Fake input tax credit fraud proceedings need not be quashed at the pre-trial stage where disputed facts require trial.

Telangana HC declined to quash criminal proceedings alleging fraudulent generation and passing on of fake input tax credit under the CGST framework, holding that the record disclosed disputed facts, statements implicating the petitioner, and a prima facie triable case requiring trial rather than inherent interference. It further held that a later departmental instruction on summons could not retrospectively invalidate summons issued earlier in the course of investigation. The Court also found that adjudication proceedings, penalty, and pendency of an appeal did not bar the criminal prosecution, since the departmental and criminal proceedings were distinct and the prosecution was supported by investigative material.

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Issues: (i) Whether the criminal proceedings alleging fraudulent generation and passing on of fake input tax credit under the CGST framework should be quashed at the threshold in exercise of inherent jurisdiction. (ii) Whether the departmental instruction governing the manner of issuing summons could invalidate summons issued earlier. (iii) Whether the pendency of adjudication and imposition of penalty barred continuation of the criminal prosecution.

Issue (i): Whether the criminal proceedings alleging fraudulent generation and passing on of fake input tax credit under the CGST framework should be quashed at the threshold in exercise of inherent jurisdiction.

Analysis: The material on record contained multiple statements indicating that the petitioner was actively involved in GST filings, invoice generation and management of bogus firms. The dispute involved disputed and incomplete facts, and the Court found that the petitioner could not, at this stage, be treated as unconnected with the alleged fraud. In such a situation, the inherent jurisdiction is not to be used as a substitute for trial or to undertake an appreciation of evidence.

Conclusion: The proceedings were not liable to be quashed.

Issue (ii): Whether the departmental instruction governing the manner of issuing summons could invalidate summons issued earlier.

Analysis: The summons relied upon by the petitioner had been issued before the cited instruction came into force. A later administrative instruction cannot operate retrospectively so as to unsettle prior summons that were otherwise issued in the course of investigation.

Conclusion: The contention based on the instruction failed.

Issue (iii): Whether the pendency of adjudication and imposition of penalty barred continuation of the criminal prosecution.

Analysis: The adjudication order and the criminal prosecution were treated as separate proceedings. The existence of a departmental penalty and the pendency of an appeal against it did not, by itself, furnish a ground for quashing the criminal case, particularly when the prosecution was supported by statements and other investigative material.

Conclusion: The criminal proceedings could continue notwithstanding the adjudication.

Final Conclusion: The petition for quashing was rejected because the allegations disclosed a triable case and the Court declined to interfere at the pre-trial stage under its inherent jurisdiction.

Ratio Decidendi: Inherent jurisdiction to quash criminal proceedings should not be exercised where the allegations rest on contested facts and the record discloses a prima facie triable case, especially in matters involving alleged GST fraud and fake input tax credit.

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