2021 (10) TMI 1305 - DSC - GST

Seeking grant of regular bail - passing of fraudulent ITC to buyers by way of creating a chain of bogus firms without physical receipt and supply of goods - certain firms which are operating only on paper - offence u/s 132(1)(b) and 132(1)(c)of Central Goods and Services Tax Act and Gujarat Goods and Services Tax Act, 2017 - HELD THAT - The search was ordered to be conducted at the premises of M/s. Ronak Traders but the unit could not be located and again on 26/02/2021, search was conducted at the premises of M/s Ronak Traders and it was found that the unit is non-existing and it only exists on papers and there was no ITC in their GSTR-2A return which indicates that they had no inward supply and all the payment of GST had been made through ITC only, and accordingly panchnama dtd. 26/02/2021 was drawn and M/s. Ronak Traders passed on entire ITC of ₹ 10.36 crore to another firm namely M/s. S. K. Traders by showing entire supply to them. Therefore, search was conducted on 11/02/2021 at M/s. S. K. Traders premises also and the same was also found to be non-existing and panchnama dtd. 11/02/2021 was drawn. It is also the case of the prosecution that during the search the assessee was unable to produce any stock register / purchase invoices regarding said stock which is mandatory u/s 35 of CGST Act, 2017. Further, it appears from the affidavit of the prosecution that the investigation is still going on, hence, in these circumstances, it is not deemed fit to exercise discretionary power in favour of the present applicant-accused at this stage therefore following order is passed. The present application is hereby rejected.

Summary

Issues:
Application for regular bail under section 439 of the Criminal Procedure Code for offenses under Central Goods and Services Tax Act and Gujarat Goods and Services Tax Act - Prima facie case against the accused - Allegations of economic offense - Existence of firms operating only on paper - Passing on inadmissible input tax credit (ITC) without supplying goods - Non-cooperation during investigation - Investigation still ongoing.

Analysis:
The applicant sought regular bail under section 439 of the Criminal Procedure Code concerning offenses under the Central Goods and Services Tax Act and Gujarat Goods and Services Tax Act. The applicant, represented by Ld. Adv. Mr. V. V. Isani, claimed innocence and being falsely implicated. The applicant, engaged in trading business, was arrested and held in judicial custody. The defense argued that the applicant had no involvement in fake invoices or wrongful ITC availment, emphasizing the case as a tax dispute rather than an economic offense. The defense highlighted the applicant's cooperation during the search and lack of evidence supporting the allegations, urging for bail.

On the opposing side, the Directorate General of Goods and Services Tax Intelligence, represented by Mr. Sudhir Gupta, contended that there was a prima facie case against the accused for an economic offense of a serious nature. Referring to statutory provisions and the Supreme Court judgment, the prosecution emphasized the gravity of the offense, the presumption of culpable mental state, and the ongoing investigation as reasons to reject the bail application.

The court examined the prosecution's case involving firms operating on paper, passing on ITC without actual supply of goods, and the accused's alleged involvement in the chain of transactions. Noting the absence of stock registers and purchase invoices during the search, the court found the investigation ongoing and declined to grant bail at that stage, considering the circumstances. Consequently, the court rejected the bail application, emphasizing the need to send the matter to the trial court and authority for further proceedings.