Court upholds sanction order in tax credit case; allows adjudication and prosecution simultaneously.

The court dismissed the application seeking to quash criminal proceedings, ruling that the sanction order issued by the Additional Director General was valid as they were authorized to exercise powers of the Commissioner. The court found that there was an assessment indicating fraudulent activities by the applicant related to tax credits. It was held that adjudication and prosecution can occur simultaneously under the GST Act, emphasizing that economic crimes should not be halted solely due to settlement possibilities.

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Issues Involved:
1. Competency of the sanction order.
2. Assessment of tax liability.
3. Simultaneity of adjudication and prosecution.
4. Validity of the prosecution without prior assessment.

Issue-wise Detailed Analysis:

1. Competency of the Sanction Order:
The applicant sought quashing of the criminal proceedings on the ground that the sanction order was issued by the Additional Director General, Meerut Zonal Unit, who was not a competent authority. The applicant argued that under Section 132(6) of the Central Goods and Services Tax Act, 2017, prosecution requires previous sanction from the Commissioner of Central Tax. The applicant contended that the Additional Director General is not an authorized officer to accord necessary sanction for prosecution under Section 132.

2. Assessment of Tax Liability:
The applicant contended that there was no assessment of the liability of evasion of tax or misappropriation of tax. The applicant argued that without determining the quantum of evasion as envisaged under Section 74(1), prosecution under Section 132(1) cannot be initiated. The applicant relied on the judgment of the Madras High Court in Jayachandran Alloys (P.) Ltd. vs. Superintendent of GST & C. Ex., Salem, which held that prosecution can only be initiated post determination of the tax demand.

3. Simultaneity of Adjudication and Prosecution:
The opposite party argued that adjudication and prosecution can be initiated simultaneously under the GST Act. They relied on the judgment of the Bombay High Court in Tejas Pravin Dugad vs. Union of India, which held that special provisions of the GST Act prevail over the Code of Criminal Procedure, allowing both adjudication and prosecution to proceed simultaneously. The Supreme Court in Central Bureau of Investigation vs. Maninder Singh also supported this view, emphasizing that economic crimes affect society at large and prosecution should not be quashed merely on the ground of settlement.

4. Validity of the Prosecution Without Prior Assessment:
The opposite party submitted that the Additional Director General has been authorized to exercise powers of the Commissioner as per Government Notification No. 14/2007-Central Tax. Thus, the sanction order was valid. They also cited the Supreme Court's judgment in Standard Chartered Bank vs. Directorate of Enforcement, which held that criminal prosecution can be launched either during the pendency of adjudication or simultaneously.

Conclusion:
After hearing both sides, the court found that the Additional Director General was vested with the powers of the Commissioner, making the sanction order valid. The court also noted that there was an assessment showing fraudulent availing and utilization of input tax credit by the applicant. The court held that adjudication and prosecution can proceed simultaneously under the GST Act. Consequently, the application for quashing the criminal proceedings was dismissed.

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