Parallel BNS Prosecution and Cognizance Set Aside as Special GST Statute Overrides General Penal Provisions

JUDGMENT

1. Heard Ms. Anjal Jha Manish, Sri Priyadarshi Manish and Sri Paras Aneja, learned counsel for applicant and Smt. Sandhya Singh, learned counsel for opposite party no. 2 and learned AGA for State.

2. Present application has been preferred with prayer to quash charge sheet dated 10.6.2026, cognizance order dated 17.6.2026 passed by learned Additional Chief Judicial Magistrate, Gautam Budh Nagar along with entire proceeding of Case no. 4647 of 2026 (State of U.P. v. Kapil Chugh) arising out of Case Crime no. 287 of 2025 under sections 318(4), 338, 336(3), 340(2), 345(2) BNS, Police Station- Kasna, District Gautam Budh Nagar.

3. Brief facts of the case are that present FIR dated 5.12.2025 bearing Case Crime no. 287 of 2025 has been lodged at the behest of opposite party no. 2/Assistant Commissioner, State Tax Division-7, Uttar Pradesh against one Sri Pramod Vijay Khullar alleging therein that he is proprietor of one firm M/s Multicom International and by way of using forged documents, he claimed fake input tax credit in order to provide benefit to other firms and in this manner, he caused a huge loss of Rs.156 crore to the State exchequer. It is further alleged in the FIR that the said amount is already mentioned in earlier DRC-07 issued from the office of opposite party no. 2. When location of the alleged firm was tried to be ascertained, at the given location nothing was found.

4. Learned counsel for the applicant submitted that background of the case initiates from one adjudication order which was passed against M/s Multicom International with regard to show cause notice issued by Additional Director, DGGI, Zonal Unit Ahemdabad on dated 16.11.2022 under Section 74 of the CGST Act, 2017 read with Section 74 of the UPGST Act, 2017 read with Section 20 of IGST Act, 2017 read with Section 11 of CGST (Compensation to State) Act, 2017 and demanded the input tax credit of Rs. 78,05,91,663/- and excess ITC of Rs.9,98,76, 269/- from M/s Multicom International along with application, individually and severally along with and also proposed a penalty under Section 74 or Section 122(1)/122(2)(b) of the CGST Act, 2017 with other proposed action. That the Show Cause Notice did not propose any penal action against the Notice including the applicant. The adjudicating authority-Additional Commissioner, Office of Principal Commissioner, CGST & Central Excise, Lucknow vide order dated 6.6.2024 has exonerated the applicant as there is no direct evidence against the applicant to establish his involvement in the case and further he has dropped the proceeding against the applicant. After passage of more than 1 and 1/2 years, Assistant Commissioner, State Tax, Division-17, Gautam Budh Nagar has filed a complaint on 14.11.2025 against the proprietor of the firm- M/s Multicom International i.e. Sri Pramod Vijay Khullar with a request to register the present FIR under the provisions of BNS, 2023 as he has utilized and passed on the input tax credit on the basis of forged and fabricated invoices without the actual supply of the goods and by the same caused the wrongful loss to the Government revenue, amounting to Rs.1,56,88,48,954/- on the basis of an adjudication order passed in Form DRC-07. Over the said complaint, present FIR has been lodged.

5. Learned counsel further submitted that the adjudication order dated 6.6.2024 which has quantified the demand against the firm-M/s Multicom International has exonerated the applicant and therefore, to initiate criminal proceedings by way of the present proceedings under the BNS, 2023 is clearly without authority of law, besides being unjustified. Ironically, neither the firm-M/s Multicom International nor its proprietor against whom the FIR dated 5.12.2025 has been filed had been named in the charge sheet filed on 10.6.2026, however, the applicant has been arrayed on account of contraventions made by the firm, even though the applicant is not related in any manner to the firm and further in absence of having arrayed the firm, the case against the applicant is unsustainable. The Investigating Officer concerned ought to have considered that since the DRC-07 was generated on the basis of an adjudication order passed under the provisions of Special Act-CGST Act, 2017, hence, the FIR ought not be filed. Applicant had no role in the aforementioned transaction made by the alleged firm but all of a sudden, when applicant arrived in India on 19.4.2026, he was arrested by the DGGI, Ahemdabad on account of a Look Out Circular dated 24.2.2026 against him by the DGGI, who claimed that the learned Additional Chief Metropolitan Magistrate, Vadodra has passed oral instructions that GST department should arrest the accused and present in Court as claimed by Public Prosecutor- Sri Manish Mathur through letter dated 16.7.2025. As per the arrest memo, applicant was arrested on the ground that he has committed an offence specified in clause (a), or clause (b) of clause (c) or clause (d) of sub-section (1) of Section 132 of CGST Act, 2017.

6. It is submitted that DGGI, Ahemdabad had alleged that applicant’s role emerged out on the basis of the evidence pertaining to the Show Cause Notices and in the order in original’s duly adjudicated by the adjudicating authorities. It is submitted that amongst 45 firms, the name of M/s Multicom International, is reflected in the said Table, (against whom Show Cause Notice was issued on 16.11.2022 and adjudication order was passed on 6.6.2024) which itself illustrate that the DGGI, AZU has initiated the proceeding against the applicant long before the registration of the FIR on 5.12.2025 and DGGI, AZU have not only issued the Show Cause Notice after completion of inquiry/investigation but later on arrested the applicant on 19.4.2026 on the said ground. It is pertinent to note that the applicant had been exonerated in the Show Cause Notice which had been issued to M/s. Multicom International.

7. It is next submitted that the Investigating Officer on 23.4.2026, qua impugned FIR no. 287/2025 after stating about the applicant’s arrest on 20.4.2026 by DGGI, Ahemdabad, moved an application before learned Additional Chief Judicial Magistrate, Gautam Budh Nagar for issuance of B-Warrant and the same has been mechanically issued by the concerned court with direction to produce the applicant before court on 8.5.2026. Applicant was produced before the court concerned on 8.5.2026 and opposite party no. 1 had requested for the judicial custody of applicant. However, then the applicant’s counsel objected to the grant of judicial custody, without the applicant having been arrested then, applicant had been forced to sign the “soochna patra” at 6:00 PM and his signatures were taken at 6:45 PM. The applicant was arrested on that date without making the stautotry compliance of BNSS, 2023. In the meanwhile, applicant has been granted bail by learned Additional Chief Judicial Magistrate, Ahmedabad, vide order dated 13.5.2026 wherein it has been categorically held that during the adjudication proceeding, applicant has been exonerated in respect of 41 entities amongst the alleged 45 entities and in 2 of them, he has not even been arrayed as a Noticee and in remaining, no Show Cause Notice has been either issued or served on the applicant. Despite, the bail granted by Ahmedabad Court, the applicant was in jail in respect of his illegal arrest made by Kasna Police on 8.5.2026 and his bail application filed in the present case was also rejected on 16.5.2026 by the learned Additional Chief Judicial Magistrate, Gautam Budh Nagar. Separately, against the illegal arrest by the opposite party no. 1 on 8.5.2026, applicant preferred to file a Habeas Corpus Petition bearing no. HABC/761/2026 and this Court vide order dated 23.6.2026 passed in the said petition, set aside the arrest, detention and remand of the applicant after holding that the applicant was earlier arrested in Case Crime no. 25342 of 2026 under sections 132(1), 132(5) of CGST Act, 2017 and was incarcerating from 20.4.2026 at Central Jail, Sabarmati, therefore, the present FIR appears to be second FIR with regard to the same offence. It was further held that the CGST Act, is a complete code and once prosecution is going under the provision of CGST Act, 2017, subsequent implication under the provision of BNSS, by the police was not justified.

8. Learned counsel for applicant contended that after submission of the charge sheet, learned Additional Chief Judicial Magistrate, Gautam Budh Nagar vide order dated 17.6.2026 took cognizance of offence against the applicant in pursuance to sections 318(4), 338, 336(3), 340(2), 345(2) and 61(2) BNS, 2023. The entire impugned proceedings which have arisen qua the applicant are without jurisdiction as the alleged offences are exclusively governed by the special statute namely the CGST Act, 2017/UPGST Act, 2017. Every allegation contained in the charge sheet pertains to the acts categorized under Chapter XIX of the CGST Act, 2017 and the corresponding provisions of UPGST Act, 2017 particularly Section 132 thereof. With regard to these allegations, not only the DGGI, Ahmedabad Zonal Unit had under the provisions of the CGST Act, 2017 issued Show Cause notice dated 16.11.2022 with regard to the said firm, but further the applicant had also been exonerated by the adjudicating order dated 6.6.2024, hence the initiation or continuation of the proceedings under the general law, is liable to be set aside.

9. Learned counsel further contended that the GST enactments not only create the offences but also prescribe the exclusive procedure for investigation and prosecution. Consequently, the State authorities could not bypass the safeguards incorporated in the special enactment by invoking the provisions of BNS, 2023. The Section 132 of CGST Act, itself specifically deals with offences relating to fake invoices, fraudulent availment of Input Tax Credit, false documents, fabricated accounts, wrongful utilization of credit, abetment and every allied offence forming the basis of the present FIR. Section 4 and 5 of BNSS prohibits investigation and recognize that offences under Special Enactments are to be investigated and dealt with in the manner prescribed by those enactments qua the special statute i.e. CGST Act, 2017 in the present case. The Hon’ble Supreme Court has consistently held that where a special statute contains a complete mechanism governing investigation and prosecution, the general criminal law must necessarily yield. The principle has been consistently reaffirmed in following judgments:

10. Learned counsel submitted that allegation has been adjudicated by the adjudicating authority, who has exonerated the applicant from all the allegations on merits and dropped the proceedings initiated against the applicant. The said adjudication order has accepted by the Department. Hence, the continuation and trial of the applicant would be an abuse of process of the Court and the said principle has been upheld by Hon’ble Supreme Court in case of Radheshyam Kejriwal v. State of W.B. , reported in Radheshyam Kejriwal v. State of W.B.  108 SCL 406 (SC)/(2011) 3 SCC 581 wherein it has been held as under:

“In our opinion, therefore, the yardstick would be to judge as to whether allegation in the adjudication proceeding as well as proceeding for prosecution is identical and the exoneration of the person concerned in the adjudication proceeding is on merits. In case it is found on merit that there is no contravention of the provisions of the Act in the adjudication proceeding, the trial of the person concerned shall be in abuse of the process of the court.”

11. Lastly, it is submitted that ironically, applicant is not associated with the firm- M/s Multicom International as he is admittedly neither the proprietor nor the employee of the said firm. Entire criminal prosecution against the applicant is unsupported by any legally admissible material establishing the essential ingredients of the alleged offences and the same are liable to be quashed and set aside.

12. Smt. Sandhya Singh, learned counsel for opposite party no. 2 and learned AGA for State vehemently opposed the prayer sought through instant application and submitted that the firm M/s Siddhi Vinayak Export was registered on 27.4.2019 for Tobacco products. Due to fraudulent, forged and deceptive documents, bogus transaction, obtaining and passing on fake input tax credit (ITC) and thus creating a serious economic offence, and issuing invoices/bills without supplying goods/services in violation of the provisions of GST Act, leading to wrongful availment or utilization of Input Tax Credit (ITC) or refund of tax, the notice for cancellation of registration was issued on 29.8.2019. Since no written reply was submitted, an order for cancellation of registration was issued on 12.9.2019. Following scrutiny of returns and available information, adverse discrepancies were found. And thus, a Show Cause Notice (DRC-01) was issued under Section 74 of the CGST/UPGST Act 2017 for June 2019 and August 2019 (Financial Year 2019-20). The taxpayer filed no response online or in person, nor took advantage of the opportunity for a personal hearing. Thereupon, the ex parte (DRC-07) was passed on 24.11.2020 creating a total demand of Rs. 13,26,22,137 with instructions to pay interest under Section 50 of the GST Act, until actual payment. Based on data from MIS Portal, AI reports, and the GST Common Portal a Notice under Section 61 (ASMT-10) was issued on 30.08.2023 and due to non-compliance by the taxpayer/authorized representative, proceedings under Section 73 were initiated. On 23.02.2024, the Show Cause Notice under Section 73 was issued. Thereafter, reminders dated 18.5.2024, 08.07.2024 were also issued. Since the taxpayer failed to respond or attend hearings and since he did not cooperate in the hearing., the ex parte order (DRC-07) dated 30.08.2024 was passed creating a demand of Rs. 1,05,81,733.00 (tax) and Rs. 1,05,81,732.00 (penalty) along with interest under Section 50 of the GST Act. Base on e-way bill analysis for FY 2018-19 and FY 2019-20, the Show Cause Notices (DRC-01) were issued on 30.06.2025 and 26.08.2025 respectively. Due to continued nonresponse, the ex parte orders (DRC-07) dated 29.10.2025 and 31.03.2026 were issued, creating tax and penalty demands of Rs. 1,68,000 each, plus interest under Section 50. It is further submitted that the firm was found non-existent during inspection. And, total tax demands across various years through assessment and adjudication, amounted to Rs. 24.93 crore. Apparently a serious economic offence has been committed by the taxpayer, as such the FIR being Case Crime no. 288 of 2025 was registered on 5.12.2025.

13. Learned counsels for opposite parties also indicated that applicant herein namely Kapil Chugh is the Gang leader of the entire scam. M/s. Siddhi Vinayak Export showed outward supplies to M/s Zaux International Private Limited, which then showed fake supplies (without actual delivery of goods, supported only by fake bank transactions) to M/s Zenith Tele Communication Private Ltd. No relevant e-way bills exist on the departmental portal. Similar fraudulent transactions were routed via M/s Multicom International, M/s Kanak Shallfy Industries Pvt. Ltd., Jasper Trading House and A K Exports to inflate good values artificially and claim illegal ITC and GST refunds, causing massive revenue loss to the National Exchequer.

14. Learned counsel for opposite parties relied upon judgment rendered by Hon’ble Apex Court in case of State of West Bengal v. Naryan K. Patodia reported in State of West Bengal v. Naryan K. Patodia AIR 2000 SC 1405, relevant extract of which is quoted hereinbelow:

” If the view of the learned single judge gets approval it would lead to startling consequences. The consequences of such an interpretation would be that if the person who commits the offence under Section 88 of the Act also commits other serious offences falling under Indian Penal Code as part of the same transaction neiher the regular police nor any special police force nor even the Central Bureau of Investigation can be authorised to conduct investigation. The accused in such cases would then be well ensconced insulated from the legal consequences of proper and effective investigation. Criminal justice would be the serious casualty then.

That apart, how could the FIR be quashed if the investigating agency should have been different? By lodging FIR alone no investigation is conducted by the police. It is the first step towards starting investigation by the police. If High Court was of the opinion that investigation has to be conducted by the Bureau then also there was no need to quash the FIR. Any way we take the view that as offences under the Indian Penal Code are also involved, efficacious investigation can be conducted by entrusting it to the police investigating agency. Inherent powers of the High Court as recognised in Section 482 of the Code are reserved to be used “to give effect to any orders under the Code, or to prevent abuse of the process of any court or otherwise to secure the ends of justice.” It is quite unfortunate that learned single judge overlooked the reality that by quashing the FIR in the case the High Court did not achieve any one of the above factors. On the contrary, the result of quashing the FIR had rendered the allegation of offences made against a person to remain consigned in stupor perennially. Hence, instead of achieving ends of criminal justice, the impugned order would achieve the reverse of it.

So from any angle, the High Court has committed serious error in quashing the FIR. We, therefore, allow this appeal and set aside the impugned judgment.”

15. Further they relied upon judgment rendered by co-ordinate Bench of this Court in case of Govind Enterprises v. State of U.P. and 4 others decided on 30.5.2019 passed in Crl. Misc. Govind Enterprises v. State of U.P 74 GST 387/27 GSTL 161 (Allahabad)/Writ Petition no. 7303 of 2019, relevant extract of which is quoted hereinbelow:

“Upon perusal of the impugned FIR, we find that, prima facie, necessary ingredients of an offence of cheating, by submitting false information and documents, are clearly spelt out. Because, according to the allegations a bogus firm was got registered by showing false and bogus addresses of business; and, by taking advantage of such registration, inward e-way bills were generated to make purchase of goods worth Rs.35 odd crores and, thereafter, without generating outward supply bills, huge amount of money was deposited in cash in undisclosed bank account, suggesting that goods were sold without proper documentation, with a view to evade taxes. It cannot, therefore, be said that a bare reading of the impugned FIR does not disclose commission of cognizable offences punishable under the Penal Code. Hence, the impugned FIR is not liable to be quashed.

A Full Bench of this Court in Ajit Singh @ Muraha v. State of U.P., 2006 (56) ACC 433 after considering various decisions has taken a view that where prayer to quash the FIR cannot be accepted there should not ordinarily be a stay on arrest. Although, in a few decisions of the apex court, it has been held that, in suitable cases, to ensure that a person’s liberty is not jeopardized, on account of false implication, protection from arrest, pending investigation, may be granted by superior courts but that power is not ordinarily to be exercised in matters relating to economic fraud. As, in such matters, stay on arrest may become a hurdle in thorough investigation of the matter, particularly in tracing out the money trail.

Under the circumstances, we do not find this to be a fit case where any relief should be granted to the petitioner in the writ jurisdiction. The petition is, therefore, dismissed. There is no order as to costs.”

16. Reliance has also been placed upon judgment rendered by Hon’ble Apex Court in case of Radhika Agarwal v. Union of India decided on 27.2.2025 in Radhika Agarwal v. Union of India 95 GSTL 225 (SC)/Writ Petition (Criminal) no. 336 of 2018, relevant extract of which is quoted hereinbelow:

“50. To a large extent, our reasoning and the ratio on the applicability of the Code to the Customs Act would equally apply to the GST Acts in view of Sections 4 48 We have collectively referred to the Central as well as the State GST Acts as “GST Acts”. and 5 of the Code. Sub-section (10) to Section 67 of the GST Acts postulates that the provisions of the Code relating to search and seizure shall, as far as may be, apply to search and seizure under the GST Acts, subject to the modification that for the purpose of sub-section (5) to Section 165 of the Code, the word ‘Magistrate’ shall be substituted with the word ‘Commissioner’. Section 69, which deals with the power of arrest, a provision which we will refer to subsequently, also deals with the provisions of the Code when the person arrested for any offence under the GST Acts is produced before a Magistrate. It also deals with the power of the authorised officers to release an arrested person on bail in case of non-cognizable and bailable offence, having the same power and subject to the same provisions as applicable to an officer in charge of a police station. We would, therefore, agree with the contention that the GST Acts are not a complete code when it comes to the provisions of search and seizure, and arrest, for the provisions of the Code would equally apply when they are not expressly or impliedly excluded by provisions of the GST Acts.

51. There is no specific stipulation or provision in the GST Acts in respect of facets of investigation, inquiry or trial. This Court in Ashok Munilal Jain and Another v. Assistant Director, Directorate of Enforcement49 has held that in view of Section 4(2) of the Code, the procedure prescribed under the Code also applies to the special statutes unless the applicability is expressly barred or prohibited. The provisions of the GST Acts in this regard can be contrasted with the 49 (2018) 16 SCC 158.”

17. Lastly, learned counsel for opposite parties submitted that instant petition for the aforesaid reasons is liable to be dismissed.

18. After hearing rival submissions extended by learned counsels for the parties and perusing the records, this Court finds that the show cause notice (DRC-01) was issued under Section 74 of the CGST/U.P.GST Act, 2017 for June, 2019 and August 2019 (Financial Year 2019-20) which culminated into ex parte DRC-07 was passed on 24.11.2020 creating a total demand of Rs.13,26,22,137 with instructions to pay interest under Section 50 of the GST Act, until actual payment. Based on data from MIS portal, AI reports, and the GST Common Portal a Notice under Section 61 (ASMT-10) was issued on 30.08.2023 and due to non-compliance by the applicant/authorized representative, proceedings under Section 73 was initiated on 23.2.2024, the show cause notice under Section 73 was issued. Thereafter, reminders dated 18.5.2024, 8.07.2024 were also issued and in pursuance to ex parte order (DRC-07) dated 30.08.2024 created a payment of Rs. 1,05,81,733(tax) and Rs. 1,05,81,732 (penalty) along with interest under Section 50 of the GST Act. Based on e-way bill analysis for FY 2018-19 and FY 2019-20, and due to non-payment of the same total tax demands raise across various years through assessment and adjudication amounted to Rs.24.93 crore which has been taken up as sole consideration of grave concern by economic wing being a serious economic offence committed by the tax payer culminated into registration of Case Crime no. 287 of 2025 wherein the applicant has been implicated. It is not disputed by either of the learned counsels appearing for the parties that the epigenis of the matter arising out of nonresponding and not paying the tax under the Central GST or State GST and as such proceedings have already been initiated against the tax payer/applicant under the Special Act i.e. CGST Act, 2017 in consonance with the sections 4 and 5 of the BNSS which prohibits investigation and recognize that offence under special enactment are to be investigated and dealt with in the manner prescribed by those enactments qua the special statute and the same law has been enunciated in catena of judgments rendered by Hon’ble Apex Court which is squarely covering the field of the case of the applicant specifically discussed in case of Sharat Babu Digumarti (supra).

19. In view of aforementioned facts and circumstances, entire proceeding of Case no. 4647 of 2026 (State of U.P. v. Kapil Chugh) arising out of Case Crime no. 287 of 2025 under sections 318(4), 338, 336(3), 340(2), 345(2) BNS, Police Station- Kasna, District Gautam Budh Nagar which includes charge sheet dated 10.6.2026 and cognizance order dated 17.6.2026 are hereby set aside qua applicant herein.

20. The instant application u/s 528 BNSS stands allowed accordingly.