Can Criminal Prosecution Continue if Adjudication Is Set Aside?
Yes — criminal prosecution can continue even if the tax adjudication order is quashed, but only when the quashing is based on procedural or technical defects, not on merits.
Let’s break this down for Indian taxpayers and professionals.
When Does Adjudication Get Set Aside?
- Lack of jurisdiction
- Improper issue of SCN (Show Cause Notice)
- Procedural lapses in investigation or hearing
Criminal Prosecution Can Continue — Here’s Why
| Basis | Criminal Prosecution | Adjudication |
|---|---|---|
| Legal Foundation | Income Tax Act (e.g., S. 276C) / GST Act (S. 132) | Same Act, administrative proceedings |
| Purpose | Punishment for wilful evasion or fraud | Recovery of tax dues |
| Burden of Proof | Beyond reasonable doubt | Based on preponderance of probability |
| Independent? | Yes – proceeds on separate footing | Yes |
| Outcome if Adjudication is Void Procedurally? | Can continue | May be re-initiated |
Key Case Laws Supporting This View
1. Radhe Shyam Kejriwal v. State of West Bengal (2011) 3 SCC 581
“Adjudication and criminal proceedings are independent… the outcome of one does not control the other.”
2. K.I. Pavunny v. Asst. Collector (1997) 3 SCC 721
Held that even if adjudication fails on technical grounds, prosecution can continue if evidence shows mens rea (intention to evade).
3. Union of India v. Sambasiva Rao (2023)
Telangana HC: Dismissal of adjudication on procedural grounds doesn’t nullify criminal charges.
What CBDT & CBIC Say
- CBIC’s Manual on Prosecution (2022): Adjudication result is relevant but not mandatory before launching prosecution.
Thus, procedural flaws in adjudication don’t necessarily shield the taxpayer from criminal liability.
Expert Tip: Don’t Ignore Criminal Summons
A criminal case can run parallel and may lead to:
- Arrest
- Freezing of bank accounts
- Restrictions on passport, travel
- Reputational and financial damage
Consult a tax or criminal lawyer promptly.
Why It Matters for Taxpayers
This principle matters if:
- You received a favorable adjudication due to a technical lapse
- You ignore criminal notices or summons
You might win the tax battle, but still face the criminal war.
FAQs
Q1. Can prosecution continue after appeal is allowed?
If on merits, prosecution may weaken.
Q2. What’s the difference between adjudication and prosecution?
Adjudication is civil – aims at tax recovery. Prosecution is criminal – aims at punishment.
Q3. Is prosecution automatic after adjudication?
No. Department must apply mind and follow due process, especially under CBDT/CBIC guidelines.
Summary
Courts have held both are independent proceedings. Taxpayers must respond to criminal notices seriously, regardless of adjudication outcome.