CHARGE SHEET UNDER SECTION 132.

[Sadanand Bulbule]

Dear all

Plz refer Para No 38 of the Hon'ble Madras High Court judgement reported in 2019 (5) TMI 895, which reads as under:

38. Thus, ‘determination’ of the excess credit by way of the procedure set out in Section 73 or 74, as the case may be is a prerequisite for the recovery thereof. Sections 73 and 74 deal with assessments and as such it is clear and unambiguous that such recovery can only be initiated once the amount of excess credit has been quantified and determined in an assessment. When recovery is made subject to ‘determination’ in an assessment, the argument of the department that punishment for the offence alleged can be imposed even prior to such assessment, is clearly incorrect and amounts to putting the cart before the horse.38. Thus, ‘determination’ of the excess credit by way of the procedure set out in Section 73 or 74, as the case may be is a prerequisite for the recovery thereof. Sections 73 and 74 deal with assessments and as such it is clear and unambiguous that such recovery can only be initiated once the amount of excess credit has been quantified and determined in an assessment. When recovery is made subject to ‘determination’ in an assessment, the argument of the department that punishment for the offence alleged can be imposed even prior to such assessment, is clearly incorrect and amounts to putting the cart before the horse.

Query:

In the light of the above ruling, can a charge-sheet still be filed under Section 132[1][i] for the offences classified under Section 132[1] [b] & [c] without/before determination of tax evaded under Section 74?

Assuming it is filed without adjudication under Section 74, is it tenable during trial in the court of law?

Experts to throw light with more case laws.

[Sadanand Bulbule]

2025 (2) TMI 1152 - MADRAS HIGH COURT - TVL. R.M.K. ENTERPRISES, REPRESENTED BY ITS PROPRIETOR MR. R. MALIK VERSUS THE STATE TAX OFFICER, THE ASSISTANT COMMISSIONER (ST), CHENNAI

Liability to pay GST demand for the Assessment Years 2017-2018, 2018-2019, and 2019-2020 - it is alleged that petitioner was indulging in passing Input Tax Credit to facilitate evasion of tax - respondent submit that entire tax liability has been borne by the petitioner out of the Input Tax Credit availed by the petitioner which was passed on by the respective dealers.

HELD THAT:- The law on the subject has been settled by the Division Bench of this Court in Sahyadri Industries Limited Vs. State of Tamil Nadu [2023 (4) TMI 912 - MADRAS HIGH COURT]. Although the said decision was rendered in the context of Tamil Nadu Value Added Tax (TNVAT) Act, 2006, the ratio therein will squarely apply to the facts of the case under the Central Goods and Services Tax (CGST) Act, 2017 and the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017.

The fact remains that the petitioner has discharged the entire tax liability from and out of the Input Tax Credit availed from the invoices raised by the above mentioned suppliers. There is no payment of tax in cash by the petitioner. Prima facie, there are indications that the petitioner acted as an accessory to pass an ineligible Input Tax Credit.

Petition dismissed.

[Sadanand Bulbule]

Plz refer the following to understand the academic meaning of "benefit"  in conjunction with the opening phrase of Section 132 of the CGST Act:

2013 (8) TMI 45 - ALLAHABAD HIGH COURT - COMMISSIONER OF INCOME TAX-I VERSUS M/S BHARAT SEWA SANSTHAN

Institution established for charitable purposes - Entitlement for Exemption u/s 11 - benefit of statutory accumulation u/s 13 - Nature of donations/grants to organizations - Word "benefit" - exgratia expenditure - huge expenditure on non-charitable activities - misappropriation of funds.

HELD THAT:- There is no basis for assuming it for the reasons that the amounts passed on to other organizations were in nature of donations/grants to organizations carrying on charitable activities of which the members of the Governing Council of the Sansthan would not be beneficiaries. The establishment expenditure incurred at the Head Office was only a fraction of the total of such expenditure, a major portion of which had been incurred on the units carrying on charitable activities. The conclusion of the AO that the bulk of the expenditure was on non-charitable activities is, therefore, by no means sustainable.

Further, the beneficiaries i.e. the President and the Treasurer, who got the accommodation were also the office bearer of the Motilal Memorial Society. Thus, if at all there is a case of providing benefit to the persons of prohibited category, then it should be invoked in the case Motilal Memorial Society and certainly not in the case of the assessee.

Needless to mention that the Hon'ble Allahabad High Court in the case of CIT vs. Kamla Town Trust- 2005 (8) TMI 90 - ALLAHABAD HIGH COURT], has held that it has to be shown by the Department that trust has provided land and building or other property of the trust for use of the persons of prohibited category for any period during the previous year without charging adequate rent or other compensation. Therefore, the term "benefit" would cover a case of one way flow of privilege and advantages to the persons of prohibited category, out of the funds, property or income of the trust.

In the instant case, it has not been mentioned that the funds were misappropriated and were not utilized for the purpose according to the objects of the society, so the registration cannot be cancelled.

The registration was not cancelled, but the benefit of exemption was not given by the AO, which is not allowable as per the ratio laid down in the case of American Hotel and Lodging Association vs. CBDT, [2008 (5) TMI 17 - SUPREME COURT].

On the plain language of Section 11(1)(i) of the Act, the assessee was entitled to accumulate 25% of the donation received should be the income of the trust. Thus, the assessee-society is entitled to accumulate 25% of its income from the property/donation etc. held in the trust as rightly observed by the Tribunal.

Hence, we do not find any reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with reasons mentioned therein.

The answer to the substantial question of law is in favour of the assessee and against the revenue.

In the result, the appeals filed by the appellant-Department are hereby dismissed.

[Sadanand Bulbule]

2025 (3) TMI 1022 - KARNATAKA HIGH COURT - VIRAL NARENDRA GOSALIA VERSUS THE SENIOR INTELLIGENCE OFFICER DIRECTORATE GENERAL OF GOODS AND SERVICES TAX INTELLIGENCE, BANGALORE ZONAL UNIT.

Challenge to petitioner's arrest and subsequent judicial custody - non-compliance with the statutory requirement for the issuance of a notice under Section 35 (3) of BNSS, 2023.

HELD THAT:- It is well established in modern criminal jurisprudence and constitutional law that any challenge to the legality of an arrest involves a contest between the entrenched right to life and liberty and the larger public interest and state obligation to punish the guilty. Thus, any interpretative exercise by this Court—whether under its writ jurisdiction or inherent powers—must employ a “test of proportionality.”

In the case of Satender Kumar Antil v. CBI [2022 (8) TMI 152 - SUPREME COURT], the Apex Court observed in respect of grant of bail to persons accused of offences punishable with less than seven years of imprisonment that “one would expect a better exercise of discretion on the part of the court in favour of the accused”.

The Apex Court, in Ashok Munilal Jain and Anr. v. Assistant Director, Directorate of Enforcement [2017 (3) TMI 1642 - SUPREME COURT] held that the procedure prescribed under the Criminal Procedure Code (CrPC), 1973 is equally applicable to criminal proceedings arising under the CGST Act, 2017.

The inherent powers of a High Court are not negated by any overlap with the judicial review powers conferred under Articles 226 and 227. Writs are extraordinary constitutional remedies and operate independently of the statutory right under Section 528 to address grievances not specifically provided for in the Sanhita - The High Court may, at its discretion, entertain a petition under Article 227 of the Constitution or under Section 528 of BNSS to address a substantial question of law that goes to the root of the matter or the genesis of the prosecution.

A perusal of Section 69 (3) (a) of CGST Act, 2017 reveals that the said Act envisages that the arrestee charged with a cognizable and non-bailable offence as under Section 132 (4) of the said Act shall be forwarded to the custody of the Magistrate, in default of bail. The statute does not provide for custody of the arrestee to either police or the proper officer. Therefore, the authority of the Magistrate to, either admit the said arrestee on bail or remand him to judicial custody, is to be necessarily exercised in accordance with the provisions of the BNSS, 2023 (i.e. CrPC, 1973) - the instant petition is maintainable under Section 528 of BNSS, 2017, particularly where the grounds of challenge to the arrest include non-compliance with the statutory provision of Section 35 (3) of BNSS, 2017.

The Apex Court in Arnesh Kumar v. State of Bihar, [2014 (7) TMI 1143 - SUPREME COURT] held that an arrest without a warrant by a police officer for a cognizable offence punishable with imprisonment of up to seven years must satisfy not only the requirement of having ‘reason to believe’ that the arrestee has committed the alleged offence but also that the arrest is necessary for one or more of the purposes enumerated in sub-clauses (a) to (e) of clause (1) of Section 41 CrPC (with Section 35(1) of BNSS corresponding to Section 41 CrPC). As to the issue of notice of appearance under Section 35 (3) of BNSS (i.e., Section 41-A of CrPC), the Court observed that such notice must be served on the accused within two weeks from the date of institution of the case, with an extension by the Superintendent of Police possible for reasons recorded in writing.

In the case at hand, the petitioner however, is an arrestee, who has been in custody since 30.01.2025 who had tendered evidence and cooperated with the conduct of inquiry, and thus, had compiled with the summons issued on 02.01.2025 - under Section 70 of the CGST Act, 2017. The subject of challenge herein is not the issuance of summons, but the arrest effected in pursuance of the said summons, when the same was so made without issuance of the notice of appearance under Section 35 (3) of BNSS, 2023 (or section 41-A(1) of CrPC, 1973).

The case at hand involves a complaint of wrongful availment of ITC by the petitioner to the tune of INR 5.10 crores only, and the petitioner has been in remand since the date of his arrest on 30.01.2025 - The CGST, Act 2017 provides for assessment under Section 59, provisional assessment under section 60, scrutiny of returns under Section 61, assessment of persons who do not file returns under Section 62, assessment of unregistered persons under Section 63, summary assessment in special cases under Section 64, and audit under Sections 65 and 66. It is undisputed that while a prosecution can be launched prior to conduct of summary assessment or special audit determining liability, no offence can be said to be made out in respect of purported discrepancies in the furnished returns, until completion of the said audits.

In light of the fact that the petitioner-arrestee was arrested against the offence punishable with no more than five years of imprisonment plus fine, but without the issuance of notice of appearance directing him to appear before the officer authorised under Section 69(1) of the CGST Act, and the fact that the petitioner has been incarcerated since 30.1.2025, coupled with the settled bail jurisprudence to exercise discretion in favour of accused of such nature, it is deemed fit that the petitioner be enlarged on bail.

Conclusion - The petitioner's arrest is vitiated due to non-compliance with Section 35 (3) of BNSS.

Petition is granted bail subject to fulfilment of conditions imposed - application allowed.

[Sadanand Bulbule]

The following judgement signifies the serious threat to the national economy in the absence of co-operation of the accused of economic offences:

2025 (4) TMI 640 - SUPREME COURT - SERIOUS FRAUD INVESTIGATION OFFICE VERSUS ADITYA SARDA

Grant of anticipatory bail - Avoidance of legal proceedings - no non-bailable warrant issued against the respondent - HELD THAT:- It is no more res integra that economic offences constitute a class apart, as they have deep rooted conspiracies involving huge loss of public funds, and therefore such offences need to be viewed seriously. They are considered as grave and serious offences affecting the economy of the country as a whole and thereby posing serious threats to the financial health of the country. The law aids only the abiding and certainly not its resistants. When after the investigation, a chargesheet is submitted in the court, or in a complaint case, summons or warrant is issued to the accused, he is bound to submit himself to the authority of law. If he is creating hindrances in the execution of warrants or is concealing himself and does not submit to the authority of law, he must not be granted the privilege of anticipatory bail, particularly when the Court taking cognizance has found him prima facie involved in serious economic offences or heinous offences - The High Courts should also consider the factum of issuance of non-bailable warrants and initiation of proclamation proceedings seriously and not casually, while considering the anticipatory bail application of such accused.

In the instant case, as stated earlier, the Ministry of Corporate Affairs had directed the Appellant – SFIO to investigate into the affairs of 125 companies and on the completion of the investigation, the SFIO had lodged the private complaint before the Special Court against the accused including the respondents, alleging various serious offences under the Companies Act including Section 447 thereof and the offences under the IPC. It is pertinent to note that as per sub-section (6) of Section 212 the offence covered under Section 447 of the Companies Act has been made cognizable and the person accused of the said offence is not entitled to be released on bail or on his bond, unless twin conditions mentioned therein are satisfied.

In a recent case in Union of India through Assistant Director vs. Kanhaiya Prasad, [2025 (2) TMI 563 - SUPREME COURT] it has been observed by this Court that cryptic orders granting bail without adverting to the facts or the consideration of such restrictive conditions with regard to the bail are perverse and liable to be set aside.

Coming back to the facts of the present case, though the Special Court had taken cognizance of the alleged offences under the Companies Act including under Section 447 and other offences under the IPC, and even though the non-bailable warrants were issued from time to time against the Respondents, and even though the proclamation proceedings were initiated against them, the High Court has passed the impugned orders.

In none of the impugned orders, the High Court has bothered to look into the proceedings conducted, and the detailed orders passed by the Special Court for securing the presence of the Respondents – Accused. It cannot be gainsaid that the judicial time of every court, even of Magistrate’s Court is as precious and valuable as that of the High Courts and the Supreme Court. The accused are duty bound to cooperate the trial courts in proceeding further with the cases and bound to remain present in the Court as and when required by the Court. Not allowing the Courts to proceed further with the cases by avoiding execution of summons or warrants, disobeying the orders of the Court, and trying to delay the proceedings by hook or crook, would certainly amount to interfering with and causing obstruction in the administration of justice.

In the instant case, the Special Court considering the seriousness of the alleged offences had initially issued bailable warrants, however, the Respondents kept on avoiding the execution of such warrants and did not appear before the Special Court though fully aware about the pendency of the complaint proceedings against them. The Special Court therefore had to pass detailed orders from time to time for the issuance of non-bailable warrants, and thereafter had also initiated the Proclamation proceedings under Section 82 of the Code, for requiring respondents to appear before it. The High Court however without paying any heed to the proceedings conducted by the Special Court against the respondents, and ignoring the well settled legal position, granted anticipatory bail to the Respondents vide the impugned orders. As discussed earlier, the said Orders being perverse and untenable at law, cannot be allowed to be sustained, and deserve to be set aside.

Conclusion - The High Court's orders granting anticipatory bail were in disregard of the mandatory conditions of Section 212(6) of the Companies Act and were therefore perverse and untenable.

The impugned orders set aside - appeal allowed.

[Sadanand Bulbule]

I wish to add here that, there is not a single day where we don’t come across the news of fraudulent availment of input tax credit by way of issuing fake tax invoices without actual supply of goods/services/both. In a way this has become incurable disease despite the Governments’ innovative controlling measures.

Normally the dormant registered persons without any verifiable antecedents are engaged in such frauds with short shelf-life and later they disappear without leaving their footprints. Or else even if they are found, they would have nothing to recover anything from them. Of course the master minds and the real beneficiaries of ITC are causing such frauds sitting behind the opaque curtains. And the corresponding money is circulated in a camouflaged manner.  This is the SOP PAN India.

The moot question here is, against to whom the charge sheet under Section 132 is to be filed, the penalty is to be imposed under Section 122 and adjudication under Section 74/74A to be concluded for such fraudulent activities?

In my opinion this is the crucial issue for the IOs/AOs to be prudent enough first to understand the essence of opening phrase of Section 132 brought into force with effect from 01/01/2021 and it reads as under:

Punishment for certain offences.

132. (1) Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences, namely:-

(a) supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;

(b) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;

(c) avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;

So what emerges from the bare reading of the above opening phrase is, the person who has caused and retained the benefit of ITC arising out of such offence shall be real offender and he alone shall be liable for applicable punishment. Here again the courts have held that, the retention of benefit means the subject ITC must have been actually utilised to reduce/pay out the actual output tax by the recipient of such fake tax invoices without actual supply of goods/services/both. And such beneficiaries are categorised under Section 132(1)(c) of the CGST Act. The persons falling under Section 132(1)( b) not being the retainers of the benefit of ITC to reduce/pay out the actual output tax are outside the scope of the opening phrase of Section 132 [supra]. This analysis is significant to determine the adjudication proceedings under Section 74/74A and also the quantum of punishment, if liable, under Section 132 as well. This equally applies to Section 69 for arresting the real offenders as listed under Section 132 as well.

The above analogy precisely applies to the amount of penalty to be imposed under Section 122 which has also the similar opening phrase with effect from 01/01/2021. In simple words, if the real beneficiaries of ITC arising out of such frauds are not established with incontrovertible evidences, then they are liable to minimum penalty under Section 122 and not equal to the tax amount.

Therefore the authorities who arrest a person under Section 69, file charge sheet under Section 132, levy penalty under Section 122 and adjudicate under Section 74/74A must be very careful and prudent to take more than enough precautions before initiating such proceedings. Otherwise the entire proceedings tremble for lack of proper sufficient evidences in the direction of establishing the charge of retention of benefit of ITC, the essence of crime. The superior courts diligently weigh the intent of the law and corresponding evidences to indicate who exactly has caused the loss of revenue.  Nothing else counts.

Here reliance is placed upon the judgement dated June 11, 2024 of the Hon’ble Madras High Court rendered in the case of M/S. GREENSTAR FERTILIZERS LIMITED, REP. BY ITS CHIEF OPERATING OFFICER, E. BALU VERSUS THE JOINT COMMISSIONER (APPEALS), THE ASSISTANT COMMISSIONER OF GST AND CENTRAL EXCISE, TUTICORIN. 2024 (6) TMI 667 - MADRAS HIGH COURT

[Disclaimer: These are my personal views for academic interest and not for use in the court of law].

[Sadanand Bulbule]

Plz refer the following relevant for the subject under discussion: 

2025 (4) TMI 933 - DELHI HIGH COURT - SUNIL GULATI VERSUS ADDITIONAL COMMISSIONER CGST DELHI SOUTH COMMISSIONERATE & ANR.

Imposition of penalty by the CGST Department under Section 122(1A) of the CGST Act - vailability of an appellate remedy under Section 107 of the CGST Act - HELD THAT:- The stand of other entities and individuals against whom demands have been raised and penalties have been imposed may also be necessary in the adjudication in the present case. The appellate jurisdiction would be the appropriate jurisdiction to comprehensively adjudicate the matter.

In so far as the stand of the Petitioner that he has not retained the benefit of any transaction is concerned, the same would also be a factual issue which cannot be gone into in writ jurisdiction by this Court. The Petitioner would be free to raise this issue in appeal. Further, the argument that penalty could not have been imposed on the Petitioner for the Financial Years from 2017 can also be raised in appeal by the Petitioner.

Conclusion - Considering that all the issues which have been raised can be clearly raised before the appellate authority, this is a fit case for directing the Petitioner to avail of his remedies under Section 107 of the CGST Act. Entertaining the present writ petition would in fact mean that all the factual issues would have to be gone into by this Court which would not be permissible. The Petitioner had full knowledge of the proceedings in the SCN.

Petition disposed off.

[Sadanand Bulbule]

2025 (4) TMI 1236 - BOMBAY HIGH COURT - MR. AMIT MANILAL HARIA & ORS. VERSUS THE JOINT COMMISSIONER OF CGST & CE & ORS.

Levy of penalty u/s 122(1A) - relevant statute can be applied retrospectively for periods prior to its enforcement date of 1st January 2021, specifically for the period from July 2017 to December 2020 - HELD THAT:- As far as ad-interim relief is concerned, a prima facie case is made out for grant of ad-interim relief. Atleast prima facie, there are substance in the argument canvassed on behalf of the Petitioners. It is not in dispute that Section 122 (1A) was brought on the statute book only with effect from 1st January 2021 and yet penalty is sought to be imposed on the Petitioners for a period much prior thereto. Also, prima facie, we find that one of the issues raised in the present Petition is squarely covered by a decision of this Court in the case of Shantanu Sanjay Hundekari [2024 (3) TMI 1277 - BOMBAY HIGH COURT].

A strong prima facie case is made out - the balance of convenience is in favour of the Petitioners - Petition disposed off.

[Sadanand Bulbule]

2025 (4) TMI 1282 - CALCUTTA HIGH COURT - SANTOSH KUMAR SAH VERSUS UNION OF INDIA

Legality of arrest of the petitioner under Section 132(1)(c) read with Section 132(1)(i) and Section 132(5) of the Central Goods and Services Tax Act, 2017 (CGST Act) - absence of a prior adjudication or quantified demand under Section 74 of the CGST Act - fraudulent availment of Input Tax Credit (ITC) on the basis of allegedly fake invoices and non-physical receipt of goods - HELD THAT:- The service Tax Authorities before proceeding against the tax payer either for recovery of tax due or penalty or before deciding to lodge a criminal complaint must consider all the relevant documents in relation to receipt of goods and services and in case of contravention of Section 132 (1) (c) of Central Goods and services Tax Act if the Authorities are of the view that on offence under the said section is committed should either cause inspection at the business premises of the tax payer to satisfy themselves or ask the tax-payer for clarification before deciding to proceed against the tax-payer under Section 132 of CGST Act. It is to be remembered that the reputation of a business man tarnishes when a complaint is lodged against him and he is arrested in connection with his business activity. As CGST Authority is not an individual but Government Authority and ‘State’ within the meaning of Article 12 of the Constitution it is not only their duty to ensure revenue of the state in accordance with law but also to see that business men, tax payers are not unnecessarily harassed and their reputation is not tarnished and personal liberty is not unnecessarily infringed. Thus the Authority should proceed in a reasonable manner and apply their mind before deciding to set the criminal law in motion against a tax-payer.

In the instant matter the CGST Authority upon receiving the report of panchanama dated 30/03/2025 ought to have applied their mind and could have conducted further enquiry or give an opportunity to the petitioner of being heard before lodging the complaint on 31/03/2025 and arresting the petitioner. However as the CGST Authority has on enquiry collected some information and documents before lodging the complaint it would not be proper to make any further observation with regard to the merits of the case but it is necessary to decide as to whether petitioner should be granted bail.

In the instant case the petitioner is charged with committing an offence the maximum punishment of which, is five years. Now considering the materials on record, it appears that the relevant documents and information is with the respondent authority thus there is no scope for tampering evidence. As the petitioner has his business there is no chance to abscond. Moreover it appears from record that the petitioner has-co-operated with the respondent authority.

As a question of law is raised that once the petitioner has filed bail application before the Learned Sessions Court the bail application before this Court is not maintainable and the Learned Advocate for the petitioner submits that the bail application before Sessions Court is filed due to miscommunication and petition before session court will be withdrawn as not pressed, it is necessary to address on this issue - In this regard it is to be noted that although Section 439 CrPC read with Section 483 of Bharatiya Nagarik Suraksha Sanhita 2023 confers special power upon High Court and Court of Session to grant bail but once an application is filed before Court of Session another should not be filed in High Court, without withdrawal from sessions Court However as bail applications are not affirmed by the accused and the accused simply executes vokalatnama being in custody without having knowledge what specific steps are taken he cannot be made to suffer for no laches on his part.

The petitioner be released on bail with 2 sureties of Rs. 10,000/- each subject to satisfaction of Learned ACJM Siliguri.

Conclusion - The arrest was effected without any judicial warrant and significantly before any formal complaint had been filed before the Learned Magistrate. No adjudication proceedings show cause notice or quantification of demand under Section 74 of the CGST Act preceded the arrest, nor was there any material indicating culpable intent. The arrest therefore is not only disproportionate but wholly unjustified in law and facts.

Bail application allowed.

[Sadanand Bulbule]

2025 (4) TMI 1466 - ALLAHABAD HIGH COURT - ANKUR GARG VERSUS UNION OF INDIA

Seeking grant of regular bail - offence under Sections 132(1)(b), 132(1)(c), 132(1)(i) of Central Goods and Services Tax Act, 2017 - availing ineligible Input Tax Credit on the basis of invoices issued by non-existent firms, and without receipt of concomitant goods the fake Input Tax Credit was further passed on to various buyers - Admissibility of Applicant's Statement under Section 70 CGST Act - HELD THAT:- This Court finds that the prosecution case is primarily based upon the documentary evidence relating to alleged involvement of M/s Aadya Trading Company in availing ineligible Input Tax Credit and further passing it on to three other beneficiary firms noticed above. During the course of hearing, it is fairly stated by learned Counsel that as per records of M/s. Aadya Trading Company, Ghanshyam Aggarwal is the proprietor of the said firm, but according to him, the applicant is the person who is actually managing the affairs of the said firm. Learned counsel for the opposite party has also not disputed this fact that the applicant is at least not involved in creation of the alleged 21 non-existent firms, which were utilized for availment and further passing on ineligible Input Tax Credit.

As far as the statement of applicant recorded under Section 70 CGST Act 2017, is concerned, its admissibility or evidentiary value would be tested during trial. A perusal of the zimni orders passed by the trial court would show that after filing of the charge-sheet in January, 2025, the case is being adjourned for recording pre-charge evidence and no witness has been examined so far by the prosecution. Thus, it is evident that the trial has not yet started.

Conclusion - Admittedly, the alleged offences are triable by Magistrate and provide for a maximum punishment of five years imprisonment, and trial is likely to consume considerable time to conclude, therefore, this Court has no hesitation in holding that the further detention of the applicant behind the bars would not serve any useful purpose, who has already spent more than five months in judicial custody since his arrest on 19.11.2024. Further, the prosecution witnesses are official witnesses and presently there does not appear to be any possibility of their being won over, therefore, considering the nature of the trial as well as period of more than five months undergone by the applicant as an undertrial, this Court deems it appropriate to extend the concession of regular bail to the applicant.

It is ordered that the applicant- Ankur Garg be released on regular - Bail application allowed.

[Sadanand Bulbule]

2023 (3) TMI 533 - SUPREME COURT - THE STATE OF KARNATAKA VERSUS M/S ECOM GILL COFFEE TRADING PRIVATE LIMITED

Input Tax Credit (ITC) - Genuineness - Onus to prove / burden of proof - Interpretation of statute - Section 70 of the Karnataka Value Added Tax Act, 2003 - Input Tax Credit claimed by the respective purchasing dealers - HELD THAT:- The provisions of Section 70, in its plain terms clearly stipulate that the burden of proving that the ITC claim is correct lies upon the purchasing dealer claiming such ITC. Burden of proof that the ITC claim is correct is squarely upon the assessee who has to discharge the said burden. Merely because the dealer claiming such ITC claims that he is a bona fide purchaser is not enough and sufficient. The burden of proving the correctness of ITC remains upon the dealer claiming such ITC. Such a burden of proof cannot get shifted on the revenue. Mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof cast under section 70 of the KVAT Act, 2003. The dealer claiming ITC has to prove beyond doubt the actual transaction which can be proved by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc.

The genuineness of the transaction has to be proved as the burden to prove the genuineness of transaction as per section 70 of the KVAT Act, 2003 would be upon the purchasing dealer. It is observed and held that mere production of the invoices and/or payment by cheque is not sufficient and cannot be said to be proving the burden as per section 70 of the Act, 2003.

In the present case, the respective purchasing dealer/s has/have produced either the invoices or payment by cheques to claim ITC. The Assessing Officer has doubted the genuineness of the transactions by giving cogent reasons on the basis of the evidence and material on record. In some of the cases, the registration of the selling dealers have been cancelled or even the sale by the concerned dealers has been disputed and/or denied by the concerned dealer - over and above the invoices and the particulars of payment, the purchasing dealer has to produce further material like the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods including actual physical movement of the goods, alleged to have been purchased from the concerned dealers.

In absence of any further cogent material like furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. and the actual physical movement of the goods by producing the cogent materials, the Assessing Officer was absolutely justified in denying the ITC, which was confirmed by the first Appellate Authority. Both, the second Appellate Authority as well as the High Court have materially erred in allowing the ITC despite the concerned purchasing dealers failed to prove the genuineness of the transactions and failed to discharge the burden of proof as per section 70 of the KVAT Act, 2003.

The impugned judgment(s) and order(s) passed by the High Court and the second Appellate Authority allowing the ITC are unsustainable and deserve to be quashed and set aside and are hereby quashed and set aside - Appeal allowed.

No.- CIVIL APPEAL NO. 230 OF 2023 (Arising from SLP(Civil) No. 2572/2022)

Dated.- March 13, 2023

                                                                      ********

My take:

If one carefully applies the ratio of above judgement to the provisions of Section 7, 9 and 16 of the CGST Act, what emerges is that in the absence of actual movement/supply of goods, there is no entitlement of ITC to the recipient, as there is no OPT liability in the hands of the person who issues only tax invoice without supply of goods. That being the factual and legal position, mere issue of fake bills without the supply of goods/services/both does not attract arrest under Section 69, penalty equal to the tax amount under Section 122 and punishment under Section 132 of the CGST Act. 

However the recipient of such fake invoices who retains the benefit of ITC arising out of such fake invoices to reduce the actual output tax payable is alone liable for arrest under Section 69, penalty equal to tax under Section 122, adjudication under Section 74/74A and punishment under Section 132(1)(c) of the CGST Act. 

[ NOTE: This is for academic purpose and not for use in the court of law.]

[Sadanand Bulbule]

2025 (5) TMI 301 - ALLAHABAD HIGH COURT - PRAVEEN KUMAR VERSUS DIRECTORATE GENERAL OF GST INTELLIGENCE

Seeking grant of regular bail, during the pendency of trial - passing on fradulent Input Tax Credit (ITC) and during search the said firm was found to be non-existent - reliability of the applicant's confession recorded under Section 70 of the Central Goods and Services Tax Act, 2017 - HELD THAT:- This Court finds that the case of the prosecution is based upon documentary material or the statement of accused recorded under Section 70 of Central Goods and Services Tax Act, 2017 - Further, no documentary evidence connecting the applicant with 232 firms has been collected and the reliance has been placed upon the confession of applicant recorded during his custodial interrogation, but in the considered opinion of this Court, the truthfulness of the same or its evidentiary value would be tested during trial which is yet to commence.

Admittedly, the offence alleged in the complaint are triable by Magistrate and the same provides for maximum punishment of 5 years. The investigation in the case is complete as the complaint/charge-sheet dated 07.03.2024 already stands filed before the trial court and the charges against the applicant has not been framed so far. During the course of hearing, it is not disputed by Mr. Parv Agarwal, learned counsel that though the case is fixed for recording of pre-charge evidence under Section 244 Cr.P.C., but no prosecution witnesses has been examined till date. Thus, it is clear that the conclusion of trial would consume considerable time, and further detention of the applicant behind the bars would not be justified keeping in view the period of more than a year and three months already undergone by him.

The applicant is ordered to be released on regular bail in the above case subject to his furnishing the requisite bail bond and surety bond to the satisfaction of the trial court.

Conclusion - The conclusion of trial would consume considerable time and further detention of the applicant behind bars would not be justified keeping in view the period of more than a year and three months already undergone by him.

Bail application allowed.

[Sadanand Bulbule]

SECTION 136 of the Customs Act, 1962 reads as under:

Offences by officers of customs. - (1) If any officer of customs enters into or acquiesces in any agreement to do, abstains from doing, permits, conceals or connives at any act or thing, whereby any fraudulent export is effected or any duty of customs leviable on any goods, or any prohibition for the time being in force under this Act or any other law for the time being in force with respect to any goods is or may be evaded, he shall be punishable with imprisonment for a term which may extend to three years, or with fine, or with both.

(2) If any officer of customs, -

(a) requires any person to be searched for goods liable to confiscation or any document relating thereto, without having reason to believe that he has such goods or document secreted about his person; or

(b) arrests any person without having reason to believe that he has been guilty of an offence punishable under section 135; or

(c) searches or authorises any other officer of customs to search any place without having reason to believe that any goods, documents or things of the nature referred to in section 105 are secreted in that place, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both.

(3) If any officer of customs, except in the discharge in good faith of his duty as such officer or in compliance with any requisition made under any law for the time being in force, discloses any particulars learnt by him in his official capacity in respect of any goods, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both.

My Take;

Had the similar provisions [supra] were to be included under the GST Act, I am confident that, evasion of tax and mounting litigation would have been curbed drastically. And it would have brought a sense of prudence, agility and integrity in the day to day functioning of the GST Officers at all levels.

The concerned authorities to think of this.

[Sadanand Bulbule]

Dear all

Many visitors might be thinking why there are continuous posts by me on this topic. The reason is simple. Since the power to arrest a person under Section 69 mandates that, the person should have committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 are very serious in nature shaking the foundational and fundamental right of the citizens guaranteed under the Constitution of India, if not judicially calibrated before arresting such person and prosecuting him on specific charge.

Meaning the incontrovertible evidences shall be manifest on records establishing the specific offence to satisfy the mandatory requirement of opening phrase of Section 132- Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences,..

So the visitors will find that many of these landmark judicial rulings and suggestions are for the purpose of making the authorities to think, feel, and act, as the the law want them to and in ways that are to their advantage. Otherwise reverse engineering begins in the court of law.

[Sadanand Bulbule]

Dear all

Here I wish to add the following provision of Section 122 of the CGST Act which is on par with the opening phrase of Section 132:

(1A) Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.

My take:

1] In this regard, the CBIC Circular No.171/03/2022-GST dated 06/07/2022 highlights the above provision while clarifying the legal position as regards to adjudication, levy of penalty and launching of prosecution under Section 132 of the Act wherever applicable.

2] So considering both the legal position and the circular clarification [supra], what comes to my mind, essentially the person who has retained the benefits [of ITC] arising out of fake tax invoices is alone liable for adjudication under Section 74/74A, penalty under Section 122(1A) and prosecution under Section 132 of the Act.

3] Further the persons engaged in issuing fake tax invoices but NOT falling under the provision of Section 122(1A) are liable to a minimum penalty of Rs. 10,000/- Meaning such persons are not liable to penalty equal to tax amount involved, much less liable for adjudication under Section 74/74A and prosecution under Section 132.

4] Therefore any proceedings without establishing the essential element of the person who has retained the benefits as provided under the opening phrase of Section 132 and Section 122(1A) is based upon the foundation of sand. Much of the superstructure stands crumbled this way at the initial stage only. What remains is likely to fall away once the matter enters the corridors of judicial courts.

5] So the authorities must be very careful and prudent enough before initiating such proceedings so that the real culprits cannot escape the web of Section 74/74A, Section 122(1A) and Section 132 of the Act.

[Sadanand Bulbule]

To put the entire matrix of the issue under discussion in a simple line: it is like this," in order to change the images on the screen, one must change the projection reel".

[Sadanand Bulbule]

2025 (5) TMI 227 - DELHI HIGH COURT - GURUDAS MALLIK THAKUR AND DINESH KUMAR RAGHAV VERSUS COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX & ANR.

Taxable persons - Liability of Petitioners, as directors of the company for short payment of GST, inadmissible input tax credit (ITC) availed, and non-filing of GST returns - HELD THAT:- Section 107 of the CGST Act starts with the expression ‘any person’. Thus, the filing of appeal is permissible by any person and not merely by a taxable person - The statements which have been recorded by the directors i.e., the Petitioners show that each of them is trying to shrug off their responsibility. In the opinion of this Court, the matter requires closer scrutiny on facts by the Appellate Authority as to who was responsible for running the company and who was taking decisions including relating to generation of invoices, making payments, etc. However, the same is beyond the scope of a writ petition.

The purpose of Section 122 (1A) of the CGST Act is clearly to make persons who may be responsible for having created bogus invoices and having utilised ITC without the receipt of goods and services and for distributing ITC in contravention of Section 20 of the CGST Act. It can be seen that the manner in which companies function is that there is a management who would be taking the decisions on behalf of taxable persons. These companies being inanimate, the responsibility has, by the wisdom of the legislature, been fixed under Section 122 (1A) of the CGST Act upon any person who retains the benefits of a transaction.

The question as to which person has retained the benefit and who has not would again be a factual issue. Directors of a company and others who manage such companies owe a responsibility to ensure that companies do not engage in such fraudulent activity for availment of ITC without actual supply of goods, distribution of ITC to persons who have raised fake invoices and non-filing of GST returns - The impugned order clearly reveals that in various places the Petitioners as also the other two persons i.e. Mr. Arindam Chaudhary and Mr. Varun Khanna are clearly not owning up the responsibility as to who took the decisions in respect of the availment of ITC and non-filing of the GST returns.

This Court is of the view that the impugned order can be clearly appealed against by the Petitioners, who were directors of the company.

Insofar as the order passed by the Supreme Court in Shantanu Sanjay [2025 (1) TMI 1249 - SC ORDER] is concerned, the Supreme Court clearly observes that the Petitioner therein was also only an employee and he could not have been fastened with the liability of Rs.3731 Crores. Moreover, the questions of law were left open by the Supreme Court in the said case - In the present case, the penalties have been imposed on various directors of the company who were having an active role as per impugned order. The correct remedy for the Petitioners would be to approach the Appellate Authority in accordance with law.

Let the Department communicate to the Petitioners within two weeks the mechanism in which they can avail of their appellate remedies - Upon receiving the intimation, the Petitioners shall file the appeal within 30 days - The appeal, if so filed as directed above, shall not be dismissed on the ground of limitation and shall be adjudicated on merits.

Conclusion - The impugned order can be clearly appealed against by the Petitioners, who were directors of the company. The correct remedy for the Petitioners would be to approach the Appellate Authority in accordance with law. There is a need for factual adjudication by the Appellate Authority to determine the extent of control and benefit derived by the Petitioners.

No.- W. P. (C) 5083/2025, W. P. (C) 5133/2025 & CMAPPL. 23413/2025

Dated.- April 23, 2025

[YAGAY and SUN]

Dear Sir,

It is advisable to compile all relevant information, including settled legal positions, professional views, interpretations, and related inputs, into a concise publication on the subject matter under consideration. Such a publication would serve as a valuable reference for GST professionals and could also yield substantial royalty income and professional recognition at a pan-India level.

Regards,

YAGAY & SUN

(Consultant, Cyclist🚴, Environmentalist🌍, & Proud Father)

[Sadanand Bulbule]

Dear Sir

Thanks for your motivational and sagacious suggestion. . 
Regards. 

[Sadanand Bulbule]

Dear Yagay & Sun Sir

In continuation of your inspring words, I wish to put my consolidated thoughts on the subject in few words as under : 

Section 69, 74/74A, 122 & 132:

Mere a "Puppet" in the hands of the actual beneficiary of ITC derived out of fake tax invoices who is backing and bankrolling the fraudulent evasion of tax cannot be subjected to arrest under Section 69, adjudication under Section 74/74A, penalty equal to tax under Section 122 and prosecution under Section 132 of the CGST Act.

However it is the planner, handler, backer and the actual beneficiary of ITC derived out of fake tax invoices is alone liable for arrest under Section 69, adjudication under Section 74/74A, penalty equal to tax under Section 122 and finally prosecution under Section 132 of the CGST Act.

But the fundamental onus lies on all the authorities before invoking jurisdiction under the respective sections. Since such proceedings are liable to trial in the Court of Law, justification is possible only when there are incontrovertible evidences manifest on records against the accused.

Hope you validate it with your unique comments.

[Sadanand Bulbule]

2025 (8) TMI 308 - GUJARAT HIGH COURT - M/s RV ENTERPRISES AND ANR. Versus STATE OF GUJARAT AND ORS.

However in facts of the case the respondent has already made an inquiry of the supplier of the goods to the petitioner and found that no outward tax liability has been discharged by the supplier and as per provisions of section 16(2)(c), the petitioner is rightly held to be liable for reversal of input tax credit availed by it on the supplies received by the petitioner against which no tax was paid to State Exchequer.

My take: In terms of  Section 132 of the CGST Act, the charge sheet has to be filed against the final recipient of fake tax invoices and  also who has actually retained the ultimate benefit of ITC arising out of such tax invoices as he cannot prove the satisfactory compliance of Section 16[2][c] by the so called supplier of goods/services, besides adjudication under 74/74A.

Others in the chain have to face penalty under Section 122 proportionate to their abetment in the absence of retention of such ITC benefit by them.

AI Summary

Retention of Input Tax Credit: prosecution under GST requires prior adjudication and quantification of the evaded tax
Prior adjudication and quantification of the tax evaded or input tax credit wrongly availed is a substantive precondition to initiating prosecution in many instances; criminal liability principally attaches to those who retain and utilise the benefit of wrongfully availed ITC, whereas issuers of invoices without supply who do not retain benefit are ordinarily subject to civil adjudication and specified penalties. Investigations, show cause notices, arrests and charge sheets must rest on independent satisfaction of the proper officer and sufficient evidence of mens rea and retention of benefit, failing which proceedings risk being invalidated.