2025 (7) TMI 325 - HC - GST

Grant of bail - fraudulent availing of Input Tax Credit (ITC) on the basis of ineligible or non-genuine Invoices issued by entities - distinction between challenging the Bail Order on merits and cancellation of Bail - HELD THAT - The Recall of bail Order essentially on the ground that the requisite factors have not been considered and discretion to grant Bail has been exercised incorrectly. However while seeking Cancellation it is on the ground of violation of the conditions imposed while granting Bail. This distinction is succinctly brought forth in the case of Mahipal vs. Rajesh Kumar @ Polia and Anr 2019 (12) TMI 1461 - SUPREME COURT wherein the Apex Court observed that the considerations that guide the power of an Appellate Court in assessing the correctness of an order granting Bail stand on a different footing from an assessment of an application for the cancellation of Bail. The correctness of an order granting Bail is tested on the anvil of whether there was an improper or arbitrary exercise of the discretion in the grant of bail. The test is whether the order granting Bail is perverse illegal or unjustified. The circumstances and consideration of both is therefore distinct and must not be confused when the Bail Order is sought to be recalled. The present case is of the former category wherein Bail granted vide Order dated 17.10.2020 is sought to be recalled on the ground of the discretion having been erroneously exercised in favour of the Respondent - In the present case it cannot be overlooked that the evidence is essentially documentary/electronic and there is no likelihood of the same being tampered by the Respondent after having been admitted to Bail. There is nothing to show that he is a flight Risk or there is any likelihood of his influencing the witnesses or tampering the evidence. The legal position is well-established that once Bail has been granted through a well-reasoned Order it cannot be revoked lightly or without substantial new evidence against the accused. The Petitioner has failed to demonstrate any cogent and overwhelming circumstances as mandated for Bail cancellation - Furthermore it cannot be ignored that the Bail was granted vide Order dated 17.10.2020 and there is no averment of any misuse or abuse of the liberty of Bail as granted to the Respondent. There is no ground which is existing to show that the discretion of grant of Bail has not been exercised judiciously by the learned CMM or that there is any misuse or abuse of liberty so granted by the Respondent. There is also nothing on record to show that the trial has been hampered on account of grant of Bail. There is no merit in the present Petition for recall of the Bail Order - Petition dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(a) Whether the Bail granted to the Respondent under Section 132(1)(b) and (c) of the Central Goods and Services Tax Act, 2017 (CGST Act) by the learned Chief Metropolitan Magistrate (CMM) was rightly granted or requires to be set aside;

(b) Whether the Petitioner, Directorate General of Goods and Services Tax Intelligence (DGGI), has demonstrated sufficient grounds, including the existence of a prima facie case against the Respondent, to justify recalling or cancelling the Bail;

(c) Whether the Respondent poses a risk of absconding, tampering with evidence, intimidating witnesses, or obstructing the investigation;

(d) The distinction between challenging the grant of Bail on merits and cancellation or recall of Bail after it has been granted;

(e) The applicability of medical and personal circumstances of the Respondent in the context of Bail;

(f) The adequacy and reliability of evidence against the Respondent, including the admissibility and weight of his own statements made during investigation;

(g) The relevance of delay in filing the Petition challenging the Bail Order;

(h) Whether the discretion exercised by the learned CMM in granting Bail was arbitrary, perverse, or unjustified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Validity of Bail Grant and Sufficiency of Grounds for Recall

The legal framework governing Bail under the Cr.P.C. and CGST Act was examined, with particular reference to the principles laid down by the Supreme Court in various precedents. The Court emphasized the distinction between the exercise of discretion in granting Bail and the grounds necessary for cancellation or recall of Bail, citing authoritative rulings such as Mahipal vs. Rajesh Kumar @ Polia and Anr (2020) and Deepak Yadav vs. State of U.P. (2022).

The Court noted that an order granting Bail can only be set aside if it is shown to be perverse, illegal, or unjustified, and cancellation of Bail requires "very cogent and overwhelming circumstances." The Petitioner failed to produce any new evidence or circumstances that would meet this high threshold.

The Court highlighted that the Bail was granted after the Respondent had already undergone 28 days of judicial custody and that no further custodial interrogation was deemed necessary by the learned CMM. The Petitioner's challenge was primarily based on the assertion that the Respondent was involved in a large-scale GST fraud and that Bail should not have been granted without establishing a prima facie case or considering the risk of obstruction.

However, the Court found that the Petitioner did not demonstrate that the discretion exercised was improper or that the Bail order was unjustified. The Court further observed that the Bail Order was reasoned and that the Petitioner's challenge was essentially a re-examination of the merits, which is impermissible in this context.

Issue (c): Risk of Absconding, Tampering Evidence, and Witness Intimidation

The Petitioner contended that the Respondent, being an influential person with financial resources, could obstruct the investigation or tamper with evidence. The Court considered the nature of the evidence involved, which was largely documentary and electronic, diminishing the likelihood of tampering post-Bail.

The Court also noted the absence of any material on record indicating that the Respondent had violated Bail conditions or attempted to influence witnesses. The learned CMM's observations that there was no likelihood of the Respondent absconding or interfering with the investigation were accorded due weight.

Issue (d): Distinction Between Challenging Bail Grant and Cancellation

The Court underscored the well-established distinction between a challenge to the grant of Bail on merits and an application for cancellation of Bail. It reiterated that cancellation is a more stringent remedy requiring supervening circumstances or violation of Bail conditions, whereas a challenge to the grant of Bail involves scrutiny of the correctness of the original discretionary order.

This principle was drawn from the decisions in Mahipal vs. Rajesh Kumar and State (Delhi Administration) vs. Sanjay Gandhi (1978), emphasizing that Bail once granted should not be cancelled mechanically or without cogent reasons.

Issue (e): Medical and Personal Circumstances of the Respondent

The Respondent's advanced age and health conditions, including a history of bypass surgery, diabetes, high blood pressure, and the serious illness of his wife, were presented as mitigating factors against incarceration. The Court recognized these factors as relevant considerations in the exercise of judicial discretion for Bail, particularly in the context of the ongoing COVID-19 pandemic and associated risks.

These personal circumstances were not disputed by the Petitioner but were used to argue against the necessity of custodial detention.

Issue (f): Admissibility and Weight of Respondent's Statements

The Petitioner relied on the Respondent's statement dated 21.09.2020 admitting control and management of the company involved in the alleged fraud. The Court acknowledged the admissibility and reliability of such statements made to investigating officers, referencing the precedent of Commissioner of Central Excise, Mumbai vs. Kalvert Foods India Ltd. (2011), which held that statements made voluntarily and without coercion are reliable evidence.

However, the Court noted that the existence of a prima facie case, while relevant to Bail considerations, does not automatically preclude the grant of Bail, especially when balanced against other factors such as the nature of evidence and risk of interference.

Issue (g): Delay in Filing Petition Challenging Bail

The Court observed that the Petition challenging the Bail Order was filed almost one year after the grant of Bail, without any explanation for the delay. This delay was considered significant, as it undermined the urgency and cogency of the grounds for recall.

Issue (h): Exercise of Discretion by Learned CMM

The Court examined the reasoning of the learned CMM in granting Bail, which included consideration of the Respondent's health, the nature of evidence, the period of custody already undergone, and the absence of necessity for further custodial interrogation.

The Court found that the discretion was exercised judiciously and in accordance with law, and that the Petitioner failed to establish any error or arbitrariness in the Bail Order.

3. SIGNIFICANT HOLDINGS

The Court held that:

"The correctness of an order granting Bail is tested on the anvil of whether there was an improper or arbitrary exercise of the discretion in the grant of bail. The test is whether the order granting Bail is perverse, illegal or unjustified."

"Cancellation of Bail must be on very cogent and overwhelming circumstances."

"There is nothing to show that he is a flight Risk or there is any likelihood of his influencing the witnesses or tampering the evidence."

"Once Bail has been granted through a well-reasoned Order, it cannot be revoked lightly or without substantial new evidence against the accused."

"The distinction between challenging the Bail Order on merits and cancellation of Bail is significant and must not be confused."

"The Respondent's medical and personal circumstances are relevant and have been rightly considered by the learned CMM in the exercise of discretion."

"The delay of nearly one year in filing the Petition challenging Bail undermines the cogency of the grounds for recall."

Accordingly, the Court dismissed the Petition seeking recall of the Bail Order dated 17.10.2020, holding that the Bail was rightly granted and there were no grounds to interfere with the discretion exercised by the learned CMM.