GST fraud prosecution barred without independent evidence and mandatory prior sanction under the special tax framework.

Proceedings alleging GST fraud were held unsustainable where the investigation record did not independently connect the petitioner to the fictitious concern and the only material was a co-accused's statement and digital data. The Court treated the GST enactments as a special code governing assessment, penalty and prosecution, and held that continuation of prosecution under the IPC was inappropriate on these facts. It also noted that the mandatory prior sanction under Section 132(6) of the CGST Act had not been obtained, and that prosecution in these circumstances would not stand.

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Issues: (i) Whether the material collected during investigation was sufficient to connect the petitioner with the alleged GST fraud and justify continuation of the criminal proceedings. (ii) Whether prosecution under the Indian Penal Code could be sustained in the face of the GST enactments and the requirement of prior sanction under the GST law.

Issue (i): Whether the material collected during investigation was sufficient to connect the petitioner with the alleged GST fraud and justify continuation of the criminal proceedings.

Analysis: The report under Section 173 of the Code of Criminal Procedure, 1973 did not disclose evidence connecting the petitioner with the alleged offences. The only asserted link was digital data and a co-accused's statement, but no independent material was shown to corroborate the petitioner's alleged role in creating or operating the fictitious concern. A confessional statement in police custody, without supporting evidence, was held insufficient to justify further criminal proceedings against the petitioner.

Conclusion: The issue is decided in favour of the petitioner; the proceedings could not be sustained on the available material.

Issue (ii): Whether prosecution under the Indian Penal Code could be sustained in the face of the GST enactments and the requirement of prior sanction under the GST law.

Analysis: The dispute arose from alleged tax evasion under the GST framework, which contains its own machinery for assessment, penalty, prosecution, and offences. The Court treated the GST enactments as a special code governing the field and held that, on the facts, continuation of prosecution under the general penal provisions would not be appropriate. It further found that prior sanction under Section 132(6) of the Central Goods and Services Tax Act, 2017 had not been obtained and that proceeding under the IPC in these circumstances would offend the protection against double jeopardy.

Conclusion: The issue is decided in favour of the petitioner; IPC prosecution was not sustainable and the mandatory sanction requirement was not complied with.

Final Conclusion: The criminal proceedings arising from the FIR and the connected orders were quashed insofar as they related to the petitioner, as the Court found no sufficient evidentiary basis and held that the special GST framework governed the alleged conduct.

Ratio Decidendi: Where the alleged conduct is fully covered by the special GST framework, unsupported by independent material against the petitioner, and initiated without the mandatory prior sanction, continuation of prosecution under the general penal law is unsustainable.

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