BAIL AMOUNT CAN BE PAID BY CASH LEDGER OR DEBIT LEDGER

[Mr. M. GOVINDARAJAN]

Punishment for certain offences

Section 132(1) of the Goods and Services Tax Act, 2017 (‘Act’ for short) provides that whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences, namely-

1. supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made there under, with the intention to evade tax;
2. issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made there under leading to wrongful availment or utilization of input tax credit or refund of tax;
3. avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;
4.  collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due,

shall be punishable–

1. in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilized or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine;
2. in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilized or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine;
3.  in the case of any other offence where the amount of tax evaded or the amount of input tax credit wrongly availed or utilized or the amount of refund wrongly taken exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to one year and with fine;

Section 132(5) of the Act provides that The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.

Power to arrest

Section 69 of the Act provides that where the Commissioner has reasons to believe that a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section, he may, by order, authorize any officer of central tax to arrest such person.

Where a person is arrested under sub-section (1) for an offence specified under sub-section (5) of section 132, the officer authorized to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty-four hours.

Subject to the provisions of the Code of Criminal Procedure, 1973-

• where a person is arrested under sub-section (1) for any offence specified under sub-section (4) of section 132, he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate;
• in the case of a non-cognizable and bailable offence, the Deputy Commissioner or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station.

Conditions for bail

The person arrested as above can be released on bail subject to the conditions imposed by the Court.  In ‘AMIT KUMAR KATARIA VERSUS STATE OF U.P AND ANOTHER [2021 (2) TMI 1048 - ALLAHABAD HIGH COURT] the High Court held that the conditions for grant of bail ought not be so strict as to be incapable of compliance, thereby making a grant of bail illusory.  In most of the bail cases the Courts used to direct the arrested person to deposit a certain sum as security deposit.  The Court may ask the arrested person to furnish a surety also.  Depositing amount may be one of the conditions imposed by the Court for release on bail.  The arrested person shall comply with the said directions of the court.

Electronic ledgers

Every deposit made by a person by internet banking or by using credit or debit cards or National Electronic Fund Transfer (NEFT) or Real Time Gross Settlement (RTGS) or by over the counter deposit on account of tax, interest, penalty, fee or any other amount is credited to the respective electronic cash ledger. The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable.

The electronic credit ledger is maintained in FORM GST PMT-02 for each registered person on the common portal and every claim of input tax credit is to be credited to this ledger. The input tax credit as self-assessed in the return by a registered person is credited to his electronic credit ledger. The only way the electronic credit ledger can be credited is through filing of returns. The amount available in the electronic credit ledger can be used for making any payment towards output tax under the CGST/SGTS/UTGST/IGST/ Cess Acts.

Payment of bail deposits through electronic ledgers

The issue to be discussed in this article is as to whether the deposit amount, as directed by the Court as a pre condition for bail, may be paid through electronic cash ledger as well as electronic credit ledger.  

The Delhi High Court in AMIT GUPTA VERSUS DIRECTORATE GENERAL OF GST INTELLIGENCE HEADQUARTERS [2022 (5) TMI 129 - DELHI HIGH COURT], held that the deposit amount for bail may be paid through electronic cash ledger as well as through electronic credit ledger.  In this case the petitioner is one of the Directors/key persons in Brilliant Metals Private Limited, Progressive Alloys India Private Limited and JBN Impex Private Limited.  It was alleged by the respondents that the petitioner was the mastermind in availing input tax credit on fake invoices of various nonexistent suppliers to the tune of Rs.27.05 crores.  Further the petitioner availed input tax credit in the above said three companies to the tune of Rs.260 crores.

The petitioner was arrested in this regard.  The petitioner applied for bail.  Regular bail was granted to the petitioner on 23.12.2019 on his furnishing personal bond for Rs.1 lakh with one surety of Rs. 1 lakh.  The bail was granted to the petitioner subject to the following conditions-

• The petitioner shall deposit Rs.2.7 crores with the Department by 06.01.2020.
• The petitioner will join the investigation with the Inquiry Officer as and when requires.
• The petitioner shall not tamper with evidence or influence any witness in any manner whatsoever.
• The petitioner shall attend the Court on each day of hearing.
• The petitioner shall not leave the country without the permission of the Court.

In complying with the directions of the Court the petitioner paid Rs.1.10 crores through cash ledger and Rs.1.60 crores by debiting/reversal through electronic credit ledger. 

The Department contended that the petitioner could not pay Rs1.60 crores by reversal of input tax credit as a condition of bail.  The Trial Court also held that the petitioner never took prior permission of the Court to deposit the amount of Rs.1.60 crores through reversal of credit from electronic ledger and merely placed the compliance by way of challans before the Court on 21.01.2020.  On 24.01.2020 the respondent filed an application seeking cancellation of the bail order.

The Chief Metropolitan Magistrate cancelled the bail granted vide order dated 23.12.2019.  The petitioner challenged the order of Chief Metropolitan Magistrate on 09.07.2021 before the High Court.  In addition to the challenge of the award the petitioner also sought the following prayers-

• to quash the proceedings initiated by the respondent under Section 67/70 of Central Goods and Services Tax Act, 2017; and
• to release of the records seized from the various premises of the petitioner.

The High Court observed that as per the case of the respondent the investigation carried out till

now reveals availment of fraudulent input tax credit  worth Rs.27.05 crores and the total amount of input tax credit availed by the petitioner is Rs.260 crores. Thus it is not the case of respondent that input tax credit worth approximately Rs.232.95 crores is fraudulent. Thus the short issue in the present petition is whether in respect of the condition of deposit of amount of Rs. 2.70 crores which was a condition for grant of bail the petitioner could have deposited part amount through the input tax credit.

The petitioner submitted that form GST-DRC-03 issued under Rule 142(2) and 142(3) of the GST Rules permit deposit of amount through cash/credit of the input tax credit ledgers.  The petitioner relied on Rule 49, 86(2) and 86A introduced with effect from 26.12.2019 which provides the conditions of use of the amount available in electronic credit ledger.

The Department submitted before the High Court that besides Rs.27.05 crores of input tax credit availed in the present case, the petitioner has been found to have availed fraudulent input tax credit worth Rs.15 crores which are pending investigation by DGGI, Meerut. The High Court observed that till date beyond approximately Rs.42 crores of input tax credit, the rest of the input tax credit have not been found to be fraudulent based on the invoices from non existing suppliers.

The High Court observed that a reading of Section 49 of GST Act permits availing of the amount in electronic ledger for making any payments towards output tax under the Act or under the Integrated Goods and Services Tax Act. Further Section 49 (5) and (6) describes the manner in which the amount of input tax credit available in the electronic ledger is to be utilized and provides that the balance in electronic cash ledger after payment of tax, interest, penalty, fee etc. may be refunded in accordance with the provisions of Section 54 of the GST Act.

The Department did not dispute that the payment of tax could be made from the electronic ledger under Section 49 (4) of the GST Act.  The only objection of the Department is that the petitioner could not have availed the amount of Rs.1.60 crores by debiting the input tax credit.  The petitioner has to his credit input tax credit worth Rs.260 crores and the investigation does not show that beyond approximately Rs.42 crores input tax credit rest is fraudulent till now. Hence the reversal of the input tax credit for depositing the part amount of Rs.2.70 crores with the department as directed by the learned Trial Court cannot be said to be illegal or unwarranted, warranting cancellation of the bail granted to the petitioner.

Non-compliance of the conditions of bail is a ground for cancellation of the same.  In the present case the condition was to deposit a sum of Rs.2.70 crores with the department which stands satisfied by the petitioner depositing part amount by transfer of input tax credit.  The petitioner having fulfilled the condition of deposit of the amount partly by cash ledger and partly by debit ledger of the input tax credit it cannot be said that the petitioner has failed to fulfill the conditions imposed on him.

The High Court set aside the order passed by the Chief Metropolitan Magistrate on 09.07.2021.