2017 (11) TMI 745 - HC - VAT and Sales Tax

Bail application - input tax credit - petitioner is alleged to have floated 40 shell companies with a view to gain illegal input tax credit under the provisions of Gujarat Value Added Tax Act - The modus operandi alleged against the petitioner is to get registered the TIN number of certain entities on monthly remuneration to be paid to them - whistle blowing mechanism - Held that - it is difficult to conclude at this stage that the petitioner accused had used the said material and there exists doubt as to whether the said material was being used by Mukesh Mehta to whom the premises were rented out by Geetaben, the owner of the premises. Therefore such recoveries prima facie do not constitute a credible information or reasonable suspicion qua the petitioner. Further except, as above, there is nothing on record to indicate that said house was possessed by the petitioner jointly with Mukesh Mehta. The respondent claims to have knowledge of dubious transaction as is evident from its affidavit. If that was so, nothing could have prevented it from coming out with incriminating material. There is also no material placed on record to substantiate the allegation about bogus billing. Not a single bogus bill is placed on record. It is not even pointed out as to how the goods or services were delivered by bogus billing. If the shell companies were said to be benefited by bogus billing, obviously, there would be exchange of bogus bill, challans or other similar documents. No such facts are substituted - It is also not pointed out as to which firms amongst the 40 shell companies were benefited by dubious billing and to what extent. Bail application is allowed and applicant is ordered to be released on bail.

Summary

Issues Involved:
1. Application for bail under Section 439 of the Code of Criminal Procedure, 1973.
2. Allegations of floating shell companies for illegal input tax credit under the Gujarat Value Added Tax Act.
3. Credibility of affidavits/statements from co-accused.
4. Allegations of false implication and whistleblower status of the petitioner.
5. Involvement and role of VAT department officials.
6. Evidence and material recovered during the investigation.
7. Financial transactions and bank account scrutiny.
8. Prima facie case and reasonable suspicion.

Detailed Analysis:

1. Application for Bail:
The petitioner filed for bail under Section 439 of the Code of Criminal Procedure, 1973, in connection with offenses under various sections of the Indian Penal Code (IPC) and the Gujarat Value Added Tax Act, 2003.

2. Allegations of Floating Shell Companies:
The petitioner was alleged to have floated 40 shell companies to gain illegal input tax credit. The modus operandi included registering TIN numbers of entities on a monthly remuneration basis. The petitioner contended that TIN numbers for 20 companies were granted after spot verification by VAT officials.

3. Credibility of Affidavits/Statements from Co-Accused:
The petitioner argued that affidavits/statements from co-accused were procured by the respondents in exchange for bail. These affidavits owned responsibility for opening various firms' accounts. The court noted that heavy reliance was placed on these affidavits by the investigator, but they did not constitute credible information or reasonable suspicion against the petitioner.

4. Allegations of False Implication and Whistleblower Status:
The petitioner claimed false implication to suppress his attempts to expose corruption in the Sales Tax Department. He had filed a Public Interest Litigation on the subject, which allegedly enraged officials. The petitioner asserted he was merely a sales tax practitioner assisting firms in filing returns and had not personally claimed any input tax credit or pocketed refund amounts.

5. Involvement and Role of VAT Department Officials:
The petitioner contended that the alleged conspiracy could not have been achieved without the involvement of VAT department officers, as registration and refunds followed mandatory statutory procedures. However, none of the VAT officials were arraigned as accused. The court found no material indicating the involvement of VAT officials.

6. Evidence and Material Recovered During Investigation:
The court examined the material recovered, including documents from a house rented by co-accused Mukesh Mehta, where the petitioner allegedly also resided. The court found it difficult to conclude that the petitioner used the material, as most documents named persons other than the petitioner. The recoveries did not constitute credible information or reasonable suspicion against the petitioner.

7. Financial Transactions and Bank Account Scrutiny:
The court noted cash entries in the petitioner's bank account but found no cogent material indicating that the cash was received as consideration for alleged acts. The court observed that normally, unaccounted money would not be deposited in a bank to avoid detection by the Income Tax Department.

8. Prima Facie Case and Reasonable Suspicion:
The court found no substantial material justifying the allegations of dubious transactions or shell companies. It noted the absence of incriminating material, bogus bills, or evidence of dubious transactions. The court concluded that the investigator's case was based on imagination rather than credible information or reasonable suspicion.

Conclusion:
The court allowed the bail application, ordering the petitioner to be released on bail with conditions, including surrendering his passport, not leaving India without permission, and marking presence at the police station once a month. The court emphasized that the trial court should not be influenced by the preliminary observations made during the bail proceedings.