2020 (12) TMI 1308 - DSC - GST

Seeking grant of bail - creation of fake firms to claim Input Tax Credit - Section 132(1)(b) and (c) of Central Goods and Service Tax Act 2017 - HELD THAT - The Ld. Trial Court based its conclusion on the aspect of compounding the offence as per Sec. 138 of the GST Act. It is also noted accused shall deposit some amount before appropriate authority to show readiness and willingness to compound the offence. It is also taken into considerations accused has given undertaking and approach before the Trial Court seeking permission to compound the offence before commissioner on payment of Tax as per rules. It is further observed when accused is willing to pay the evaded amount and compound the offence no purpose will be served by keeping him behind the bar. It is worth to be noted the offence as alleged is an economic offence whereby the applicant since July 2017 till the date has been evading the Tax as alleged by receiving and issuing the bogus bills and invoices without actual sale or transportation of Goods. Total amount of evasion is 541 Crores. There is also an allegation as to creating fake firms to claim Input Tax Credit. There are 9 bogus firms as shown created and had issued fake invoices. In the present case in hand the main allegations of the department against the accused is that they are guilty of circular trading by claiming fake invoices on the materials never purchased and passing on input tax credit to companies to whom they never sold any goods. There are allegations as to fake companies were also formed to execute smooth illegal trading. The department has estimated that the fake GST invoices were issued to the total value of about 541 Crores - It is settled law supervening circumstances for the cancellation of bail must be of such a nature as to lead to the conclusion that the accused does not deserve to be at liberty either by reason of a violation of the conditions of bail or due to supervening conduct which bears upon the misuse of the liberty by the accused. Application allowed in part.

Summary

Issues Involved:
1. Maintainability of the application for cancellation of bail.
2. Grounds for cancellation of bail.
3. Legality and correctness of the trial court’s order granting bail.

Issue-wise Detailed Analysis:

1. Maintainability of the Application for Cancellation of Bail:
The respondent's counsel contended that the application for cancellation of bail was not maintainable, arguing that an appeal should have been filed instead. However, the applicant's counsel submitted that the application was filed under Section 439(2) of the Cr.P.C., which allows an aggrieved party to approach a higher court to set aside an order for cancellation of bail. The court concluded that the application was maintainable on the grounds presented.

2. Grounds for Cancellation of Bail:
The applicant argued that the trial court did not provide reasons while granting bail, making the order perverse and arbitrary. It was also submitted that the respondent misused his liberty by not cooperating with the investigation. The respondent's counsel countered that the bail was granted after a correct appreciation of the law and that the respondent had been cooperating with the investigation, including depositing ?25 Lakhs as part payment of the GST amount. The court noted that one of the grounds for cancellation of bail is when a perverse order is passed in a serious crime without giving any reason, which is against the principles of law.

3. Legality and Correctness of the Trial Court’s Order Granting Bail:
The court examined whether the bail granted to the accused was liable to be canceled. The trial court's order was based on the accused's undertaking to compound the offense under Section 138 of the GST Act. However, the court noted that the trial court overlooked the seriousness of the offense and the provisions of Section 138(2) of the CGST Act. The court emphasized that economic offenses, especially those involving large sums of money and deep-rooted conspiracies, should be viewed seriously. The trial court failed to discuss the merits and demerits of the prima facie evidence available on record and granted bail merely based on the accused's undertaking, which was deemed a grave error.

Final Judgment:
The court found that the trial court's order was perverse and arbitrary, requiring correction. The impugned order dated 25/09/2020 was set aside, and the accused was directed to surrender before the trial court within two weeks. The trial court was instructed to hear the fresh bail application and decide on its merits without being influenced by the current observations. The application for cancellation of bail was partly allowed.