Karnataka High Court Refuses To Quash DGGI Criminal Proceedings In Alleged Fake ITC Case

The Karnataka High Court has recently refused to quash criminal proceedings against a Mysuru scrap dealer accused of allegedly fraudulently availing and passing fake Input Tax Credit (ITC). It rejected his contention that the Directorate General of GST Intelligence (DGGI) could not investigate the case because the State GST authorities had already initiated action.

Justice M. Nagaprasanna relied on the Supreme Court's decision in Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East Commissionerate. The court observed that, after the complaint was received, the State GST authorities transferred their pending investigation to the Central GST authorities.

"In the case at hand, after the complaint was received, the State GST authorities have transferred the pending investigation to the Central GST authorities. The contention that parallel proceedings are commenced and therefore, they should be stalled is a submission that would not merit acceptance, in the light of the judgment of the Apex Court in the case of ARMOUR SECURITY supra.", the court observed.

The case arose from allegations that the proprietor of M.K. Traders availed and passed fake ITC using invoices allegedly issued by fictitious suppliers without any actual supply of goods or services.

The State GST authorities first began looking into discrepancies in the dealer's GST transactions and called for records.

While that inquiry was still underway, the Directorate General of GST Intelligence (DGGI) received intelligence indicating that the petitioner was allegedly part of a larger fake invoice network. Acting on the same, the agency carried out searches, seized documents and electronic devices, arrested the petitioner on September 16, 2025, and later filed a prosecution complaint.

Challenging those proceedings, the petitioner argued that the DGGI could not launch a parallel investigation because the State GST authorities had already initiated action over the same transactions.

Relying on Armour Security, he contended that once one GST administration had initiated proceedings, another could not simultaneously proceed on the same subject.

The DGGI argued that its investigation was based on independent intelligence into a larger supply chain allegedly involving around 140 suppliers. It also submitted that, under the Supreme Court's ruling, an inquiry or the gathering of evidence or information does not amount to "proceedings" for the purpose of the statutory bar.

Accepting those submissions, the court held that the petitioner's challenge could not succeed. It dismissed the writ petition and declined to interfere with the prosecution or the arrest.

For Petitioner: Senior Advocate Hashmath Pasha and Advocate Kariappa N.A.

For Respondent: Advocate Madhu N. Rao for R1 and R2 and Additional SPP B.N. Jagadeesha for R3 and R4