72 or 73 or 73 A of the FA. Till that point, the entire case proceeds on the basis that there must be an apprehended evasion of tax by the Assessee. This a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two Petitioners, without commencement of the process of adjudication of penalty under Section 83 A of the FA, another agency like the DGCEI cannot without an SCN or enquiry straightaway go ahead to make an arrest merely on the suspicion of evasion of service tax or failure to deposit service tax that has been collected. Section 83 A of the FA which provides for adjudication of penalty provision mandates that there must be in the first place a determination that a person is liable to a penalty , which cannot happen till there is in the first place a determination in terms of Section 72 or 73 or 73 A of the FA. (iii) For a Central Excise officer or an officer of the DGCEI duly empowered and authorised in that behalf to be satisfied that a person has committed an offence under Section 89 (1) (d) of the FA, it would require an enquiry to be conducted by giving an opportunity to the person sought to be arrested to explain the materials and circumstances gathered against such person, which according to the officer points to the commission of an offence. Specific to Section 89 (1) (d) of the FA, it has to be determined with some degree of certainty that a person has c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord, it could not have been possible for the DGCEI to arrive at a reasonable conclusion whether there was a deliberate attempt of evading payment of service tax. (viii) The search undertaken by the DGCEI of the premises of eBIZ on 19th January, 2016 was illegal. For the exercise of powers of search under Section 82 of the FA, (i) an opinion has to be formed by the Joint Commissioner or Additional Commissioner or other officers notified by the Board that any documents or books or things which are useful for or relevant for any proceedings under this Chapter are secreted in any place, and (ii) the note preceding the search of a premises has to specify the above requirement of the law. The search in the present case was in violation of Section 82 of the FA. It is unconstitutional and legally unsustainable. (ix) The Court is unable to accept that payment by the two Petitioners of alleged service tax arrears was voluntary. Consequently, the amount that was paid by the Petitioners as a result of the search of their premises by the DGCEI, without an adjudication much less an SCN, is required to be returned to them forthwith. (x) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly distinguishable from the facts of the present case end under the scheme of the present Act. 18. 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 caser 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. That apart, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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