2025 (6) TMI 2023 - DSC - GST

Seeking grant of Regular bail - economic offences - availment and passing on off ineligible ITC by fraudulent means - HELD THAT - The offence in the present case is affecting the public interest at large. The present case relates to economic offences. Such offence like large scale fraud. money laundering and corruption are often viewed seriously because they affect the economic fabric of the society. The Courts may deny bail in such cases especially if the accused holds a position of influence or power. The Hon ble Apex Court in the case of Y.S. Jagan Mohan Reddy v. CBI 2013 (5) TMI 896 - SUPREME COURT has held that economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offences having deep-rooted conspiracies and involving huge loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing a serious threat to the financial health of the country. The present case is a grave economic offence. The total GST evasion has so far workout amounts to Rs. 358.77 Crores. The investigation is under progress. The applicant if released on bail will definitely try to destroy the evidence and influence the witnesses and there is his high flight risk considering his role. Considering these facts as well as gravity of the offence it would not be proper to enlarge him on bail at this stage. The bail application preferred by the applicant is liable to be rejected at this stage.

Summary

The core legal questions considered in this judgment include:

1. Whether the applicant/accused is entitled to regular bail under the provisions of the Central Goods and Services Tax (CGST) Act, 2017, specifically under Sections 132(1)(b), 132(1)(c), and 132(1)(i), given the alleged involvement in a large-scale fake invoice and Input Tax Credit (ITC) fraud.

2. Whether the arrest of the applicant complied with the procedural safeguards and guidelines laid down by the Supreme Court in Arnesh Kumar v. State of Bihar and subsequent rulings, including the necessity and justification for arrest in cases involving economic offences.

3. The applicability and procedural requirements of judicial proceedings under the Bhartiya Nyay Sanhita, 2023 (BNSS), particularly in relation to the enquiry conducted under Section 70 of the CGST Act.

4. The sufficiency and reliability of the evidence against the applicant, including digital data, statements recorded under Section 70 of the CGST Act, and the nexus between the applicant and the fake firms involved in fraudulent ITC claims.

5. The balance between the presumption of innocence and the gravity of the economic offence, considering the potential for tampering with evidence, influencing witnesses, and the risk of absconding.

Issue-wise Detailed Analysis:

1. Entitlement to Bail under CGST Act Provisions:

The CGST Act, 2017, under Sections 132(1)(b), (c), and (i), criminalizes offences related to issuance of fake invoices and fraudulent availment or utilization of ITC. These are cognizable and non-bailable offences under Section 132(5) of the Act. The applicant was arrested on allegations of managing 66 fake firms involved in passing fake ITC worth Rs. 358.77 crores.

The Court examined the evidence including the statements recorded under Section 70 of the CGST Act, WhatsApp chats, digital data seized from the applicant's premises, and corroborative statements of co-accused. The applicant's own statement admitted involvement in arranging fake proprietors and firms for fake invoicing. The investigation is ongoing, and the involvement of the applicant as a mastermind was prima facie established.

The Court noted that the offences involve grave economic fraud affecting public interest and the government exchequer. The total value of the fraud is substantial, exceeding Rs. 358 crores, which places the case within the ambit of serious economic offences warranting stringent scrutiny on bail applications.

Applying the law to facts, the Court concluded that the applicant's role and the magnitude of the offence render bail inappropriate at this stage, especially given the risk of evidence tampering and flight.

2. Compliance with Arrest Guidelines under Supreme Court Jurisprudence:

The applicant contended that his arrest was in violation of the Supreme Court's directions in Arnesh Kumar v. State of Bihar and reiterated in Md. Asfak Alam v. State of Jharkhand, which require police and magistrates to record reasons before arrest and detention, and to avoid unnecessary arrests.

The Court scrutinized the order of arrest passed by the Additional Director General of DGGI under Section 69(1) of the CGST Act, which recorded specific reasons based on material collected during investigation. The Court held that the procedural safeguards mandated by the Supreme Court were complied with, negating the applicant's contention of illegal arrest.

The Court emphasized that the arrest order was supported by sufficient material and was not mechanical or casual. Thus, the principles enunciated in Arnesh Kumar (supra) were duly followed.

3. Judicial Proceedings under Bhartiya Nyay Sanhita (BNSS), 2023:

The applicant argued that statements recorded by DGGI officers did not comply with provisions of BNSS, which defines judicial proceedings and prescribes procedural safeguards against false evidence and misleading information.

The Court examined the file and found that the enquiry officer had informed the applicant that the enquiry is deemed to be a judicial proceeding under Sections 229 and 267 of BNSS, warning against fabrication of evidence. This negated the applicant's claim of procedural violation under BNSS.

Therefore, the Court rejected the contention that the enquiry was not conducted in accordance with BNSS provisions.

4. Sufficiency and Reliability of Evidence:

The prosecution relied on multiple forms of evidence: intercepted WhatsApp chats, digital data from mobile phones and laptops, statements under Section 70 of the CGST Act, and incriminating documents seized during searches at the applicant's residential and business premises.

The applicant's own statement admitted involvement in creation and management of fake firms, arranging fake directors and purchase bills, and the modus operandi of fake invoicing and cash circulation. The nexus between the applicant and co-accused Vikrant Singhal and Sachin Singhal was established through corroborative evidence.

The Court noted that the investigation revealed the use of forged identities, multiple fake firms, and a complex cash trail involving angadiyas and forex companies, indicating an organized racket. The applicant's attempt to dissociate from the firms was not accepted at this stage, as the investigation is ongoing.

5. Balancing Presumption of Innocence and Gravity of Offence:

The applicant invoked the principle that bail is the rule and jail the exception, relying on Supreme Court precedents including Sanjay Chandra v. CBI and Prabhakar Tiwari v. State of U.P., emphasizing the presumption of innocence until conviction.

The Court acknowledged these principles but highlighted that economic offences of this magnitude require a different approach, as held in Y.S. Jagan Mohan Reddy v. CBI. The Court referred to the seriousness of the offence, the quantum of fraud, and the potential impact on the economy and public interest.

Further, the Court considered the likelihood of the accused absconding, tampering with evidence, or influencing witnesses, especially given the applicant's history and the ongoing investigation.

The Court concluded that these factors outweigh the applicant's right to bail at this stage, and that incarceration is necessary to safeguard the investigation and the interests of justice.

Treatment of Competing Arguments:

The defense argued false implication, lack of reliable evidence, non-compliance with procedural safeguards, and readiness to cooperate with investigation. They also cited prior bail granted in unrelated cases and the absence of chargesheet filing.

The prosecution countered with detailed evidence of the applicant's involvement, digital and documentary proof, and the risk posed by releasing the accused. The Court found the prosecution's evidence credible and the procedural compliance satisfactory.

The Court found the defense arguments insufficient to override the gravity of the offence and the prima facie evidence against the applicant.

Significant Holdings:

"The Additional Director General DGGI has passed the order U/s 69 (1) of the CGST Act, after recording his reasons on the basis of the material collected by the investigating officer. Hence, it cannot be said that the principle enunciated by the Hon'ble Apex Court in the case of Arnesh Kumar (Supra) has not been complied."

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

"In bail applications, generally, it has been laid down from the earliest times that the object of bail is to secure the appearance of the accused person at his trial by reasonable amount of bail. The object of bail is neither punitive nor preventative. Deprivation of liberty must be considered a punishment, unless it can be required to ensure that an accused person will stand his trial when called upon."

"The present case is a grave economic offence. The total GST evasion has so far worked out amounts to Rs. 358.77 Crores. The investigation is under progress. The applicant if released on bail will definitely try to destroy the evidence and influence the witnesses and there is his high flight risk considering his role."

The Court preserved the core principles that while bail is a rule and jail an exception, serious economic offences involving large-scale fraud and ongoing investigation justify denial of bail to prevent interference with evidence and ensure the integrity of the trial process.

Accordingly, the Court dismissed the regular bail application of the applicant/accused under Sections 132(1)(b), 132(1)(c), and 132(1)(i) of the CGST Act, 2017, emphasizing the gravity of the offence, sufficiency of evidence, compliance with procedural safeguards, and the risk factors involved.