GST Dept. cannot Bypass Penal Provisions under Act to Prosecute under IPC: MP HC grants Anticipatory Bail in Fraud ITC Case [Read Order]

The Madhya Pradesh High Court recently affirmed that authorities of the Goods and Services Tax (GST) Department cannot bypass the penal provisions and procedural safeguards prescribed under the Central Goods and Services Tax Act, 2017 to prosecute an accused under the provisions of the Indian Penal Code.

The observation was made by the Court while granting anticipatory bail to the applicant Dheeraj Gupta in a Miscellaneous Criminal Case involving alleged fraudulent availment of input tax credit (ITC).

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The case arose from a complaint by an agriculturist who sought to avail a bank loan. The agriculturist was allegedly induced by the accused persons to create a proprietorship firm and obtain GST registration to avail a larger loan.

The allegations state that the bogus GST firms were created using the complainant’s documents, OTPs, and fake GST returns without his knowledge, resulting in large-scale fictitious transactions and wrongful loss to the State exchequer.

The complainant was made aware of this when the GST authorities visited him and informed that tax dues to the tune of ₹72,66,408 were outstanding against the said firm in his name.

The applicant was further alleged to have floated multiple bogus GST firms to generate fake GSTreturns, showing fictitious transactions through various entities, resulting in wrongful availment and utilisation of ITC.

The applicant had earlier been arrested by the GST authorities after a search was carried out at the premises of one of his affiliated companies, and was granted bail prior to the present FIR registered by the Economic Offences Wing, apprehending arrest.

Sankalp Kochar, appearing for the applicant contended that the applicant had already been arrested earlier in connection with proceedings initiated by the Directorate General of GST Intelligence under the CGST Act and had been granted bail. It was accordingly submitted that initiation of a fresh FIR under IPC provisions for the same set of allegations amounted to double jeopardy under Article 20(2) of the Constitution of India.

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The applicant further contended that the GST Act is a complete code, providing for the investigation, arrest and prosecution of a person, and also requires a prior sanction from the Commissioner to be taken under Section 132(6) which had not been complied with.

A. Rajeshwar Rao for the State opposed the application, submitting that the allegations disclosed serious economic offences involving large-scale tax evasion and that custodial interrogation was necessary to uncover the full extent of the alleged fraud.

Justice Sandeep N. Bhatt referred to several precedents, including T.T. Antony v. State of Kerala (2001), Amitbhai Anilchandra Shah v. CBI (2013), Arnab Ranjan Goswami v. Union of India (2021) among others where it was unequivocally held that GST authorities cannot bypass the procedure prescribed under the GST Act by invoking IPC provisions where the alleged acts fall squarely within the GST framework.

The Court noted that the offence alleged against the applicant was essentially punishable under Section 132 of the CGST Act, which constitutes a complete code. In such a situation, permitting prosecution under IPC provisions bypassing the safeguards under the GST Act would amount to abuse of process and could expose the applicant to double jeopardy.

Further noting that the maximum punishment prescribable was five years, provisions to compound the offenses were available, and custodial interrogation was not warranted, the High Court granted anticipatory bail to the applicant while directing that in the event of arrest, he be released on bail upon furnishing a personal bond of ₹5 lakh with two sureties and other conditions.

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