GST Arrest: Prima Facie Evidence of Fictitious Suppliers and Non-existent Delivery, High Court Refuses to Intervene
This present writ petition (Cr. MMO No. 338 of 2024) is being filed by Gagandeep Singh and another (petitioners) in the High Court of Himachal Pradesh. State of H.P. and another are the respondents in this case. Mr Dinesh Singh Rawat and Mr Anil Chauhan, advocates, are representing the petitioners, and Mr Prashant Sen, Deputy Advocate General, is representing the respondent/State.
Background of Case:
- Two individuals, Gagandeep Singh and Jatinder Mohan, are partners in a company named M/s G.M. PowerTech. They both have filed a petition before the High Court asking to quash a criminal complaint (Complaint No. GST/01/2018) filed against them before the learned Additional Chief Judicial Magistrate (ACJM), Kasauli.
- The complaint was filed under Section 69 read with Section 132 of the Himachal Pradesh Goods and Services Tax (HPGST)/Central Goods and Services Tax (CGST) Act, read with Section 20 of the Integrated Goods and Services Tax (IGST) Act. These sections are about arrest, punishment, and prosecution for GST-related crimes.
What Was the Accusation?
- The G.M. PowerTech is a registered taxable person consisting of a partnership firm of Gagan Deep Singh and Jatinder Mohan (the present petitioners/accused).
- The petitioner is accused of evading scale tax by fraudulently claiming input tax credit (ITC) during the years 2017-18 and 2018-19. They displayed fake purchases (inward supplies) from non-existent or fake companies located in Delhi and Uttar Pradesh. This is a punishable offence under Section 69 read with Section 132 of the HPGST/CGST Act, 2017, read with Section 20 of the IGST Act, 2017.
- The goods were shown to be transported in two-wheelers, cars, and auto-rickshaws, which normally cannot carry such heavy-weighted goods. The vehicle numbers provided for transportation were found to be invalid.
- Based on these fake transactions, they claimed ITC worth Rs. 9.21 crore. When GST officers went to the addresses of suppliers (such as M/s Om Metals, M/s Ridhi Alloys, and M/s SD Enterprises), they found no such companies in existence.
- Hence, the tax department believed that the entire situation shared was just a scam, performed to avoid paying taxes, and they filed a criminal complaint before the ACJM Court in Kasauli.
Trial Court’s Action:
- The lower court examined the case deeply and found enough reasons to summon the accused. It also fixed the date for recording evidence before framing charges, which is called pre-charge evidence.
Petitioners’ Arguments in HC
Mr Dinesh Singh Rawat, learned counsel for Gagandeep Singh and Jatinder Mohan (petitioners), served the following points in the HC:
- The GST Act does not clearly mention how an investigation should be done, who should file the complaint, or how it should proceed.
- They claimed that the GST officers were misusing their powers and that Sections 69 and 132 (about arrest and punishment) were illegal and violated their right to life and liberty (Under Article 21 of the Indian Constitution).
- Petitioner further argued that the trial court was incorrect to proceed with the pre-charge evidence.
- They said that the investigation performed by the tax department was unfair and not in compliance with the rules.
- Further, they relied upon the judgment of the Hon’ble Supreme Court in Mukesh Singh versus State (Narcotic Branch of Delhi), AIR 2020 SC 4794, to take action.
Defend Argument of Respondent
In defence of the arguments of the petitioners, the lawyer of the respondents said:
- The petitioner was clearly involved in evading a large amount of tax by fraudulently claiming fake ITC worth about Rs. 15.86 crore.
- The petitioners were liable to be arrested for the violation under Sections 69 and 132 of the Act. The provisions of arrest are governed by the Cr. P.C. The provisions of the Cr.P.C. will also apply to the investigation and filing of the complaint as per Section 4(2) read with Section 5 of the Cr. P.C.
- The provisions of the CrPC apply to GST offences, especially when the GST law does not provide a different procedure.
- They also said that the Mukesh Singh (supra) does not apply to the present case; therefore, he prayed that the present petition be dismissed.
High Court’s Decision:
The High Court analysed both sides and gave the following reasoning:
1. Investigation and Filing of Complaint:
- The judge said that the Criminal Procedure Code (CrPC) does apply to GST cases. As per Sections 4(2) and 5 of the CrPC, if any special law (like the GST Act) does not have specific procedures for investigation or arrest, then the regular CrPC rules will apply.
- This was also clarified in other Supreme Court cases such as Radhika Agarwal Vs Union of India (2025), A.R. Antulay Case and Deepak Mahajan Case.
2. Is the GST Law Giving Unlimited Power to Officers?
- The judge said no, because the GST law refers back to the CrPC and allows normal legal protections.
3. Was the Trial Court Wrong to Ask for Pre-Charge Evidence?
- The judges again said no, saying that since Section 132 of the GST Act can give up to 5 years imprisonment, it is treated as a warrant case.
- According to CrPC Section 244, when the case is not based on a police report, the Magistrate has to hear evidence before deciding charges. Hence, the lower court did the right thing by recording pre-charge evidence.
4. Was the Investigation Improper Because They Didn’t Check with Delhi GST Officers?
- The judge said this does not matter. When the GST officers went to the addresses shown in the invoices and found no such companies existed, it was enough to show that those invoices were fake. Hence, it doesn’t matter whether they contacted Delhi officials or not.
5. Does the Mukesh Singh Case Help the Petitioners?
- The judge said no. That judgment said that just because an informant is also the investigator doesn’t mean the case is bad. Bias or unfairness depends on actual facts. In this case, there is no proof of any prejudice or bias in the investigation.
Final Decision of Court:
- The High Court said that there is no reason to interfere in the case.
- The petition to quash the criminal case is dismissed.
- The court clearly stated that its findings are only for this petition and will not affect the trial in the lower court.