2020 (8) TMI 24 - HC - GST

Bail Application - GST fraud - creation of several dummy and non-existent entities to avail bogus Input Tax Credit (ITC) - offences punishable under Section 132(1)(b)(c) and (l) of OGST Act, 2017 - period February, 2018 to October, 2019 - HELD THAT - There is no hard and fast rule regarding grant or refusal to grant bail. Each case has to be considered on the touchstone of its own generic facts and individual merits. However, the discretion of the court has to be exercised judiciously sans any element of arbitrariness. Even if the bail is the rule and jail is the exception - the basic bail jurisprudence remains unaltered, but in the instant case, the alleged GST fraud committed by the petitioner is having humongous ramification on the revenue collection by the State. At this backdrop, the possibility of the accused tampering the evidence and/or influencing/intimidating the witnesses also cannot be ruled out - Moreover, the courts cannot lose sight of the adverse impact such activities would have in the economy. It appears that a large number of cases have now emerged in different parts of the country, where such persons, with vested interests, have created a host of unscrupulous and bogus entities. These fake entities are then used for the purpose of indulging in issuances of false and fabricated invoices, without actual movement or supply of goods and services and without payment of any GST to the public exchequer, but for the purpose of claiming ITC, by defrauding the Revenue. This Court is well aware of the complications thrown in by the new GST regime and the problems posed in its implementation. It seems a countrywide cartel specializing in defrauding the GST system is operating to bring the economy to its knees. These complications created by the unscrupulous fraudsters, one would fear, could lead to arrest of innocent businessmen and traders. However, a reading of the GST code would make it abundantly clear that it is rooted with several checks and balances to ensure that the initiation of prosecution or an arrest is to be made only after following due and elaborate process - One cannot lose sight of the fact that the Governments are making their best efforts to enhance the ease of doing business, to reduce the burden on the tax payers, to make the procedures simpler with the use of new technologies. The Government officials have also been making all efforts to ensure efficient collection of tax, so that the burden on the genuine tax payers can be reduced. All these efforts cannot be permitted to be sabotaged by such criminals who prey on the public exchequer. The text book notion of tax collection needs to be overhauled by conjuring with the emerging technologies so as to get rid of practical hiccups. This Court is not inclined to release the accused Petitioner on bail at this stage - Bail application dismissed.

Summary

Issues Involved:
1. Validity of the arrest procedure under Section 41 and 41-A of Cr.P.C.
2. Jurisdiction of State authorities under OGST Act vis-à-vis Central authorities under CGST Act.
3. Merits of the bail application in light of alleged GST fraud and its economic impact.

Issue-wise Detailed Analysis:

1. Validity of the arrest procedure under Section 41 and 41-A of Cr.P.C.:
The petitioner contended that his arrest was in violation of the guidelines laid down in D.K. Basu Vs. State of West Bengal and without serving any notice under Section 41-A of Cr.P.C. The counsel argued that the arrest was made without determining the tax liability and by wrongfully calculating the ITC allegedly availed by the petitioner. The court, however, found that the GST Intelligence had collected inputs regarding the petitioner’s involvement in creating fake invoices and wrongfully availing ITC. Detailed investigations were conducted before the arrest, and the Commissioner of State Tax issued a memo to arrest the accused under Section 69 of the OGST Act. The arrest memo was duly served, and the grounds of arrest were sufficiently explained. The court concluded that due procedures were followed while arresting the petitioner, and any contrary proof could be addressed through appropriate remedies.

2. Jurisdiction of State authorities under OGST Act vis-à-vis Central authorities under CGST Act:
The petitioner argued that the proceedings were initiated by State officials despite an ongoing investigation by the Central Tax Authority, citing Section 6(ii)(b) of the CGST Act. The court found that the proceedings under the OGST Act were distinct and different from those under the CGST Act. The documents like the authorization to arrest, the arrest memo, and the prosecution report indicated that the proceedings were initiated after following due procedure concerning the fictitious firms created by the petitioner. The court rejected the petitioner’s objection regarding jurisdiction at this stage.

3. Merits of the bail application in light of alleged GST fraud and its economic impact:
The petitioner’s counsel argued that the petitioner was arrested on frivolous grounds and relied on various judgments to support the bail application. The State, however, argued that the petitioner was engaged in a complex GST fraud, and his release could encourage similar fraudsters and deter ongoing investigations. The court noted the increasing trend of GST fraud involving fake firms and the significant economic impact of such activities. It emphasized the need to curb such frauds to protect the financial health of the country. The court found that the petitioner’s involvement in the fraud was prima facie established, and his non-cooperative attitude did not warrant the exercise of discretion to grant bail. The court also considered the risk of the petitioner tampering with evidence or influencing witnesses.

In conclusion, the court dismissed the bail application, emphasizing the severity of the GST fraud and its ramifications on the revenue collection by the State. The court clarified that the observations made would not influence the trial court’s decision on the merits of the case.