Legal Digest | Why did Supreme Court quash the proceedings in Chhattisgarh liquor scam

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Case 1:  No predicate offence means no proceeds of crime 

On April 8, the Supreme Court quashed the proceedings under what has come to be known as the Chhattisgarh liquor scam in Yash Tuteja VS Union of India on the ground that the complaint by the Enforcement Directorate was in an income tax matter which did not figure under the schedule in the Prevention of Money Laundering Act (PMLA). 

Exemplary predicate offences include narco-trafficking, tax evasion, murder, grievous bodily harm, corruption, fraud, smuggling, human trafficking, illegal wildlife trafficking, and forgery.  It seems the prosecution while inputing tax offences was not able to pin it down precisely on tax evasion. 

Anyway, the point is money laundering doesn’t happen in isolation but in relation to one of the predicate offences snowballing into money laundering.  Small wonder, the list of predicate offences is growing as proceeds of crime are sought to be laundered which is a grievous offence under the PMLA. Money laundering is done to vest the proceeds of crime with a vestige of legitimacy, contrived although.

Case 2: Legal heirs of a deceased partner not liable   

In a recent case — Annapurna B Uppin and others VS Malasiddappa & another — the Supreme Court disabused the notion that the legal heirs of a deceased partner are liable for the debts and dues of the firm. This is a significant judgement in as much as the unlimited liability of partners was hitherto meant to burden the legal heirs as well with such unlimited liability. 

Now it turns out that such unlimited liability exists only during the lifetime of a partner. Incidentally, the concept of LLP or limited liability partnership sprung up and caught the imagination of wannabe businessmen and professionals to have best of both the worlds — limited liability enjoyed by the shareholders of companies and flexibility in operations enjoyed by partners. The recent verdict has somewhat eased the burden on the legal heirs of partners and to that extent there may be revival of interest in partnership firms away from LLP. 

Case 4: Mere invoice and proof of payment not enough for granting input tax credit 

There have been regular reports of fake claims of input tax credit (ITC) under the GST. It is in this context that the Allahabad High Court’s recent verdict in a matter — Commissioner, Commercial Tax v. S/S Soma Enterprises Ltd — is significant.  The Court quoted the Supreme Court in M/s Ecom Gill Coffee Trading Private Limited in support of its finding that mere invoice and proof of payment by themselves are not enough for being eligible for ITC.

“The dealer claiming ITC has to prove beyond doubt the actual transaction which can be proved by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. “

These extra precautions are justified in the light of past experiences where ITC has been claimed by generating fake transactions not happening on the ground.  Given the large stakes involved, the authorities may be even justified in asking for store registers to satisfy themselves that the inputs indeed were used in the manufacture of the outputs.

—Compiled by S Murlidharan, a chartered accountant and a tax and legal expert. The views expressed in this column are personal.    

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow