FIR for GST evasion can be lodged under CPC for cognizable offences punishable under IPC

FIR for GST evasion can be lodged under CPC if it discloses commission of cognizable offences punishable under IPC – High Court

ABCAUS Case Law Citation:
ABCAUS 2998 (2019) (06) HC

Important Case Laws Cited/relied upon by the parties:
Ajit Singh @ Muraha v. State of U.P., 2006 (56) ACC 433
State of West Bengal Vs. Narayan K. Patodia (2000) 4 SCC 447

In the instant case, the petitioner had filed a writ petition seeking quashing of first information report (FIR), lodged by Assistant Commissioner, Commercial Tax at police station under Sections 420, 467, 468, 471, 34, 120-B IPC.

The impugned FIR alleged that the petitioner applied for registration under the U.P. Goods and Services Tax Act, 2017 (U.P. GST Act) by providing the nature of business, registered office address, monile no. and email id. Upon which a GST No. was provided to it.

Further, while applying for registration, it was declared that the office space for the firm was obtained on rent. The rent agreement and receipt of electricity connection was also uploaded at the GST portal.

It was alleged that an inquiry about the dealer was conducted by the officers of the Commercial Tax, extreme discrepancy  were noticed as to the disclosed place of business and functioning of the Petitioner.

The impugned FIR also alleged that since the time of registration despite a large quantity of inward supply, the outward supply was negligible, a deeper probe was made. Upon which, it was found that petitioner had obtained 295 e-way bills in respect of inward supply of goods worth Rs. 35 crores approx by showing its place of business at two different places. The probe revealed that the disclosed bank account had a meagre balance and the total amount deposited in the account was also very low which suggested that the firm’s proprietor had limited means to carry out such huge business as could be gathered from the inward e-way bills obtained by him.

On inquiry another undisclosed bank account of the Petitioner came to light in another State with huge cash deposits suggesting that the goods obtained through 295 inward e-way bills were disposed off without invoicing to evade taxes.

In a nutshell, the thrust of the allegations made in the impugned FIR was that the dealer fraudulently, with a dishonest intention, by submitting false documents, with an intention to evade taxes, obtained registration, thereafter, took inward supply and passed on the goods to end users, without generating outward supply bills, received money in cash and deposited the same in bank account which was not declared at the time of seeking registration.

In the Writ Petition, it was submitted that till date, no case had been registered under the provisions of the U.P. GST Act or under the Central Goods and Services Tax Act, 2017 (Central Act) and no recovery demand had been raised and, therefore, lodging of the first information report under the provisions of the Indian Penal Code was not legally sustainable as the Goods and Services Tax Act is a complete code in itself.

The Petitioner submitted that the act of the petitioner for which the impugned FIR had been lodged was covered by various clauses of the provisions of Section 122 of U.P. GST Act and therefore at best a penalty could be imposed by taking recourse to the provisions of the U.P. GST Act.

The Hon’ble High Court rejected the argument of the petitioner that except for offences specified in sub-section (5) of section 132, sub-section (4) of section 132 of the U.P. GST Act renders all offences under the U.P. GST Act non cognizable, therefore no FIR can be lodged.

The Hon’ble High Court opined that  sub-section (4) speaks of offences under the U.P. GST Act and not in respect of offences under the Penal Code. Also section 135 of the U.P. GST Act makes a significant departure from general law by providing that in any prosecution for an offence under the U.P. GST Act, which requires a cuplable mental state on the part of the accused, the court shall presume the existence of such mental state. The same does not hold true for offences punishable under the Penal Code. Hence, to prove mensrea, which is one of the necessary ingredients of an offence punishable under the Penal Code, the standard of proof would have to be higher to prove commission of an offence punishable under the Penal Code than what would be required to prove an offence punishable under the U.P. GST Act. As such, the offences punishable under the Penal Code are qualitatively different from an offence punishable under the U.P. GST Act.

In view of the provisions of Section 26 of the General Clauses Act, 1897 and the law laid down by the apex court, the Hon’ble High Court rejected the contention of the petitioner that no first information report can be lodged against the petitioner under the provisions of the Code of Criminal Procedure for offences punishable under the Indian Penal Code, as proceeding could only be drawn against him under the U.P. Goods and Services Tax Act, 2017.

Upon perusal of the impugned FIR, the Hon’ble High Court found that, prima facie, necessary ingredients of an offence of cheating, by submitting false information and documents, were clearly spelt out. Because, according to the allegations a bogus firm was got registered by showing false and bogus addresses of business; and, by taking advantage of such registration, inward e-way bills were generated to make purchase of goods worth Rs. 35 odd crores and, thereafter, without generating outward supply bills, huge amount of money was deposited in cash in undisclosed bank account, suggesting that goods were sold without proper documentation, with a view to evade taxes.

The Hon’ble High Court opined that therefore, it could not be said that a bare reading of the impugned FIR did not disclose commission of cognizable offences punishable under the Penal Code. Hence, the impugned FIR was not liable to be quashed.

The Hon’ble High Court noted that a Full Bench of the Court had taken a view that where prayer to quash the FIR cannot be accepted there should not ordinarily be a stay on arrest. Although, in a few decisions of the Hon’ble Supreme Court, it had been held that, in suitable cases, to ensure that a person’s liberty is not jeopardized, on account of false implication, protection from arrest, pending investigation, may be granted by superior courts but that power is not ordinarily to be exercised in matters relating to economic fraud. As, in such matters, stay on arrest may become a hurdle in thorough investigation of the matter, particularly in tracing out the money trail.

Accordingly, the Hon’ble High Court refused to give any relief.

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