The Punjab and Haryana High Court has quashed a criminal complaint and summoning order issued against a beverage manufacturing company and its officials under Sections 9 and 9AA of the Central Excise Act, holding that criminal prosecution cannot continue once the very basis of the demand has been set aside on merits by the appellate tribunal.
The bench of Justice Mandeep Pannu rejected the maintainability objection and observed that the earlier petitions had merely been withdrawn and were not dismissed on merits. The final adjudication by the CESTAT in favour of the petitioners constituted a material change in circumstances and gave rise to a fresh cause of action.
The case arose from allegations by the Central Excise Department that the company had manipulated entries in its PLA account and fraudulently availed inadmissible credit by making fictitious debit entries and relying on alleged fake TR-6 challans without actual deposit of duty amounts. According to the department, the company wrongfully utilized and availed credit amounting to over Rs. 3.32 crore, leading to initiation of adjudication proceedings and subsequent criminal prosecution.
The criminal complaint was filed before the Chief Judicial Magistrate, Panipat, and the accused persons were summoned in January 2009. The petitioners approached the High Court under Section 482 Cr.P.C. seeking quashing of the complaint and all consequential proceedings.
Before the High Court, the petitioners argued that the entire dispute essentially related to adjudication proceedings under the Central Excise Act and that the duty amount along with interest had already been deposited much before issuance of the show cause notice. They further submitted that the original adjudication order had initially been remanded by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), and though a fresh order confirming the demand was later passed, its operation had already been stayed by the Tribunal prior to institution of the criminal complaint.
The petitioners contended that despite the stay order granted by the CESTAT on 07.04.2008, the department concealed this fact while filing the criminal complaint on 02.08.2008. They also argued that there was no fraudulent intention or mens rea involved and that the matter at best related to accounting or clerical irregularities.
A major development in the case came when the CESTAT, by a detailed order dated 31.08.2016, allowed the appeal filed by the petitioners and categorically held that there was no contravention of Rule 8(3A) of the Central Excise Rules, 2001. The Tribunal consequently set aside the demand of Rs. 1.69 crore and also noted that the disputed amount had already been deposited along with interest prior to issuance of the show cause notice.
The department opposed the petition on the ground that this was the third quashing petition filed by the accused persons and therefore was not maintainable. It was also argued that adjudication proceedings and criminal prosecution are separate in nature and can continue simultaneously even if the adjudication proceedings culminate in favour of the assessee.
The High Court further observed that the issue was substantially covered by an earlier coordinate bench judgment involving similar circumstances, where criminal proceedings under the Central Excise Act had been quashed after adjudication proceedings were decided in favour of the assessee. The Court reiterated the principle that although adjudication and criminal prosecution may proceed simultaneously, criminal proceedings cannot continue once the competent appellate authority has exonerated the assessee on merits and the foundation of prosecution disappears.
The Court emphasized that the CESTAT had not granted relief on any technical ground but had delivered a clear finding on merits that there was no violation of Rule 8(3A). It also took note of the fact that the disputed duty amount with interest had already been deposited before issuance of the show cause notice.
Importantly, the High Court observed that the complaint itself had been instituted despite concealment of the fact that the adjudication order had already been stayed by the CESTAT. According to the Court, once the demand itself had been set aside on merits, continuation of criminal prosecution amounted to abuse of the process of law.
Accordingly, the Punjab and Haryana High Court allowed the petition and quashed the criminal complaint dated 02.08.2008, the summoning order dated 07.01.2009, and all consequential proceedings pending before the Chief Judicial Magistrate, Panipat.
Case Details
Case Title: M/S Dhllon Kool Drinks And Beverages Ltd. Versus Govt. Of India
Citation: JURISHOUR-1443-HC-2026(P&H)
Case No.: CRM-M-40724-2016
Date: 26.05.2026
Counsel For Petitioner: Amit Jhanji, Sr. Advocate
Counsel For Respondent: . Sourabh Goel, Sr. Standing Counsel
