2024 (9) TMI 1760 - HC - GST

Seeking grant of bail - issuance of fake e-way bills without dispatch of goods - existence of sufficient reasons to believe - HELD THAT - In the case during the search of the residential and business premises of the accused daily transaction slips registers and various bill books and mobiles have also been recovered. During the investigation from the statements recorded by the accused and the examination of the recovered goods it has been found that 9 fake companies were created by the accused through which the applicant/accused used to issue fake/fake bills/e-waybills to any supplier of goods on the basis of their requirement after receiving his commission in which the buyers and sellers shown were fake/fake - The applicant/accused has evaded GST of a huge amount with the supplier companies by receiving cash commission with the help of fake bills and companies. It appears that this crime has been committed by the applicant/accused in a very well thought out manner. A perusal of the file reveals that the charge against the applicant/accused is that he bought and operated 9 fake/bogus firms under GST and issued fake invoices/e-way bills without dispatch of goods and on the basis of the said invoices the companies of the people (actual supplier and buyer) who sold goods in cash without bills evaded GST of Rs. 10, 57, 12, 732/- and in lieu of this the applicant/accused received a commission of Rs. 250/- per lakh and caused a huge loss to the government exchequer. Thus he is charged with the punishable offences under section 132(1)(a) (f) (h) (i) of Central Goods and Services Tax Act 2017. From the evidence and material available in the case there is sufficient basis to believe that the applicant/accused with the help of 9 fake firms by purchasing them and operating them himself issued fake bills/e-way bills to the suppliers of goods without dispatching the goods in which the buyers shown were also fake. Due to the issuance of these bills the companies sold the goods in cash without paying GST in return for which the applicant/accused received commission in cash. Thus the government suffered a loss of GST amounting to more than ten crore rupees. The applicant/accused has committed the said crime in a very well thought out and planned manner. Considering the facts and circumstances of the case and the gravity of the crime it does not seem appropriate to grant the benefit of bail to the applicant/accused. Bail application dismissed.

Summary

Issues Presented and Considered

The core legal questions considered in this judgment are:

• Whether the applicant/accused is entitled to bail under Section 439 of the Criminal Procedure Code in an offence under Section 132(1)(a), (f), (h), and (i) of the Central Goods and Services Tax Act, 2017 (CGST Act), involving alleged GST evasion through fake companies and fake e-way bills.
• Whether the evidence on record, including statements of the accused and seized material, prima facie establishes the commission of the offence by the accused.
• Whether the accused's contention of false implication, absence of incriminating material in search, and retraction of statements justifies grant of bail.
• The applicability of judicial precedents concerning bail in economic offences, particularly those involving GST evasion and large-scale public fund loss.
• Whether the nature and gravity of the alleged economic offence, including the risk of tampering with evidence or influencing witnesses, warrants denial of bail.
• Whether the accused's health conditions and absence of prior criminal record weigh in favor of bail.
• The procedural validity and evidentiary value of statements recorded under Section 70(2) of the CGST Act.

Issue-Wise Detailed Analysis

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

Legal Framework and Precedents: Section 439 CrPC governs bail for persons accused of non-bailable offences. The CGST Act provisions under Section 132 prescribe offences related to tax evasion with penalties including imprisonment. The Supreme Court has consistently held that economic offences constitute a class apart, requiring stricter scrutiny in bail matters (YS Jagan Mohan Reddy v. CBI, 2013; Ram Narain Poply v. CBI, 2003; State of Gujarat v. Mohanlal Jitmalji Porwal, 1987). The Court must consider the nature of accusation, evidence, severity of punishment, character of accused, possibility of tampering, and public interest.

Court's Interpretation and Reasoning: The Court noted that the accused is charged with serious economic offences involving GST evasion exceeding Rs. 10 crore by operating nine fake companies and issuing fake e-way bills. The accused allegedly received substantial cash commission for facilitating the evasion. The Court emphasized that economic offences have deep-rooted conspiracies and cause grave damage to the public exchequer, necessitating a stringent approach to bail.

Key Evidence and Findings: The investigation included searches at the accused's residence and business premises, resulting in seizure of daily transaction slips, registers, bill books, and mobile phones. Statements of the accused and seized documents indicated operation of nine fake firms issuing fake bills/e-way bills without dispatch of goods. The buyers and sellers in these bills were fake entities. These fake bills enabled actual suppliers and buyers to evade GST by conducting cash transactions without proper invoicing, causing loss to the government.

Application of Law to Facts: The prima facie evidence supports the charge that the accused orchestrated a well-planned scheme to defraud the government of GST revenue. The Court applied the principle that bail is not a matter of right, especially in serious economic offences involving large-scale loss to the public exchequer.

Treatment of Competing Arguments: The accused argued false implication, absence of incriminating material in the search report, and retraction of statements taken under duress. The Court held that detailed scrutiny of evidence merits trial and is not appropriate at bail stage. The accused's retraction did not invalidate the prima facie case. The prosecution's evidence, including seized material and corroborative statements, sufficed to establish reasonable grounds for belief in the accused's guilt.

Conclusions: Bail was denied on the ground that the accused's involvement in a serious economic offence causing substantial public financial loss was prima facie established, and the offence's gravity outweighed the accused's claims.

2. Validity and Admissibility of Statements Recorded Under Section 70(2) CGST Act

Legal Framework and Precedents: Section 70(2) of the CGST Act allows recording of statements during investigation, which are judicial proceedings and admissible in evidence. The Court referred to precedents affirming the admissibility and probative value of such statements unless successfully challenged.

Court's Interpretation and Reasoning: The Court rejected the accused's claim that statements were recorded under duress or terror. The GST officers had jurisdiction and conducted lawful proceedings. The statements form part of the evidence supporting the charge.

Key Evidence and Findings: The statements, along with seized documents, corroborated the prosecution's case of fake firms and fake billing operations.

Application of Law to Facts: The Court held that the statements have evidentiary value and are admissible unless disproved, which is a matter for trial.

Treatment of Competing Arguments: The accused's affidavit retracting statements was noted but not considered sufficient to negate the prima facie case.

Conclusions: Statements recorded under Section 70(2) CGST Act are admissible and relevant in establishing the case against the accused at this stage.

3. Nature and Gravity of Economic Offences and Bail Considerations

Legal Framework and Precedents: The Supreme Court's rulings emphasize that economic offences affect the community and national economy gravely and require a different approach in bail matters (YS Jagan Mohan Reddy; Ram Narain Poply; State of Gujarat v. Mohanlal Jitmalji Porwal). Courts must consider the larger public interest and potential threat to the financial health of the country.

Court's Interpretation and Reasoning: The Court underscored that the accused's acts were deliberate, calculated, and designed for personal gain at the expense of the public exchequer. The offence involves a complex conspiracy resulting in a loss exceeding Rs. 10 crore. Granting bail could jeopardize the investigation or trial by enabling tampering or influencing witnesses.

Key Evidence and Findings: The accused's commission receipts, seized transaction records, and the modus operandi of fake firms and fake invoices corroborate the serious nature of the offence.

Application of Law to Facts: The Court applied the principle that economic offenders should not be lightly granted bail given the risk to public interest and the economy.

Treatment of Competing Arguments: The accused's health issues, absence of prior criminal record, and no risk of flight were considered but found insufficient to override the gravity of the offence and public interest.

Conclusions: The Court concluded that the offence's seriousness and potential harm to the national economy weigh heavily against granting bail.

4. Sufficiency of Prima Facie Case and Evidence at Bail Stage

Legal Framework and Precedents: The Supreme Court in Nimmagadda Prasad v. CBI held that at bail stage, the Court need only be satisfied that there are reasonable grounds for believing that the accused committed the offence, not that guilt is established beyond reasonable doubt.

Court's Interpretation and Reasoning: The Court held that the evidence on record, including seized documents, statements, and investigation material, provides sufficient prima facie basis to believe the accused's involvement in the offence.

Key Evidence and Findings: Seizure of transaction slips, registers, mobile phones, and corroborative statements support the prosecution's case.

Application of Law to Facts: The Court applied the standard that the prosecution must show a prima facie case at bail stage, which is met here.

Treatment of Competing Arguments: The accused's contentions regarding absence of incriminating material in search and retracted statements were not found sufficient to negate the prima facie case.

Conclusions: The Court found a genuine case against the accused, justifying denial of bail.

5. Procedural and Evidentiary Validity of Investigation and Searches

Legal Framework and Precedents: The CGST Act prescribes specific procedures for search and seizure, which must be complied with. Statements recorded during such proceedings are judicial in nature and admissible.

Court's Interpretation and Reasoning: The Court observed that the GST officers had jurisdiction and conducted lawful searches and seizures. No misconduct or coercion was established.

Key Evidence and Findings: Seized materials and statements were lawfully obtained and form part of the evidence.

Application of Law to Facts: The Court rejected the accused's claim of procedural irregularity or coercion.

Treatment of Competing Arguments: The accused's allegations of terror and pressure were unsubstantiated.

Conclusions: The investigation and seizure proceedings were valid and admissible.

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 entire Community is aggrieved if the economic offenders who ruin the economy of the State are not brought to books. A murder may be committed in the heat of moment upon passions being aroused. An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community."

"For the purpose of granting bail, the Legislature has used the words 'reasonable grounds for believing' instead of 'the evidence' which means the Court dealing with the grant of bail can only satisfy it as to whether there is a genuine case against the accused and that the prosecution will be able to produce prima facie evidence in support of the charge. It is not expected, at this stage, to have the evidence establishing the guilt of the accused beyond reasonable doubt."

Accordingly, the Court concluded that considering the gravity of the offence, the prima facie evidence on record, and the adverse impact on the public exchequer, the accused is not entitled to the benefit of bail under Section 439 CrPC. The bail application was rejected.