2017 (2) TMI 467 - HC - VAT and Sales Tax

Anticipatory bail - Misuse of input tax credit - creation of the fake Firms and obtaining registration from the office of the Commissioner of Commercial Taxes on fake documents and by using registration of fake Firms - Held that - The offences charged are of the criminal breach of trust, misappropriation, cheating and forgery under the Indian Penal Code, as also under Section 85 of the VAT Tax Act. The applicant is involved in making use of fake Firms by getting the Firms registered from the Commissioner of Commercial Taxes to get the tax credit benefits and the activities of the applicant with other persons are stated to have caused loss to the public exchequer to the extent of more than 100 crores - The Court, therefore, finds that this is not the case where the Court should exercise its discretion in favour of the applicant - bail not granted - application rejected.

Summary

Issues:
Anticipatory bail application under Section 438 of the Criminal Procedure Code for offences under IPC and VAT Tax Act.

Analysis:
The applicant sought anticipatory bail for offences under Sections 406, 409, 420, 467, 468, 471, 474, and 120B of the Indian Penal Code, and under Sections 85(1)(B), (C), (E), (F), (G), 85(2)(J), 85(4), and 85(6) of the Gujarat Value Added Tax Act, 2003. The FIR alleged creation of fake firms causing a loss of over 100 crores by preparing bills in their name. The applicant claimed innocence, arguing that no benefit was derived from the alleged fake firms, and any tax discrepancies were due to nonpayment rather than intentional fraud.

During the investigation, it was revealed that the co-accused was paid by the applicant for creating fake firms and obtaining registrations. Evidence included statements and a diary detailing payments and activities related to the fake firms. The court noted allegations of substantial financial transactions through the fake firms, intending to defraud the government of VAT Tax. The prosecution contended that the offenses involved criminal breach of trust, misappropriation, cheating, and forgery under both IPC and VAT Tax Act.

The court found the allegations went beyond mere false returns or invoices, involving the creation of fake firms through forgery and misrepresentation to obtain tax benefits. The applicant's involvement in registering fake firms and engaging in transactions causing significant financial loss to the government was established. Despite the defense's argument that the offenses fell under the VAT Tax Act and were bailable, the court disagreed, asserting that the gravity of the charges warranted rejection of the anticipatory bail application. Consequently, the court dismissed the application, emphasizing the seriousness of the offenses and the public exchequer's substantial loss.