Summary: The Madhya Pradesh High Court in Deepak Singhal v. Union of India (Writ Petition No. 21641 of 2024) ruled that GST authorities cannot bypass the penal provisions of the Central Goods and Services Tax (CGST) Act, 2017, and directly invoke the Indian Penal Code (IPC). In this case, Deepak Singhal, proprietor of M/s. Agrawal Soya Extracts Pvt Ltd, was summoned under Section 70 of the CGST Act, followed by a search and seizure operation revealing fraudulent activity related to bogus firms and wrongful input tax credit claims. However, instead of pursuing prosecution under the CGST Act, the authorities registered an FIR under IPC Sections 420, 467, 468, and 471 without obtaining the necessary sanction from the Commissioner, as mandated by Section 132(6) of the CGST Act. The Court emphasized that the GST Act is a special statute with specific procedures for penalties and prosecution, which cannot be circumvented by relying solely on general laws like the IPC. Consequently, the FIR was quashed, reinforcing the precedence of the GST Act’s provisions over the IPC in cases involving GST-related offences.
The Hon’ble Madhya Pradesh High Court in the case of Deepak Singhal v. Union of India and Others [Writ Petition No. 21641 of 2024 dated September 11, 2024] held that the GST Authorities are not permitted to bypass the procedure for launching prosecution under the GST Act, 2017 and invoke provisions of Indian Penal Code without pressing into service penal provisions from GST Act, 2017 and that too without obtaining sanction from commissioner under Section 132(6) of the Central Goods and Services Tax Act, 2017.
Facts:
Deepak Singhal is a proprietor of the proprietor firm named M/s. Agrawal Soya Extracts Pvt Ltd (“the Petitioner”) carrying out its business of trade of Soya beans seeds and Soya De-Oiled Cakes. On August 11, 2021, a summon was issued to the Petitioner herein by the Revenue Department (“the Respondent”) under Section 70 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) read with Section 174 of Madhya Pradesh Goods and Services Act, 2017 (“the MPGST Act”) pursuant to which statements of the Petitioner were recorded.
After that, the Respondent in the exercise of power conferred under Section 67(2) of the CGST Act, conducted search and seizure operations on the premises of M/s. Shreenath Soya Exim Corporate and prepared inspection report in which it has been alleged that M/s. Shreenath Soya Exim Corporate was bogus firm and fraudulently registered, which issued invoice/bill without supply of goods/services leading to wrongful availment or utilization of input tax credit/refund of tax. The Respondent made a complaint dated December 25, 2022 based on which FIR No. 62/2022 under Section(s) 420, 467, 468, 471 of the Indian Penal Code (“IPC”) was registered by other Respondent against M/s. Shreenath Soya Exim Corporate’s proprietor Sachin Pateria in which the Petitioner has been implicated later on, on the basis of memorandum under Section 27 of Evidence Act.
Aggrieved of the same, the Petitioner has approached this court.
Contentions of the Petitioner:
The Petitioner submitted that the GST Act is a complete code which provides for the procedure to be adopted by GST Authorities, penalties in case of breach of provisions of the GST Act and punishment for offences committed under GST Act. It is further submitted that admittedly in the case at hand, search and seizure operations conducted by GST Authorities under Section 67(2) of the CGST Act revealed the commission of offence which is punishable under Section 132 of the CGST Act and hence, GST being a special statute, any offence which is squarely covered by the GST Act, provisions of IPC could not have been invoked without invoking the provisions of GST Act and hence registration of FIR at the instance of GST Authorities under provisions of Indian Penal Code without invoking penal provisions under GST Act is bad in law and the FIR and consequential proceedings are liable to be quashed on this ground.
It is further submitted that Section 132(6) of the CGST Act requires the previous sanction of the Commissioner before a person can be prosecuted for offences committed under Section 132 of the GST Act and GST Authorities in order to bypass such procedural safeguard have gotten FIR registered under the penal provisions of IPC without invoking penal provisions under GST Act which cannot be permitted and hence on this ground also, FIR and consequential proceedings are liable to be quashed.
Contentions of the Revenue:
The Respondents have submitted that offence under the GST Act and IPC are distinct and there is no prohibition registration of offences under IPC by Police authorities on complaints being made by GST Authorities.
Issue:
Whether the GST Authorities can launch prosecution invoking penal provisions under IPC, without invoking the penal provisions of GST Act, when the alleged offences are covered under the provisions of GST Act and that too without obtaining Sanction under Section 132(6) of CGST Act?
Held:
The Hon’ble Madhya Pradesh High Court in Writ Petition No. 21641 of 2024 dated September 11, 2024 held as under:
- Referred to relevant statutory provisions under the CGST Act such as Section 67 governing Power of inspection, search and seizure, Section 69 governing power to arrest, Section 70 governing power to summon persons to give evidence and produce documents, Section 122 governing penalties and Section 132 w.r.t. punishment for offences.
- Observed that, the Petitioner had been summoned under Section 70 of the CGST Act and it had given its statement with GST Authorities and thereafter no action under GST Act was taken against the Petitioner by the GST authorities.
- This court apprised that no sanction before launching prosecution i.e. registration of FIR, was taken from the Commissioner as required under Section 132(6) of the CGST Act and no justification exists on the part of GST authorities to invoke penal provisions of IPC without invoking penal provisions under GST bypassing the procedure as prescribed under the GST Act.
- Noted that, justification is mandatory especially when uncontroverted allegations in the inspection report and FIR, constituted offence squarely covered under the provisions of the GST Act, specifically Section 132 of the CGST Act.
- Opined that, the GST Act is special legislation which holistically deals with procedure, penalties and offences relating to GST and at the cost of repetition this court cannot emphasise more that the GST Authorities cannot be permitted to bypass procedure for launching prosecution under GST Act and invoke provisions of IPC only without pressing into service penal provisions from GST Act and that too without obtaining sanction from commissioner under Section 132(6) of the CGST Act especially when the alleged actions squarely fall within the precincts of offence as enumerated under GST Act.
- Further opined that, this would defeat the very purpose of enacting a special statute such as the GST Act, as the GST Authorities instead of conducting search and seizure and conducting proceedings as prescribed under the GST Act themselves would be delegating the same to local police authorities which cannot be said to be the intent of the legislature while enacting GST Act.
- Relied on, Sharat Babu Digumarti v. Government (NCT of Delhi) 2017 (2) SCC 18, in which it has been held that it is a settled position in law that a special law shall prevail over the general and prior laws.
- Held that, GST Authorities cannot bypass the procedure prescribed under the GST Act for launching prosecution by simply invoking penal provisions under IPC without invoking penal provisions under the GST Act especially when the allegations so revealed as a result of search and seizure conducted by the GST Authorities constituted offence covered under the penal provisions of GST Act as that would amount to bypassing procedural safeguards as provided under Section 132(6) of the CGST Act which requires sanction of the commissioner prior to initiation of prosecution, which is to the prejudice of the Petitioner herein. Thus, allowed the writ and in consequence, quashed the FIR in Crime No.62/2022 u/s 420, 467, 468 and 471 of IPC.
Our Comments:
This court emphasized that the GST Authorities cannot bypass the procedural requirements under the GST Act by directly invoking the penal provisions of the IPC without first adhering to the GST Act’s provisions, particularly Section 132(6) of the CGST Act, which mandates the Commissioner’s sanction before launching prosecution. The court noted that the actions alleged against the Petitioner fell within the scope of the GST Act, and failure to follow its penal procedures would undermine the legislative intent. The FIR was quashed, and the court reiterated that the GST Act, being a special statute, prevails over general laws like the IPC.
Further, in the Hon’ble Tripura High Court in the case of Sentu Dey v. The State of Tripura., The Superintendent of Police, Shri Niranjan Ch. Das, Superintendent of State Tax, Bishalgarh [2021 (51) G. S. T. L. 255 (Tripura)] held that If ingredients of an offence under IPC get satisfied in an alleged GST offence, then provisions under IPC can also be invoked along with GST provisions when prosecution is launched in GST cases.
Relevant Provisions:
67. Power of inspection, search and seizure.—
(1) Where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that––
(a) a taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or
(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act, he may authorise in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.
(2) Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things:
Provided that where it is not practicable to seize any such goods, the proper officer, or any officer authorised by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer:
Provided further that the documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.
(3) The documents, books or things referred to in sub-section (2) or any other documents, books or things produced by a taxable person or any other person, which have not been relied upon for the issue of notice under this Act or the rules made thereunder, shall be returned to such person within a period not exceeding thirty days of the issue of the said notice.
(4) The officer authorised under sub-section (2) shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied.
(5) The person from whose custody any documents are seized under subsection (2) shall be entitled to make copies thereof or take extracts therefrom in the presence of an authorised officer at such place and time as such officer may indicate in this behalf except where making such copies or taking such extracts may, in the opinion of the proper officer, prejudicially affect the investigation.
(6) The goods so seized under sub-section (2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be.
(7) Where any goods are seized under sub-section (2) and no notice in respect thereof is given within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized:
Provided that the period of six months may, on sufficient cause being shown, be extended by the proper officer for a further period not exceeding six months.
(8) The Government may, having regard to the perishable or hazardous nature of any goods, depreciation in the value of the goods with the passage of time, constraints of storage space for the goods or any other relevant considerations, by notification, specify the goods or class of goods which shall, as soon as may be after its seizure under sub-section (2), be disposed of by the proper officer in such manner as may be prescribed.
(9) Where any goods, being goods specified under sub-section (8), have been seized by a proper officer, or any officer authorised by him under sub-section (2), he shall prepare an inventory of such goods in such manner as may be prescribed.
(10) The provisions of the Code of Criminal Procedure, 1973, relating to search and seizure, shall, so far as may be, apply to search and seizure under this section subject to the modification that sub-section (5) of section 165 of the said Code shall have effect as if for the word ―Magistrate, wherever it occurs, the word ―Commissioner were substituted.
(11) Where the proper officer has reasons to believe that any person has evaded or is attempting to evade the payment of any tax, he may, for reasons to be recorded in writing, seize the accounts, registers or documents of such person produced before him and shall grant a receipt for the same, and shall retain the same for so long as may be necessary in connection with any proceedings under this Act or the rules made thereunder for prosecution.
(12) The Commissioner or an officer authorised by him may cause purchase of any goods or services or both by any person authorised by him from the business premises of any taxable person, to check the issue of tax invoices or bills of supply by such taxable person, and on return of goods so purchased by such officer, such taxable person or any person in charge of the business premises shall refund the amount so paid towards the goods after cancelling any tax invoice or bill of supply issued earlier.
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96. Power to arrest.—
(1) Where the Commissioner has reasons to believe that a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section, he may, by order, authorise any officer of central tax to arrest such person.
(2) Where a person is arrested under sub-section (1) for an offence specified under sub- section (5) of section 132, the officer authorised to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty four hours.
(3) Subject to the provisions of the Code of Criminal Procedure, 1973,––
(a) where a person is arrested under sub-section (1) for any offence specified under sub-section (4) of section 132, he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate;
(b) in the case of a non-cognizable and bailable offence, the Deputy Commissioner or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station.
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70. Power to summon persons to give evidence and produce documents.—
(1) The proper officer under this Act shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry in the same manner, as provided in the case of a civil court under the provisions of the Code of Civil Procedure, 1908.
(2) Every such inquiry referred to in sub-section (1) shall be deemed to be a ―judicial proceedings within the meaning of section 193 and section 228 of the Indian Penal Code.
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122. Penalty for certain offences.—
(1) Where a taxable person who––
(i) supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;
(ii) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder;
(iii) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
(iv) collects any tax in contravention of the provisions of this Act but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
(v) fails to deduct the tax in accordance with the provisions of sub-section (1) of section 51, or deducts an amount which is less than the amount required to be deducted under the said sub-section, or where he fails to pay to the Government under sub-section (2) thereof, the amount deducted as tax;
(vi) fails to collect tax in accordance with the provisions of sub-section (1) of section 52, or collects an amount which is less than the amount required to be collected under the said sub-section or where he fails to pay to the Government the amount collected as tax under sub-section (3) of section 52;
(vii) takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder;
(viii) fraudulently obtains refund of tax under this Act;
(ix) takes or distributes input tax credit in contravention of section 20, or the rules made thereunder;
(x) falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information or return with an intention to evade payment of tax due under this Act;
(xi) is liable to be registered under this Act but fails to obtain registration;
(xii) furnishes any false information with regard to registration particulars, either at the time of applying for registration, or subsequently;
(xiii) obstructs or prevents any officer in discharge of his duties under this Act;
(xiv) transports any taxable goods without the cover of documents as may be specified in this behalf;
(xv) suppresses his turnover leading to evasion of tax under this Act;
(xvi) fails to keep, maintain or retain books of account and other documents in accordance with the provisions of this Act or the rules made thereunder;
(xvii) fails to furnish information or documents called for by an officer in accordance with the provisions of this Act or the rules made thereunder or furnishes false information or documents during any proceedings under this Act;
(xviii) supplies, transports or stores any goods which he has reasons to believe are liable to confiscation under this Act;
(xix) issues any invoice or document by using the registration number of another registered person;
(xx) tampers with, or destroys any material evidence or document;
(xxi) disposes off or tampers with any goods that have been detained, seized, or attached under this Act, he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.
(2) Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised—
(a) for any reason, other than the reason of fraud or any wilful mis-statement or suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or ten per cent. of the tax due from such person, whichever is higher;
(b) for reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher.
(3) Any person who––
(a) aids or abets any of the offences specified in clauses (i) to (xxi) of subsection (1);
(b) acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;
(c) receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;
(d) fails to appear before the officer of central tax, when issued with a summon for appearance to give evidence or produce a document in an inquiry;
(e) fails to issue invoice in accordance with the provisions of this Act or the rules made thereunder or fails to account for an invoice in his books of account, shall be liable to a penalty which may extend to twenty-five thousand rupees.
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132. Punishment for certain offences—
(1) Whoever commits any of the following offences, namely:—
(a) supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;
(b) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;
(c) avails input tax credit using such invoice or bill referred to in clause (b);
(d) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
(e) evades tax, fraudulently avails input tax credit or fraudulently obtains refund and where such offence is not covered under clauses (a) to (d);
(f) falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information with an intention to evade payment of tax due under this Act;
(g) obstructs or prevents any officer in the discharge of his duties under this Act;
(h) acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;
(i) receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;
(j) tampers with or destroys any material evidence or documents;
(k) fails to supply any information which he is required to supply under this Act or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or
(l) attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (k) of this section, shall be punishable––
(i) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine;
(ii) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds wo hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine;
(iii) in the case of any other offence where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to one year and with fine;
(iv) in cases where he commits or abets the commission of an offence specified in clause (f) or clause (g) or clause (j), he shall be punishable with imprisonment for a term which may extend to six months or with fine or with both.
(2) Where any person convicted of an offence under this section is again convicted of an offence under this section, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to five years and with fine.
(3) The imprisonment referred to in clauses (i), (ii) and (iii) of sub-section (1) and sub-section (2) shall, in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, be for a term not less than six months.
(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under this Act, except the offences referred to in subsection (5) shall be non- cognizable and bailable.
(5) The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.
(6) A person shall not be prosecuted for any offence under this section except with the previous sanction of the Commissioner.
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