M/s Dhillon Kool Drinks & Beverages Ltd

GST Update/ 2026-27/0065

Punjab & Haryana High Court Quashes Criminal Proceedings After CESTAT Sets Aside Excise Demand
1. Case Details
M/s Dhillon Kool Drinks & Beverages Ltd., a manufacturer of aerated drinks, was accused by the Central Excise Department of showing payment of excise duty through false entries in its Personal Ledger Account without actually depositing the duty in the bank. The Department alleged that the company used fictitious TR-6 challans to wrongly avail and utilise excise duty credit, resulting in a recoverable amount of more than ?3.32 crore. Based on these allegations, the Department confirmed the duty demand and penalty and also filed a criminal complaint against the company and its officials under Sections 9 and 9AA of the Central Excise Act, 1944.
Flow of Proceedings
The adjudication proceedings went through multiple stages. The initial adjudication order dated was passed ex parte which the petitioners challenged before the CESTAT, which remanded the matter for fresh adjudication.
Thereafter, a fresh order was passed by the Commissioner confirming the demand and imposing penalty. The petitioners again approached the CESTAT, which stayed the operation of the adjudication order. Despite the stay, the Department instituted the criminal complaint in between.
Subsequently, the CESTAT decided the matter on 31.08.2016 in favour of the petitioners and the demand of ?1,69,38,241/- was set aside.
The present petition was filed seeking quashing of criminal proceedings initiated under Sections 9 and 9AA of the Central Excise Act, 1944 pending before the Chief Judicial Magistrate, Panipat, along with the consequential summoning order on the ground that when the very substratum of the prosecution no longer survives after the final adjudication rendered by the learned CESTAT on 31.08.2016, continuation of criminal proceedings in such circumstances amounts to abuse of process of law.
2. Case Law Discussion
The main question before the Punjab & Haryana High Court was whether the criminal case could continue after the CESTAT had already decided the tax dispute in favour of the company.
The company argued that there was no fraudulent intent or mens rea, and the matter only pertained to clerical/accounting irregularities for which it had paid the entire duty along with interest before the show cause notice was issued. It also pointed out that the CESTAT had stayed the adjudication order even before the Department filed the criminal complaint. Later, the Tribunal examined the case on merits and held that the company had not violated Rule 8(3A) of the Central Excise Rules, 2001, and therefore set aside the entire duty demand. The company submitted that once the duty demand itself had been cancelled, there was no reason for the criminal prosecution to continue. It also explained that its earlier petitions before the High Court had only been withdrawn because the appeal before the CESTAT was still pending.
The Department argued that the earlier two writ petitions were dismissed as withdrawn and the petitioners cannot be permitted to repeatedly invoke the inherent jurisdiction of this Court for the same relief. It was further argued that the criminal case should continue because the company had already filed two earlier petitions for the same relief. It is argued that adjudication proceedings under the Central Excise Act are civil proceedings whereas the present complaint pertains to criminal liability under Sections 9 and 9AA of the Central Excise Act and both proceedings can continue simultaneously. Therefore, according to the Department, the CESTAT's decision in favour of the Petitioner did not automatically end the criminal case. However, the Department accepted that the company had already paid the duty along with interest.
While deciding the case, the High Court relied on its earlier judgment in M/s Dhillon Kool Drinks & Beverages Ltd. v. Government of India and other decisions, including Joseph P. Bangera v. State of Maharashtra, Jagan Nath Nagpal & Co. v. Assistant Collector of Central Excise, and Bihariji Manufacturing Company Pvt. Ltd. v. Commissioner of Central Excise. These judgments clearly state that although tax proceedings and criminal proceedings may continue together, criminal prosecution cannot continue once the appellate authority has decided the tax dispute on merits in favour of the taxpayer and the basis of the prosecution no longer exists.
3. Court Decision
The High Court held that the company's petition was maintainable because earlier petitions were not dismissed on merits and no adjudication was made by this Court upon the controversy involved. It observed that the CESTAT's final order created a fresh cause of action.
The Court further noted that the CESTAT had clearly held that the company had not violated Rule 8(3A) and had completely set aside the duty demand. Once the duty demand itself had been cancelled, the criminal complaint based on that demand could not survive. Once the very substratum of the prosecution no longer survives after the final adjudication rendered by the learned CESTAT on 31.08.2016, continuation of criminal proceedings in such circumstances amounts to abuse of process of law.
The Court also observed that the Department had filed the criminal complaint even though the CESTAT had already stayed the adjudication order and had not disclosed this important fact. Holding that continuation of the prosecution would amount to misuse of the legal process, the High Court quashed the criminal complaint, the summoning order, and all related proceedings.

CA Pradeep Jain_

This is solely for educational purpose

Readers can also access this from our

Linkedin account : www.linkedin.com/in/ca-pradeep-jain-b6a31a16

Comments

GST Update/ 2026-27/0065

Opinion

Post a Comment

Query