2025 (6) TMI 110 - HC - GST

Seeking grant of regular bail - availing and passing on fraudulent Input Tax Credit - compoundable offences or not - HELD THAT - The offences alleged carry minimum punishment of 06 months and a maximum punishment of 05 years of imprisonment. Further Section 138 of the CGST Act is relevant as per which the offences under Section 132 of the Act are compoundable. Reference must also be made to P. Chidambaram vs. Directorate of Enforcement 2019 (12) TMI 186 - SUPREME COURT wherein Hon ble Supreme Court observed that even economic offences would fall under the category of grave offence and while considering the application for bail in such matters the Court has to be sensitive to the nature of the allegations made against the accused as well as the term of sentence i.e. prescribed for the offence that the accused is alleged to have committed. It was also observed that the reasonable apprehension of tampering with evidence or apprehension of threat to the complainant or the witnesses as well as character behavior and standing of the accused and the circumstances that are peculiar to the accused and the larger interest of the public should also be taken into consideration. Considering that the alleged offences are punishable with maximum punishment up to 05 years and also keeping in view that in such circumstances the further detention of the petitioners may not at all be justified since in case of this nature the evidence to be rendered by the respondent would essentially be documentary and electronic which will be through official witnesses due to which there cannot be any apprehension of tampering intimidating or influencing the witnesses and further as it appears justified to strike a fine balance between the need for further detention of the petitioner when no custodial interrogation has been claimed at all by the department this Court considers that the petitioners are entitled to be released on bail but subject to certain conditions. Conclusion - The petitions moved by both the petitioners are hereby allowed and they are ordered to be released on regular bail on their furnishing personal bonds with two sureties in the like amount each to the satisfaction of the Court concerned/Duty Magistrate subject to the fulfilment of conditions imposed. Bail application allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in these petitions are:

- Whether the petitioners are entitled to regular bail under Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023, in a case involving offences under Section 132(1)(b) of the Central Goods & Services Tax Act, 2017 (CGST Act), punishable under Section 132(1)(2) of the GST Act.

- Whether the petitioners were rightly implicated and arrested on allegations of involvement in a racket of fake invoicing and fraudulent Input Tax Credit (ITC) claims causing substantial loss to the government exchequer.

- Whether the provisions of Section 132(1) of the CGST Act have been correctly invoked against the petitioners.

- Whether the petitioners' detention violates constitutional rights under Articles 14 and 21 of the Constitution of India.

- The applicability of relevant precedents and principles governing grant of bail in economic offences, particularly offences under the CGST Act.

- The adequacy of evidence and the risk of tampering with evidence or influencing witnesses if bail is granted.

- The balance between the gravity of the offence and the rights of the accused to liberty pending trial.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Bail under Section 483 of Bharatiya Nagarik Suraksha Sanhita, 2023, for offences under Section 132(1)(b) of the CGST Act

The Court examined the statutory framework under Section 132 of the CGST Act, which penalizes offences such as issuance of invoices without supply of goods or services leading to wrongful availment or utilization of ITC. The punishment varies with the amount of tax evaded or ITC wrongly claimed, with imprisonment extending up to five years for amounts exceeding five hundred lakh rupees.

The Court noted that offences under Section 132 are compoundable under Section 138 of the CGST Act. The maximum punishment applicable to the petitioners is imprisonment up to five years.

Relevant precedents cited include the Supreme Court's rulings in Dataram Singh v. State of U.P., Sanjay Chandra v. CBI, P. Chidambaram v. Directorate of Enforcement, and Satender Kumar Antil v. CBI, which collectively emphasize that the grant of bail is the general rule and refusal is the exception. The Court reiterated the fundamental principle of presumption of innocence and that bail should not be withheld as a punishment.

The Court applied the broad parameters for grant of bail in economic offences, including prima facie evidence, nature and gravity of the charge, severity of punishment, risk of absconding, character and standing of the accused, likelihood of offence repetition, apprehension of witness tampering, and danger of thwarting justice.

Issue 2: Validity of Petitioners' Arrest and Allegations of Involvement in Fake Invoicing and Tax Evasion

The investigation revealed that the petitioners were allegedly involved in operating 65 fake or bogus firms, issuing good-less invoices along with e-way bills, and facilitating fraudulent ITC claims amounting to approximately Rs. 325 crores. The petitioners were arrested following recovery of unaccounted cash and incriminating documents from their premises.

The petitioners contended that they were falsely implicated, were neither instrumental in issuing invoices nor beneficiaries of the ITC, and that the firms issuing invoices did not belong to them. They argued that persons who benefited from the fraudulent ITC were not arrested or implicated, and their arrest violated their constitutional rights.

The respondent countered with evidence of the petitioners' active involvement, including statements admitting creation of fake firms, and financial transactions indicating participation in the racket. The respondent also argued a strong apprehension of witness tampering and interference if bail was granted.

The Court noted that the allegations are serious but also observed that the evidence to be produced would be documentary and electronic, reducing the risk of tampering or intimidation of witnesses.

Issue 3: Application of Precedents and Distinction of Cases Cited by Parties

The Court analyzed the precedents relied upon by both parties. Petitioners' cited cases where bail was granted despite serious economic offences, often due to prolonged custody, documentary nature of evidence, and the maximum sentence being five years. For instance, in Ratnambar Kaushik, Ashutosh Garg, Vipin Garg alias Bindu, Yash Goyal, and Vineet Jain, bail was granted considering these factors.

The respondent cited cases where bail was denied, but the Court distinguished those on the basis that the offences in those cases carried punishment extending to life imprisonment or where investigation was incomplete. Cases involving ongoing investigation or more severe penalties were held not analogous.

The Court emphasized that the present case involves maximum punishment of five years, compoundable offences, and a completed investigation with a filed complaint, which justified consideration for bail.

Issue 4: Constitutional and Procedural Safeguards

The petitioners argued their arrest and detention violated Articles 14 and 21 of the Constitution, highlighting absence of due process and lack of custodial interrogation needs. The Court acknowledged these contentions, noting no custodial interrogation was claimed necessary by the department, and the petitioners had no criminal antecedents or flight risk, offering to surrender passports and abide by bail conditions.

The Court balanced the need for custodial detention against the petitioners' rights and the nature of evidence, concluding that continued detention was not justified.

Issue 5: Conditions for Grant of Bail

The Court recognized the gravity of the offence but found that the petitioners were entitled to bail subject to conditions aimed at safeguarding the trial process and preventing misuse of liberty. Conditions included surrender of passports, cooperation with the trial, prohibition on tampering with evidence or influencing witnesses, restrictions on disposal of property under investigation, prohibition on further criminal activity, and furnishing of identification and contact details.

The Court clarified that breach of these conditions would justify cancellation of bail.

3. SIGNIFICANT HOLDINGS

The Court held:

"A fundamental postulate of criminal jurisprudence is the presumption of innocence, meaning thereby that a person is believed to be innocent until found guilty... the grant of bail is the general rule and putting a person in jail... is an exception."

It reaffirmed that economic offences, including those under the CGST Act, do not warrant automatic denial of bail merely due to the gravity of allegations or economic magnitude of the offence.

The Court stated:

"While considering the prayer for grant of bail in any offence, including economic offences, it is not a rule that bail should be denied in every case where the allegation is one of grave economic offences since there is not such bar created in the relevant enactment passed by the Legislature nor does the jurisprudence provide so."

Further, the Court emphasized the need to consider the nature of evidence and the absence of custodial interrogation requirements:

"...in case of this nature, the evidence to be rendered by the respondent would essentially be documentary and electronic, which will be through official witnesses, due to which, there cannot be any apprehension of tampering, intimidating or influencing the witnesses..."

The Court concluded that the petitioners were entitled to regular bail subject to stringent conditions, balancing the interests of justice and the rights of the accused.

The petitions were allowed, and the petitioners ordered released on bail with conditions including deposit of passports, cooperation in trial, non-tampering with evidence, restrictions on disposal of property, and prohibition on further criminal activity.