2024 (9) TMI 1761 - HC - GST

Seeking grant of bail - availment of benefit of fraudulent ITC - existence of sufficient reasons to believe or not - HELD THAT - A perusal of the file reveals that the allegation against the applicant/accused is that he through his firm M/s Sukhlal Sheo Narayan s supplier units M/s Sewak Enterprises M/s RS International M/s CS Enterprises M/s Abhi Shekhar Enterprises and M/s Shiva Company has utilised ITC of about Rs. 25.06 crores of fake firms shown in the books of his firm and further passed on the same to beneficiary firms without supplying the goods has improperly passed on GST ITC of Rs. 25.18 crores has availed fake ITC and has issued fake bills in the name of M/s Kanak CCR Limited. On perusal of GSTR-2A and GSTR-3B of the accused firm M/s Sukhlal Sheo Narayan the said firm also availed fake ITC of Rs 25.06 crore through fake firms. The bills received by the accused from the said firms were found to be non-existent. Hence he is charged with offences punishable under Section 132(1)(B)(C)(I) and Section 132(5) of Central Goods and Services Tax Act 2017. Prima facie it appears from the investigation that the fake firms through which the accused has claimed to have sent the goods have never sent any goods. All the invoices and bills generated in this regard are fake. The applicant/accused is accused of evading tax of a huge amount. As regards the argument of learned counsel for the accused that as per the clarification given in the circular dated 06.07.2022 section 122(1)(i) falls under the Central Goods and Services Tax Act and not under the provisions of section 132 of the Goods and Services Tax Act in this regard it is clearly mentioned in the circular dated 06.07.2022 that- It may also be noted that in such cases of wrongful/fraudulent availment or utilization of input tax credit or in cases on issuance of invoices without supply of goods or services or both leading to wrongful availment or utilization of input tax credit or refund of tax provisions of Section 132 of the CGST Act may also be invokable subject to conditions specified therein based on facts and circumstances of each case - In the facts of the case it is prima facie evident from the investigation that the applicant/accused has availed and passed on fake ITC by issuing invoices without supply of goods. Hence the argument of learned counsel for the applicant/accused that the offence under Section 132 of the Goods and Services Tax Act is not made out against the applicant/accused is not tenable. From the evidence and material collected during the investigation of the case prima facie there is sufficient basis to believe that the applicant/accused has created fake companies in different names and has availed and passed on a huge amount of about Rs. 55 crores by issuing fake invoices and bills of goods through the said fake firms without actually supplying the goods concerned - considering the facts and circumstances of the case and the gravity of the crime in the light of the judicial decisions of the Hon ble Supreme Courts mentioned above it does not seem appropriate to grant the benefit of bail to the applicant/accused. This bail application filed by the applicant/accused Ashish Goyal under Section 439 of the Code of Criminal Procedure is dismissed.

Summary

Issues Presented and Considered

The core legal questions considered by the Court include:

• Whether the applicant/accused's act of availing and passing on fraudulent input tax credit (ITC) falls within the ambit of Section 132 of the Central Goods and Services Tax (CGST) Act, 2017, or only under Section 122(1)(i) of the CGST Act, as contended by the defense relying on the CBIC circular dated 06.07.2022.
• Whether the applicant/accused is entitled to bail under Section 439 of the Code of Criminal Procedure, considering the nature and gravity of the offence, the evidence on record, and the accused's character and conduct.
• The applicability and interpretation of judicial precedents relating to economic offences, especially in the context of bail applications in cases involving fraudulent ITC and tax evasion.
• Whether the deposit of Rs. 10 crore by the ultimate beneficiary firm "Kanak CCR Limited" towards tax liabilities can be considered as mitigating the applicant/accused's liability or as a ground for bail.
• The impact of ongoing investigations, including the role of the alleged mastermind Manoj Kumar, and whether separate investigations on the same subject matter affect the bail entitlement of the applicant/accused.

Issue-wise Detailed Analysis

1. Legal Framework and Interpretation of Sections 132 and 122(1)(i) of the CGST Act

The applicant/accused argued that his conduct falls under Section 122(1)(i) of the CGST Act, which pertains to penalty provisions, and not under Section 132, which prescribes penal consequences including imprisonment. This contention was supported by reference to the CBIC circular dated 06.07.2022, which clarifies the scope of offences under the CGST Act.

The Court examined the circular and noted that it explicitly states that in cases involving wrongful or fraudulent availment or utilization of input tax credit, or issuance of invoices without supply of goods or services leading to wrongful availment, the provisions of Section 132 may also be invoked subject to facts and circumstances. Thus, the circular does not exempt the accused from prosecution under Section 132.

Based on the investigation, the Court found prima facie evidence that the applicant/accused availed and passed on fraudulent ITC by issuing invoices without actual supply of goods, which squarely falls within the penal provisions of Section 132(1)(B) and (C) of the CGST Act. Therefore, the argument that the offence is only punishable under Section 122(1)(i) was rejected.

2. Evidence and Findings on the Nature of the Offence

The investigation revealed that the applicant/accused owned the firm M/s Sukhlal Sheo Narayan and operated several supplier firms that were found to be non-existent or fake. The accused's firm utilized fake ITC amounting to approximately Rs. 25.06 crore and passed on ineligible ITC of Rs. 25.18 crore to beneficiary firms without supplying goods. The accused admitted in statements to being in contact with Manoj Kumar, who supplied fake bills, adding a commission before passing them to Kanak CCR Limited.

The Court observed that the accused's conduct involved creation of fake companies, issuance of fake invoices and bills, and systematic evasion of tax on a large scale, amounting to economic offences involving substantial public funds.

3. Bail Entitlement and Judicial Precedents on Economic Offences

The applicant/accused sought bail relying on precedents such as Arnesh Kumar v. State of Bihar and Satyendra Kumar Antil v. CBI, arguing that having spent six months in custody and being a respectable businessman with no flight risk, bail should be granted.

Conversely, the respondent cited authoritative Supreme Court decisions emphasizing that economic offences constitute a distinct category requiring a stringent approach to bail due to their serious impact on the national economy and public interest. The Court relied on the following key precedents:

• Y.S. Jagan Mohan Reddy v. CBI (2013): Economic offences involve deep-rooted conspiracies and huge public loss, necessitating serious judicial scrutiny and consideration of factors such as nature of accusations, evidence, severity of punishment, character of accused, risk of tampering with witnesses, and larger public interest.
• Ram Narain Poply v. CBI (2003): Economic offenders who damage the state's economy must be brought to book; economic offences are deliberate and calculated, unlike crimes of passion, and failure to prosecute them undermines public trust in the justice system.
• State of Gujarat v. Mohanlal Jitmalji Porwal (1987): Reiterated the community's interest in prosecuting economic offenders and the need for even-handed justice without leniency towards white-collar crimes.

The Court also referred to recent decisions of the Rajasthan High Court, including Anil Kumar v. Union of India and Smt. Amal Mubarak Salim Al Reiyami v. Union of India, which underscore the adverse effect of economic offences on the national economy and the necessity to consider national interest in bail applications.

Applying these principles, the Court found the offence committed by the applicant/accused to be grave, well-planned, and involving large-scale tax evasion, thus justifying denial of bail.

4. Arguments Regarding Deposit by Kanak CCR Limited and Separate Investigations

The defense contended that the ultimate beneficiary firm Kanak CCR Limited had deposited Rs. 10 crore towards tax liabilities on behalf of supplier firms, including the accused's firm, which should mitigate the accused's liability.

The Court clarified that such deposit relates to the firm's own liabilities and does not absolve the accused of the charges involving over Rs. 55 crore of fraudulent ITC. Additionally, the Court noted that the present case is distinct from other investigations by DGGI Gurugram and that the accused's case arose from a separate investigation now transferred to DGGI Jaipur.

The defense's argument that the mastermind Manoj Kumar was not arrested and thus the accused should be granted bail was not accepted as a sufficient ground for bail.

5. Consideration of Character, Evidence, and Risk Factors

The defense argued that the accused is a respectable businessman fulfilling tax obligations, with no risk of absconding, and that all witnesses are government officials with documentary and electronic evidence, negating the risk of tampering.

The Court, however, emphasized the serious nature of the offence, the large amount of tax evaded, and the deliberate, calculated modus operandi involving fake firms and invoices. It found that the gravity of the offence outweighs the accused's personal circumstances and that the investigation is still ongoing, justifying custodial detention.

Significant Holdings

The Court held:

"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."

"In such cases of wrongful/fraudulent availment or utilization of input tax credit, or in cases on issuance of invoices without supply of goods or services or both, leading to wrongful availment or utilization of input tax credit or refund of tax, provisions of Section 132 of the CGST Act may also be invokable, subject to conditions specified therein, based on facts and circumstances of each case."

Accordingly, the Court concluded that the applicant/accused's conduct constituted an offence punishable under Section 132(1)(B)(C)(i) and Section 132(5) of the CGST Act involving a large-scale economic crime. The bail application under Section 439 CrPC was dismissed, as the gravity and nature of the offence, evidence on record, and public interest precluded grant of bail.