Quashing of criminal proceedings after tax dispute resolution where no recoverable amount remained and prosecution served as recovery measure

The Gujarat High Court held that inherent jurisdiction could be used to quash an FIR and consequential proceedings where the underlying sales tax dispute had already been resolved against taxability and no amount remained recoverable. Because the earlier appellate and tribunal determinations had extinguished the basis of recovery, the criminal case for cheating and criminal breach of trust was treated as a recovery-oriented prosecution and could not be sustained on the facts. The Court therefore quashed the FIR and all consequential proceedings.

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Issues: Whether the FIR and consequential proceedings could be quashed in exercise of inherent jurisdiction when the underlying sales tax dispute had already been resolved against taxability and no amount remained recoverable.

Analysis: The applicants were prosecuted for alleged cheating and criminal breach of trust arising out of a sales tax assessment relating to chicory roots. The earlier tax dispute had been considered by the appellate forum and the tribunal, and the basis of recovery had ceased to survive. In light of the binding tax determination and the admitted position that nothing remained to be recovered, the criminal prosecution, which was essentially pursued as a recovery measure, could not be sustained. The Court therefore found the continuation of proceedings to be unwarranted in the facts of the case.

Conclusion: The FIR and all consequential proceedings were quashed in favour of the applicants.

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