Section 132 proceedings needs to be quashed after Closure of Peoceedings Recorded by GST department

[Diksha Sabarwal]

Hi Experts,

Closure of Proceedings were recorded by the department after filing of DRC-03 under Section 74 and the proceedings of the GST were dropped by the department. Now the question is what will happen to the Chargesheet filed and proceedings under Section 132 proceedings. How it will be ending after Closure of Proceedings are recorded. Whether Compounding application needed to be moved or closure of proceedings have to be filed with affidavit on closure of proceedings to magistrate for end of trial?

[Sanjeev Agarwal]

Compounding is not automatically required.

Closure/dropping of proceedings under Section 74 does not by itself terminate a pending Section 132 prosecution. The two proceedings are legally independent. CBIC's prosecution guidelines specifically recognise that prosecution may continue even where adjudication was initiated separately. However, the same guidelines also state that where the assessee is exonerated on merits and the allegation itself is found unsustainable, criminal prosecution on the identical facts should not ordinarily continue. (CBIC GST)

Therefore, the exact wording of the Section 74 closure order is crucial.

If the order records a finding on merits that the alleged tax evasion/fraud/suppression or other ingredients are not established, the better course is:

1. File the certified Section 74 closure/adjudication order before the Magistrate.
2. Place on record DRC-03, payment proof and all relevant departmental communications.
3. Seek appropriate discharge/closure of the criminal proceedings, specifically demonstrating that the Department itself has finally rejected the factual foundation of the prosecution.
4. If the Magistrate cannot or does not terminate the prosecution on that basis, approach the jurisdictional High Court for quashing of the complaint/chargesheet.

I would not recommend filing a compounding application as the first step if the Department has exonerated the assessee on merits. Compounding under Section 138 is essentially a settlement mechanism and may involve payment of the prescribed compounding amount. It is better kept as an alternative if the merits-based challenge does not succeed.

Also, merely filing an affidavit of closure before the Magistrate will not automatically end the trial. A specific judicial order terminating the criminal proceedings would ordinarily be required.

Practical conclusion:

Merits-based closure under Section 74 seek termination/quashing of Section 132 prosecution first. Compounding under Section 138 is an alternative, not an automatic requirement.

The decisive document is the actual Section 74 closure order. If it contains clear findings of exoneration on merits, the case for quashing becomes substantially stronger.

[KASTURI SETHI]

Both are independent proceedings.

Manoj Kumar Arora v. Union of India - 2018 (4) TMI 2042 - SC Order

[KASTURI SETHI]

Judgement of Supreme Court in favour of the assessee

Radheshyam Kejriwal v. State of West Bengal & Anr. 2011 (2) TMI 154 - Supreme Court:

• The Supreme Court laid down that adjudication proceedings and criminal prosecution on identical facts cannot exist in contradiction. Where an assessee is exonerated on merits in departmental adjudication, criminal prosecution cannot be sustained on the same allegations, as the standard of proof in criminal trials is higher ("beyond reasonable doubt") than in departmental proceedings ("preponderance of probabilities").

[VENU K]

Experts opinions are spot on. Also refer Explanation I to Sec 74 which says: For the purpose of Sec 73 and this section_

(i) The expression "all proceedings in respect of the said notice" shall not include proceedings under Sec 132

AI Summary

Merits-based GST exoneration can support termination of criminal prosecution, while adjudication closure alone does not automatically end proceedings.
Closure or dropping of GST adjudication under Section 74 does not automatically end prosecution under Section 132, since the proceedings are legally distinct. A separate judicial order is generally required to terminate the criminal case. Where the closure order exonerates the assessee on merits and rejects the factual basis of alleged evasion, fraud, or suppression, it may be produced with DRC-03, payment evidence, and departmental communications to seek discharge or closure, followed by quashing if necessary. Compounding under Section 138 is an alternative settlement mechanism, not an automatic requirement.