2025 (6) TMI 2022 - DSC - GST

Violation of principles of natural justice - Rejection of bail application without considering the material facts - respondent department before making the formal arrest of the applicant/accused illegally detained the applicant/accused for more than 24 hours at the office of CGST - creation of web of multiple fake firms whereby accused has created facade of non-existent transaction with intention to illegally take advantage of input credit - flight risk - HELD THAT - Specific query was put in respect of summoning of accused after vacation of withdrawal of protection to accused. It was submitted that no summons were issued. Therefore there is substance in the arguments on behalf of accused that he is not flight risk. The accused is in custody from last about 57 days. It was argued on behalf of accused that in 60 days complaint is to be filed but same has not been filed till date. In this regard also on query it is submitted on behalf of Department that they are trying to file the complaint within time framed. However another submission was also made that investigation is going on. Though it was argued on behalf of State that admitting accused on bail may hamper the investigation. Yet it was not explained how the accused will hamper the investigation. It is not reported or argued that accused is involved in any other criminal case of similar kind or any kind. It implies that accused is first offender. Further in the case Vineet Jain Vs Union of India 2025 (5) TMI 925 - SC ORDER Hon ble Supreme Court has held that list of documents and list of witnesses shows that the evidence is documentary and even if there is an ocular statement has already been recorded in this regard. Complaint having been filed is primarily indicator that investigation is being complete qua applicant/accused. No purpose seems to be served by keeping applicant/accused in custody any further. The applicant/accused Liyakat is admitted in bail subject to furnishing bail bond of Rs. 2, 00, 000/- with one surety who should be family member of accused subject to fulfilment of conditions imposed - bail application allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the arrest of the applicant/accused was lawful and in compliance with statutory and constitutional safeguards, including timely production before the court and proper communication of arrest grounds.

- Whether the applicant/accused is entitled to bail despite serious allegations of involvement in a large-scale GST fraud involving creation and management of multiple fake firms and evasion of input tax credit.

- Whether there exists sufficient prima facie evidence against the applicant/accused to justify continued custody and denial of bail.

- Whether the applicant/accused poses a flight risk, threat of tampering with evidence, or influencing witnesses.

- Whether the investigation is complete or ongoing and the impact of this status on the bail application.

- Whether procedural irregularities in arrest and investigation affect the legality of detention and entitlement to bail.

2. ISSUE-WISE DETAILED ANALYSIS

Lawfulness of Arrest and Procedural Compliance

The applicant/accused challenged the legality of his arrest on multiple grounds: illegal detention beyond 24 hours before formal arrest, failure to provide arrest memo and reasons of arrest timely and directly, discrepancies in the arrest memo including timing of DIN number generation, and improper handling of jama talashi (inventory of seized items) which allegedly included the arrest memo itself prior to arrest.

The Department contended that arrest was lawful, grounds of arrest were provided at the time of arrest, and all procedures were followed within stipulated time limits. However, the Court noted several anomalies: the DIN number referenced in the arrest memo was generated after the stated time of arrest, and the jama talashi included the arrest memo before arrest was effected, which was not explained by the Department. The accused's contention that detention period should be counted from the time he was taken to the Department's office (prior to formal arrest) was also considered, raising concerns about compliance with the statutory mandate to produce an arrested person before a magistrate within 24 hours.

The Court observed that the Department failed to dispel these discrepancies and procedural irregularities, which raised questions about the strict adherence to arrest protocols mandated under the law and Supreme Court precedents governing custodial rights and safeguards.

Prima Facie Evidence and Nature of Allegations

The Department alleged that the accused was the mastermind behind a network of fake firms used to generate bogus invoices and claim fraudulent input tax credit amounting to over Rs. 17 crores, causing a loss exceeding Rs. 5 crores to the Government exchequer. Evidence included electronic data recovered from mobile phones and digital devices, statements of co-accused and third parties naming the applicant as the real beneficiary, and documentary evidence of multiple PAN and Aadhaar cards used to obtain GST registrations fraudulently.

The accused denied involvement, asserting legitimate business operations, compliance with GST regulations, and absence of any direct documentary evidence implicating him. He also highlighted that the evidence of multiple PAN and Aadhaar cards was recovered from a co-accused's phone, not his own possession. The accused further contended that the buyer cannot be penalized for supplier defaults under the CGST Act, and that he cooperated fully with the investigation, producing documents and appearing for statements repeatedly.

The Court noted that while the Department had gathered substantial documentary and electronic evidence indicating a complex fraud, the accused's cooperation and lack of prior criminal record were relevant mitigating factors. The Court acknowledged the serious nature of allegations but also recognized that the investigation was ongoing and no complaint had yet been filed, indicating incomplete proceedings.

Flight Risk, Tampering with Evidence, and Influence on Witnesses

The Department argued that the accused was a "witty criminal" and could potentially tamper with evidence or influence witnesses if released. However, the Department did not provide specific instances or evidence demonstrating such risks. The accused's counsel emphasized that the accused had appeared for investigations voluntarily, had no history of evasion, and had deep roots in society, negating any flight risk. The accused had not been charged or convicted in any similar prior offences.

The Court found no concrete material on record to establish that the accused posed a risk of absconding or interfering with the investigation. The accused's conduct of joining the investigation and lack of attempts to evade arrest supported this conclusion.

Completion Status of Investigation and Impact on Bail

The accused submitted that he had been in custody for 57 days and the investigation was complete or near completion, with the statutory 60-day period for filing a complaint approaching. The Department submitted that investigation was ongoing and that filing of complaint was being attempted within the prescribed time. The Department contended that bail at this stage might hamper investigation but failed to specify how.

The Court noted that the absence of a filed complaint and ongoing investigation weighed in favor of bail, especially since the Department did not demonstrate how the accused's release would impede the process. The Court relied on precedents holding that mere pendency of investigation is not sufficient ground to deny bail without showing specific prejudice.

Legal Framework and Precedents

The Court referred to the CGST Act, 2017, particularly sections dealing with offences under GST including fraudulent availment of input tax credit and provisions related to arrest and investigation. The Court also considered settled principles regarding bail, including the "triple test" - whether the accused is a flight risk, likely to tamper with evidence, or likely to influence witnesses.

Judgments cited by the accused, including the recent Supreme Court decision in a case involving similar GST fraud allegations, emphasized that documentary evidence and ocular statements already recorded reduce the need for custodial interrogation and that bail should not be denied merely because investigation is ongoing.

Application of Law to Facts and Treatment of Competing Arguments

The Court balanced the serious nature of allegations and prima facie evidence against the procedural irregularities in arrest and detention, the accused's cooperation, absence of prior criminal record, and lack of demonstrated flight risk or threat to investigation integrity. The Court found the accused's contentions regarding illegal detention and procedural lapses credible to an extent, especially given the unexplained anomalies in arrest documentation.

The Department's failure to provide satisfactory explanations for procedural discrepancies and to demonstrate specific risks from the accused's release weakened its opposition to bail. The accused's consistent cooperation and absence of prior convictions favored bail, as did the principle that bail is the rule and jail the exception, particularly for first-time offenders.

3. SIGNIFICANT HOLDINGS

"The DIN number can only be mentioned after it is generated and the time difference especially document reflects the generation of DIN number after the time of arrest of accused is self-speaking on the aspect of arrest."

"Once document of CGST itself says that before arresting Jamatalashi was taken, it was incumbent on Department to explain how the arrest could have been recovered from the person of accused but this remains unexplained."

"It is not reported or argued that accused is involved in any other criminal case of similar kind or any kind. It implies that accused is first offender."

"Though it was argued on behalf of State that admitting accused on bail may hamper the investigation, yet it was not explained how the accused will hamper the investigation."

"No purpose seems to be served by keeping applicant/accused in custody any further."

The Court established that procedural compliance in arrest and detention is fundamental and any anomalies or irregularities can weigh in favor of bail, especially when the accused is cooperative and not a flight risk.

The Court reaffirmed the principle that the mere pendency of investigation or serious allegations does not automatically preclude bail unless specific risks are demonstrated.

Final determination: The applicant/accused was admitted to bail on furnishing a bail bond of Rs. 2,00,000/- with one surety, subject to conditions including appearance before court and investigation officers, non-tampering with evidence or witnesses, and not leaving the country without permission.