2020 (12) TMI 1309 - HC - GST

Seeking grant of bail - Input tax credit - issuance of fake invoices - Section 132 (1)(b)(c) of the Central Goods and Services Act, 2017 - HELD THAT - It appears that the investigation is in progress and the allegations are about substantial evasion of tax to the extent of ₹ 541 Crores by availing Input Tax Credit without actual trading / movement of goods which is an offence under Section 132 of the CGST Act. A perusal of the order passed by the learned Magistrate would prima facie indicate that what has principally weighed with the learned Magistrate was that the applicant had given an undertaking seeking permission to compound the offence before the Commissioner, on payment of the tax amount as per rules. The learned Magistrate has observed that even though the offence leveled against the applicant is serious in nature, no purpose would be served by keeping him behind bars, that too when he is willing to pay the evaded amount and compound the offence . In the opinion of the learned Magistrate sitting behind bars, he (the applicant) might not be able to pay the evaded amount. Prima facie, it appears that the investigation being under progress, the exact amount evaded is not yet ascertained. Matter remanded to the learned Magistrate and therefore it is neither necessary nor appropriate to appreciate the material in details or to record any final conclusion lest it would prejudice either the applicant or the prosecution before the learned Magistrate - application dismissed.

Issues Involved:
1. Legality of the bail granted by the Judicial Magistrate.
2. The applicant's willingness to compound the offence.
3. The necessity of the applicant's detention during the investigation.
4. The adequacy of the amount deposited by the applicant to show bonafides.
5. The procedural correctness of the Sessions Judge's order to cancel the bail and remit the matter back to the Magistrate.

Detailed Analysis:

1. Legality of the Bail Granted by the Judicial Magistrate:
The applicant, a director of M/s. Germanium Trading Pvt. Ltd., was arrested for alleged involvement in "Circular Trading" and issuance of fake invoices to avail Input Tax Credit (ITC) fraudulently, which is an offence under Section 132(1)(b)(c) of the Central Goods and Services Act, 2017. The Judicial Magistrate, considering the applicant's willingness to compound the offence and the seizure of relevant documents, granted bail on 25/9/2020. However, the Sessions Judge later found that the bail was granted primarily based on the applicant's undertaking to compound the offence, which was premature as the exact amount of tax evasion was not yet ascertained and no formal application for compounding was made. The Sessions Judge thus set aside the Magistrate's order and remitted the matter for fresh consideration.

2. The Applicant's Willingness to Compound the Offence:
The applicant showed willingness to compound the offence under Section 138 of the CGST Act and deposited ?25 Lakhs to demonstrate bonafides. However, the Sessions Judge noted that compounding requires payment of the tax amount, interest, and penalty, which had not been determined due to the ongoing investigation. The Judge found that mere willingness without actual payment could not be a basis for granting bail.

3. The Necessity of the Applicant's Detention During the Investigation:
The prosecution argued that the applicant was a habitual offender involved in substantial tax evasion amounting to ?541 Crores through bogus invoices, constituting a serious economic offence. The Judicial Magistrate initially found no necessity for further detention as the relevant documents were already seized. However, the Sessions Judge emphasized that the investigation was still in progress, and the exact amount of evasion was yet to be determined, necessitating the applicant's continued detention.

4. The Adequacy of the Amount Deposited by the Applicant to Show Bonafides:
The applicant deposited ?25 Lakhs to show bonafides, but the prosecution contended that this amount was insufficient compared to the alleged evasion of ?541 Crores. The Sessions Judge agreed, finding the deposit inadequate and the claim for compounding premature, thereby justifying the cancellation of bail.

5. Procedural Correctness of the Sessions Judge's Order:
The Sessions Judge's order to cancel the bail and remit the matter back to the Magistrate was challenged by the applicant. The applicant argued that bail should not be lightly cancelled unless there are compelling circumstances, such as arbitrary grant or misuse of liberty. The Sessions Judge, however, found that the Magistrate's order was primarily based on an undertaking for compounding, which was premature. The High Court upheld the Sessions Judge's decision, emphasizing that the applicant must surrender as a necessary consequence of bail cancellation and directed the Magistrate to expedite the hearing of the bail application afresh.

Conclusion:
The High Court dismissed the applicant's challenge, finding no reason to interfere with the Sessions Judge's order. The applicant was granted an extension of two weeks to surrender and instructed not to leave Mumbai City without informing the Investigating Officer. The Magistrate was directed to decide the bail application on its merits within two weeks of the applicant's surrender, without being influenced by prior observations.

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