IPC Provisions Can't Be Invoked Directly Without Applying Penal Provisions Of GST Act: Madhya Pradesh High Court

The Division Bench of Justices Sushrut Arvind Dharmadhikari and Duppala Venkata Ramana observed that “GST Act, 2017 is a special legislation which holistically deals with procedure, penalties and offences relating 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, 2017 and invoke provisions of Indian Penal Code only without pressing into service penal provisions from GST Act and that too without obtaining sanction from commissioner under Section 132(6) of GST Act especially when the alleged actions squarely fall within the precincts of offence as enumerated under GST Act, 2017.”

Section 67 of CGST Act, 2017 talks about power of proper officer not below the rank of Joint Commissioner to conduct inspection, search and seizure.

As per the Sec 67(2) of the CGST Act, 2017, seized documents, books or things will be retained by the Officer only for the period necessary for examination and for any inquiry or proceeding under GST law.

Section 70 of the CGST Act, 2017 lays down the law regarding the power of the officer to summon any person before them to provide evidence in the form of documents regarding any specific matter.

Section 132(6) of the CGST Act, 2017 stipulates that prosecution for certain offences under this section requires prior approval from the Commissioner.

Section 27 of the Indian Evidence Act, 1872 allows for the admissibility of information given by an accused, while in police custody, if it leads to the discovery of a fact. The information can be used as evidence only to the extent that it relates to the fact discovered.

Facts of the case:

The assessee/petitioner was summoned by the department/respondent No. 5 under Section 70 of the GST Act, 2017. Following this, a search and seizure operation was conducted under Section 67(2) of the GST Act at the premises of M/s. Shreenath Soya Exim Corporate. The inspection report alleged that Shreenath Soya was a bogus firm involved in issuing fraudulent invoices, leading to wrongful tax credit utilization. Based on a complaint, an FIR under IPC Sections 420, 467, 468, and 471 was filed against the proprietor of Shreenath Soya, in which the assessee was later implicated on the basis of a memorandum under Section 27 of the Evidence Act. The assessee has filed a petition before the Madhya Pradesh High Court for quashing the entire proceedings registered against him.

The assessee submitted that the search and seizure operations conducted by the GST authorities under Section 67(2) of the GST Act revealed the commission of an offense punishable under Section 132 of the GST Act. Since the GST Act is a special statute, any offense covered by it should not invoke the provisions of the Indian Penal Code (IPC) without first applying the relevant provisions of the GST Act. Therefore, registration of FIR at the instance of GST Authorities under provisions of IPC without invoking penal provisions under GST Act is bad in law.

The department submitted that offence under GST Act and IPC are distinct and there is no prohibition registration of offences under IPC by Police authorities on complaint being made by GST Authorities.

Observations of the High Court:

The bench observed that it is not disputed that no sanction before launching prosecution i.e. registration of FIR, was taken from Commissioner as required under Section 132(6) of GST Act and no justification exists on part GST authorities to invoke penal provisions of IPC without invoking penal provisions under GST bypassing the procedure as prescribed under GST Act and such justification is mandatory especially when uncontroverted allegations in the inspection report and FIR, constituted offence squarely covered under the provisions of GST Act, 2017, specifically Section 132 of GST Act.

The bench further opined that GST Act, 2017 is a special legislation which holistically deals with procedure, penalties and offences relating 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, 2017 and invoke provisions of Indian Penal Code only without pressing into service penal provisions from GST Act and that too without obtaining sanction from commissioner under Section 132(6) of GST Act especially when the alleged actions squarely fall within the precincts of offence as enumerated under GST Act, 2017. This would defeat the very purpose of enacting a special statute such as GST Act, 2017, as the GST Authorities instead of conducting search and seizure and conducting proceedings as prescribed under GST Act, 2017 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, 2017.

The bench pointed out that “GST Authorities cannot bypass procedure prescribed under GST Act for launching prosecution by simply invoking penal provisions under IPC without invoking penal provisions under GST Act especially when the allegations so revealed as a result of search and seizure conducted by 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 GST Act which requires sanction of the commissioner prior to initiation of prosecution, which is to the prejudice of the petitioner herein. Letting GST Authorities to adopt such course of action would amount to abuse of process of law which cannot be permitted by this court.”

In view of the above, the bench allowed the petition and quashed the FIR.

Counsel for Petitioner/ Assessee: Shashwat Seth

Counsel for Respondent/ Department: Sudeep Bhargava

Case Title: Deepak Singhal v. Union of India & Others

Case Number: WRIT PETITION No. 21641 of 2024