REGISTRATION OF ‘FIR’ NOT A CONDITION PRECEDENT FOR ARRESTING A PERSON

[Mr. M. GOVINDARAJAN]

In MR. ASHOK KUMAR S/O. SHRI. CHANDRAPAL SINGH, MRS. SHEELA W/O. SHRI. ASHOK SINGH VERSUS COMMISSIONER CGST & CENTRAL EXCISE, NAVI MUMBAI COMMISSIONERATE AND ANR. [2020 (10) TMI 570 - BOMBAY HIGH COURT] the applicants, are partners of Sheela Sales Corporation.  Applicant no.1 is husband of applicant no.2.  The applicant’s firm had availed, Input Tax Credit of ₹ 53.50 crores during the period July, 2017 to September, 2019 on invoices valued at ₹ 352.92 crores.  Upon noticing the gross irregularities committed by Sheela Sales Corporation the Department initiated preliminary enquiry wherein it was found that input tax credit  of ₹ 63.50 crores was availed by applicant’s firm on the basis of invoices said to be issued by Jai Bajrang Traders, a firm located at Uttar Pradesh.  The applicant’s firm after availing the ITC of ₹ 53.50 crores without any actual receipt of goods has also passed on the said input tax credit of ₹ 53.50 crores to six firms that are closely held entities of Sheela Sales Corporation, in as much as proprietor or partner or a Director are common and are related to each other.  The said firms have availed and passed on the said credit of ₹ 63.50 crores to 360 other firms located in various parts of the country.

During the course of investigation, seven summons were issued to applicant no.1 and four to applicant no.2.  However, the applicant no.1 responded only to two summonses dated 25^th  November, 2019 and 17^th  January, 2020. The applicant no.2 did not respond to the summons, at all.  The Director of Sheela Sales Private Limited was also summoned for recording the statement. However, he also did not honor the summons dated 20^th January, 2020.   The applicant no.1 in his statement dated 9^th  December, 2019 and 20^th  January, 2020 admitted that none of his firms had received goods from Bajrang Traders on which invoices they have availed input tax credit  of ₹ 53.63 crores and that none of his firms has made payment to Jai Bajrang Traders.

Apprehending the arrest on accusation of having committed a non-bailable offence in terms of Section 132(1)(b) and (c) read with Section 132(5) of the Central Goods and Services Tax Act, 2017 the applicants are seeking directions under Section 438 of the Criminal Procedure Code, that in the event of their arrest they shall be released on bail.

The applicant No. 1 contended that the applicant no.2 (his wife) being dormant partner, does not participate in the business of the firm at all.

The Revenue submitted the following before the High Court-

• GSTR-3B returns were filed belatedly, in as much as,

• GSTR-3B for the months, July, 2017 to January, 2018 were filed in October, 2018;
• GSTR –3B for the months March, 2018 to October, 2018 were filed in April, 2019;
• GSTR-3B for the months November, 2018 to July, 2019 were filed in November, 2019; and
• GSTR-3B for the months of August, 2019 to November, 2019 were filed in December, 2019.

• Section 16(2) of CGST Act,  provides that the recipient has to make payment to the supplier of goods within 180 days of issue of invoice, and if he fails to make payment, then an amount equal to Input Tax Credit availed by the recipient shall be added to the tax liability.
• As per Section 37(1) read with Rule 59 of CGST Rule, every supplier has to furnish details of outward supply of goods in Form GSTR-1. On the basis of GSTR-1 filed by the supplier, Form GSTR-2A is auto populated at the end of the recipient, wherein all details of inward supplies are captured.
• During the course of preliminary investigation, though efforts were made to generate GSTR-2A of the applicant’s firm from GSTN Portal, the same could not be generated.
• The applicant’s firm, namely Sheela Sales Corporation had not only availed fraudulent input tax credit of ₹ 63.50 crores during the period July, 2017 to September, 2019 without any actual receipt of goods but also passed on the same to six firms out of which five firms are closely held entities of their firm.
• The applicants are guilty of circular trading by claiming Input Tax Credit on the materials never purchased and passing on such Input Tax Credit to companies to whom they never sold any goods.
• It is in contravention of Section 132(1)(b) and (c) is a cognizable and non-bailable offence under Section 132(5) and punishable with imprisonment for a term which may extend to five years and with a fine under Section 142(1)(i) of the CGST Act.

The petitioner submitted the following before the High Court-

• The prosecution cannot be launched without assessment and therefore there is no question of arrest.
• Even otherwise, the applicants have filed GSTR-3B, returns though belatedly and therefore unless and until returns are scrutinized and the liability is determined, a prosecution cannot be launched.
• Once returns are filed, at the highest, the respondents while assessing, are entitled to impose penalty.
• In absence of First Information Report (FIR), respondents cannot arrest the applicants.
• The applicants are in possession of all relevant invoices (running into 2000 pages) and transport bills which the applicants are ready and willing to submit to the respondent no.1 and therefore till these bills are verified, applicants be granted protection from arrest.
• The parties from whom the applicants have purchased the material had from time to time received OTP in respect of the transactions made and it is only through OTP, the transactions were done.

The High Court observed that Jai Bajrang Traders have filed FIR against the applicants with police at Gyanpur, Uttar Pradesh on 29th January, 2020 alleging therein that the present applicants have taken charge of their firm and forged the invoices in their favor.   The applicants contended that the police after investigation, found the allegation made by Jai Bajrang Traders were false on the face of it.   However, no such report, exonerating the applicants has been filed by the applicants.  It is one circumstance against the applicants, which requires investigation.

The High Court perused the note sheets in the file and the statement recorded by the applicant No. 1.  The same  prima-facie suggest, applicants’ involvement in availing fake input tax credit without movement of goods on forged invoices ₹ 63.50 crores in breach of provisions of Section 16 of CGST Act, which is cognizable offence under Section under Section 132(1)(b)(c) read with Section 132(5) of the CGST Act.

Then the High Court analyzed the provisions relating to E-way Bill.  The applicants have failed to produce E-way Bill Number  particulars, transporter’s details, proof of receipt of goods either by himself or his agent or warehouse keeper and payment proof either by himself or by agent or otherwise.  The High Court observed that the applicants have not retracted the statements.  The contention of the Department is well founded and deserves consideration.  The High Court further observed that the applicants instead cooperating with the ongoing investigation by submitting relevant documents and making themselves available for recording the statements filed an anticipatory bail application before the District and Sessions Court, Thane and thereafter before the High Court.

The High Court then considered the contentions of the applicants that unless returns GSTR-3B are verified and liability is determined, prosecution cannot be lodged.  Chapter-XIX of the CGST Act, spells out offences committed by the registered person and penalties to be imposed; whereas, Chapter-XII lists out, modes of “assessments”.   Upon reading the provisions contained in Chapter-XIX, it may be stated that scheme of the Act, does not make provisions of Section 122 to 138 applicable, subject to “assessment”. Both the Chapters, i.e. Chapter XIX and Chapter-XII are distinct and application of the provisions there under are distinct and not subject to each other. If argument of applicants is accepted, it will turn the provisions of the prosecution nugatory. Therefore, this contention is also rejected by the High Court.

The High Court held that registration of FIR is a condition precedent for arresting the person, also deserves no consideration.  The High Court analyzed the provisions of section 69 of the CGST Act.  This section empowers Commissioner to order and authorize to arrest a person if he has “reason to believe” that person has committed any offence specified in Clause (a) or Clause (b) or Clause (c) or Clause (d) of sub-section (1) of section 132 which is punishable under Clause (i) or (ii) of sub-section (1) or subsection (2) of the said Section.  The note sheet shows that the Commissioner has reason to believe, the applicant’s complicity in committing the offence under Clause (b) and (c) of sub-section (1) of Section 132 of the CGST Act.

For the first time, applicants in their written submissions filed before the High Court on 5^th August, 2020 submitted that they are in possession of all the relevant documents in support of ITC claim and they are ready and willing to submit the same to the Officer of respondent no.1.  The applicants had purchased material only after receiving the required OTP of transaction.  The High Court considered these two aspects as afterthought since they did not produce the said documents and information during the course of investigation.  Moreover, applicants did not produce invoice and transport receipts. On the backdrop of these facts, invoice and transport bills produced at the eleventh hour, is nothing but an attempt to prolong the proceedings, so that interim pre arrest protection granted by this Court would continue to operate till the bills are verified.

The High Court perused the note submitted by the Department which states-

• Lorry receipts – verification of which revealed that many of the Vehicle Nos. is bogus. In many cases, it is found that the vehicle registration date is later than the Lorry receipts date.
• Bank account statements of the firms which are close relations with the applicants – a perusal of the same reveals that no payment has been made to Jay Bajrang Traders.
• Form 3GB for F.Y. 2017-18 and 2019- 20 which has been prepared on 24.12.2019 and 30.10.2019 respectively i.e. after initiation of investigation.
• The Chartered Accountant has observed that ‘the books of accounts have not been produced for verification. Audit has been carried out on the basis of information and documents before us.’

The High Court observed that though the officers under the CGST Act cannot seek custody of the arrested persons for completing the investigation, respondent’s contention that applicant’s detention in custody is necessary to prevent him from causing the evidence of the offence to disappear or tampering such evidence is well founded.  Therefore the High Court did not incline to exercise discretion under Section 439 of the Criminal Procedure Code in favor of applicant no.1 and the same is rejected.  Considering the fact that the applicant No. 2 is the wife of the first applicant and she is a dormant and sleeping partner not involving in the activities of the firm, pre arrest bail is granted to her subject to conditions that in the event of her arrest, she shall be released on bail on furnishing bond in the sum of ₹ 50000/- with one or more sureties in the like amount.  She shall respond to the notices/summons issued by the Department.