2024 (8) TMI 1580 - HC - GST

Seeking grant of bail - availment of fake ITC - issuing fake/forged bills without dispatch of goods - Evasion of tax - existence of reasons to believe or not - HELD THAT - From a perusal of the file it appears that the charge against the applicant/accused is that he was found issuing fake/fake bills without dispatch of goods and by creating 47 fake companies he used them to avail and pass on fraudulent input tax credit under GST without dispatch of goods. He availed ITC of Rs. 134.43 crore of fake firms shown in GSTR-2A of his firm and further passed on Rs. 187.68 crore by issuing bills to beneficiaries from his fake firms without supply of goods. Thus he is charged with the punishable offences under Section 132(1) (a) (b) (c) (d) (i) read with Section 132(5) of the Central Goods and Services Tax Act 2017. Prima facie it appears from the investigation that Perilogistic through which the goods were said to have been sent has never sent any goods. All the invoices generated in this regard are fake. No fact of any kind of goods transportation has come to light. The applicant/accused himself is also said to have two beneficiary companies (M/s Om Enterprises and M/s DD Enterprises) to which fraudulent input tax credit of Rs 15 crore has been passed on. The applicant/accused is accused of tax evasion of a huge amount. From the evidence and material collected during the investigation of the case there is sufficient basis to believe that the applicant/accused has formed fake companies under different names and has issued fake invoices without actually supplying the goods concerned and has obtained and passed on a huge amount of money to himself. The applicant/accused has committed the said crime in a very well thought out and planned manner. Therefore considering the facts and circumstances of the case and the gravity of the crime it does not seem appropriate to grant bail to the applicant/accused. This bail application filed by the applicant/accused Dheeraj Singhal under Section 439 of the Code of Criminal Procedure is dismissed.

Summary

The core legal issues considered in this judgment are:

1. Whether the applicant/accused is entitled to bail under Section 439 of the Code of Criminal Procedure in a case registered under Section 132(1)(a)(b)(c)(d)(i) and Section 132(5) of the Central Goods and Services Tax Act, 2017, involving allegations of creation of fake companies and fraudulent input tax credit (ITC) claims.

2. The legality and validity of the arrest, custody, and investigation procedures including search and seizure, recording of statements, medical examination, and presentation before the court.

3. The sufficiency and nature of evidence against the accused to establish a prima facie case for the alleged economic offences.

4. The applicability of judicial precedents on bail in economic offences, particularly those involving large-scale tax evasion and fraud under the GST regime.

5. The consideration of national and public interest, severity of the offence, and potential for tampering with evidence or influencing witnesses in deciding bail applications in economic offences.

Issue-wise Detailed Analysis:

1. Entitlement to Bail under Section 439 CrPC in GST Fraud Case:

Legal Framework and Precedents: The bail application was considered under Section 439 CrPC, which governs bail for persons arrested for non-bailable offences. The offences alleged are under Section 132(1)(a)(b)(c)(d)(i) and Section 132(5) of the Central Goods and Services Tax Act, 2017, which relate to tax evasion and fraudulent ITC claims. The Court referred to several Supreme Court judgments emphasizing that economic offences constitute a separate class requiring a stricter approach in bail matters, including Y.S. Jagan Mohan Reddy vs CBI (2013) 7 SCC 439, Ram Narain Poply vs CBI AIR 2003 SCW 3257, and State of Gujarat vs Mohanlal Jitmalji Porwal AIR 1987 SC 1321.

Court's Interpretation and Reasoning: The Court noted that the accused is charged with creating 47 fake companies and generating fake invoices worth over Rs. 1042 crores, passing on fraudulent ITC of approximately Rs. 190 crores. The investigation revealed usernames, passwords, seals, and financial data corroborating the charges. The accused's own statements also supported these findings. The Court emphasized that economic offences involving huge loss to the exchequer affect the financial health of the country and must be viewed seriously. The Court reiterated the principle that bail is not a matter of right but discretion, especially in grave economic offences.

Key Evidence and Findings: The search operation revealed Tally data and Excel sheets showing the creation and operation of fake firms. The accused's firms availed and passed on large amounts of fraudulent ITC without actual supply of goods. The transport company allegedly used for goods movement was found not to have transported any goods. The accused's medical examination showed no injury, and procedural compliance in arrest and custody was upheld. The accused was presented before the competent court within 24 hours, negating claims of illegal custody.

Application of Law to Facts: The Court applied the legal principle that economic offences require a stringent approach to bail due to their impact on the national economy and public interest. The prima facie evidence against the accused was sufficient to deny bail. The Court held that the accused's arguments regarding procedural lapses and insufficiency of evidence did not outweigh the gravity of the offence and the risk of tampering with evidence or absconding.

Treatment of Competing Arguments: The accused contended that the charge sheet lacked fake invoices and GST returns, that the search was unlawful, statements were recorded under duress, and that the accused was in custody since 08.02.2024 with no flight risk. The prosecution countered by demonstrating the existence of corroborative evidence beyond the accused's statements, proper procedure in arrest and medical examination, and the serious nature of the offence involving large-scale tax fraud. The Court found the prosecution's arguments more persuasive, especially given the extensive documentary and electronic evidence.

Conclusion: Bail was denied on the ground that the offences are serious economic crimes with sufficient prima facie evidence, and the accused's release could jeopardize the investigation and public interest.

2. Legality and Validity of Arrest, Search, Custody, and Medical Examination:

Legal Framework: The accused challenged the legality of arrest and custody, alleging violation of procedure including absence of transit remand, unlawful search, coercion in recording statements, and improper medical examination.

Court's Reasoning: The Court noted that the accused was presented before the competent court within 24 hours, which complies with legal requirements negating the need for transit remand. The search and seizure were conducted as per the provisions of the GST Act. Statements recorded under Section 70(2) of the GST Act are judicial proceedings and admissible. The medical examination was conducted at a government hospital (SMS Hospital), and no injuries were found. The Court rejected the accused's claims of coercion and procedural irregularities.

Application of Law to Facts: The Court held that the procedural safeguards were followed and that mere residence of witnesses in Jaipur does not invalidate the Panchnama or search proceedings. The accused's allegations of coercion and irregularities were unsubstantiated.

Conclusion: The arrest, search, custody, and medical examination were lawful and in accordance with statutory provisions.

3. Sufficiency and Nature of Evidence for Prima Facie Case:

Legal Framework and Precedents: The Court referred to the principle that at the bail stage, the court is to consider whether there are reasonable grounds to believe a prima facie case exists, not to delve into the merits or establish guilt beyond reasonable doubt (Nimmagadda Prasad vs CBI (2013) 7 SCC 466).

Court's Interpretation: The Court found that the investigation revealed usernames, passwords, fake invoices, seals, and electronic data supporting the charge of fraudulent ITC claims. The accused's own statements corroborate the allegations. The absence of actual goods movement and the creation of multiple fake firms were prima facie established.

Application of Law to Facts: The Court concluded that the prosecution has produced sufficient prima facie evidence to sustain the charges, justifying denial of bail.

Treatment of Competing Arguments: The accused argued absence of fake invoices and GST returns in the charge sheet and non-inclusion of key witnesses in the charge sheet. The Court observed that the charge sheet contains sufficient description of evidence and that procedural remedies exist to summon witnesses if necessary. The Court declined to examine the minutiae of evidence at this stage.

Conclusion: The prima facie case against the accused is established, warranting denial of bail.

4. Applicability of Judicial Precedents on Bail in Economic Offences:

Legal Framework: The Court extensively relied on Supreme Court precedents emphasizing the distinct nature of economic offences and the need for a stricter bail regime. The judgments stress the public interest, gravity of offences, and potential threat to the national economy.

Court's Reasoning: The Court cited that economic offences involve deep-rooted conspiracies and large-scale loss of public funds, requiring serious judicial scrutiny. The Court highlighted the principles that bail considerations must include the nature of accusations, evidence, severity of punishment, character of accused, risk of tampering with witnesses, and public interest.

Application of Law to Facts: Applying these principles, the Court found that the accused's case involves serious economic offences with substantial prima facie evidence and potential risk to the investigation and public interest, thus bail is not warranted.

Conclusion: The precedents support denial of bail in cases of grave economic offences such as the present.

5. Consideration of National and Public Interest, Severity of Offence, and Risk Factors:

Court's Reasoning: The Court emphasized that the offences affect the financial health of the country and the community at large. It noted the deliberate and calculated nature of the crime, the huge amount involved, and the potential for absconding or tampering with evidence if bail is granted. The Court noted the accused's address discrepancies and the planned modus operandi.

Application of Law to Facts: Given the large-scale fraud and the risk factors, the Court concluded that granting bail would be contrary to the larger interests of the public and the State.

Conclusion: Bail was denied considering the national interest and gravity of the offence.

Significant Holdings:

"Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offence having deep rooted conspiracies and involving huge loss of public funds needs to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country."

"While granting bail, the court has to keep in mind the nature of accusations, the nature of evidence in support thereof, the severity of the punishment which conviction will entail, the character of the accused, circumstances which are peculiar to the accused, reasonable possibility of securing the presence of the accused at the trial, reasonable apprehension of the witnesses being tampered with, the larger interests of the public/State and other similar considerations."

"The cause of the community deserves better treatment at the hands of the Court in the discharge of its judicial functions. The entire community is aggrieved if economic offenders who ruin the economy of the State are not brought to book."

"While granting bail, the court has to see whether there are sufficient prima facie grounds to believe that the crime has been committed or not. It is not expected, at this stage, to have the evidence establishing the guilt of the accused beyond reasonable doubt."

The Court concluded that the accused was not entitled to bail given the serious nature of the offences, the substantial prima facie evidence, the risk of tampering with evidence, and the adverse impact on public and national interest. Accordingly, the bail application under Section 439 CrPC was dismissed.