N.B.Raja Durai Bahadur (Narayanan Beemarajan Raja Durai Bahadur ) vs. State Of Gujarat

Held

The Court allowed the applications and quashed the FIRs. The Court noted that the Supreme Court in Hindustan Lever Limited vs. Commissioner of Sales Tax, Gujarat, had held that chicory roots, being tubers, fall under Entry No. 23 of the First Schedule of the Gujarat Sales Tax Act, 1969, and are therefore exempt from sales tax. This decision was applied by the Gujarat VAT Tribunal in the case of the present applicants, who held that the essential character of chicory roots does not change by slicing, cutting, and drying, making them not liable to tax under the GST or CST Acts. Consequently, no outstanding amount remained to be recovered. The Court found that the prosecution initiated for the recovery of an amount, in the absence of any adjudication in favour of the department and in light of the subsequent favourable outcomes for the applicants, was no longer sustainable. The issue of whether belated prosecution could be maintained for recovery of amounts assessed for the period 1987-1989 after such a long delay was expressly left open to be decided in an appropriate manner in the future. The operative direction was to quash and set aside the FIRs and all consequential proceedings.

Facts

The petitioners, partners of Paglam and Bahadur Company, were registered under the Gujarat Sales Tax Act, 1969, and dealt in chicory roots. The Commercial Tax Officer, Jamnagar, passed an assessment order for the period 1987-1989, demanding Rs. 10,81,482/-, on the grounds that chicory roots did not fall under Entry No. 23 of the First Schedule and were thus taxable. An appeal against this order was dismissed. Subsequently, after 22 years, an FIR was filed in 2015 under Sections 406 and 420 of the Indian Penal Code. The petitioners sought quashment of the FIR, citing the Supreme Court's decision in Hindustan Lever Limited vs. Commissioner of Sales Tax, Gujarat, which held chicory roots exempt from sales tax, and a subsequent circular from the Commissioner of Sales Tax. The Gujarat VAT Tribunal had also held chicory roots not liable to tax under GST or CST Acts.

Key Issues

1. Whether the FIR registered under Sections 406 and 420 of the Indian Penal Code is an abuse of process of law, considering the long delay and the established tax exemption for chicory roots? 2. Whether the prosecution can be maintained for the recovery of assessed amounts for the period 1987-1989, given the subsequent judicial pronouncements and departmental communications? Petitioner's Arguments: - The Supreme Court's decision in Hindustan Lever Limited vs. Commissioner of Sales Tax, Gujarat, directly applies, establishing that chicory roots are exempt from sales tax under Entry No. 23 of the First Schedule of the Gujarat Sales Tax Act, 1969. - There is a complete absence of ingredients for Sections 406 and 420 of the Indian Penal Code. - The civil proceedings undertaken by the department were time-barred, and the FIR constitutes an abuse of process. - A separate mechanism exists for recovery of amounts, making criminal prosecution inappropriate. - The gross delay in filing the FIR defeats the rights of the parties. - The Gujarat VAT Tribunal's decision in Second Appeal Nos. 937 and 938 of 2015 held chicory roots not liable to tax under GST or CST Acts, and no amount remained to be recovered. - A communication from the Commissioner of VAT indicated withdrawal of FIRs. Revenue's Arguments: - At the relevant time, the party had not paid the amount directed by the assessment order, leading to the initiation of prosecution. - However, after losing in the appeal, the prosecution could not have been initiated or continued. - It was agreed that a communication dated 28.09.2016 indicated nothing remained to be recovered.