2022 (8) TMI 1171 - DSC - GST

Seeking grant of Regular Bail - availing and utilizing wrongful input tax credit - fake firms who have availed and passed on fake input tax credit on the strength of goods-less invoices - HELD THAT - The present case is a serious economic offence under Section 132(1)(c)(e) read with Section 16(2) (b) of CGST Act, 2017. and it is required to be dealt with zero tolerance. Economic offences constituted a class apart and needed to be visited with a different approach in matter of bail. Economic offence having deep rooted conspiracies and involving huge loss of public funds needed to be viewed seriously and considered as grave offences affecting economy of Country as a whole and thereby posing serious threat to financial health of country. As such, it is required that we should take serious note of such economic offences. The Hon ble Punjab and Haryana High Court in RAKESH ARORA VERSUS STATE OF PUNJAB 2021 (2) TMI 41 - PUNJAB AND HARYANA HIGH COURT , while dealing with the regular bail of co-accused, has observed that GST was introduced with the object of One Nation, One Tax , as there is chain of sellers and purchasers, who are inter-connected, as the purchasers get the credit of the tax paid or suffered by the sellers - In the said case also, the bills were procured from the firm based at Delhi, where no purchase was made and transactions were issued by the firms, not only for availing ITCs, but for getting the refunds by showing the sales. Thus, no ground is made out to grant the bail to the accused-applicant. As such, the bail application stands dismissed.

Summary

Issues:
1. Application for regular bail filed by accused-applicant.
2. Allegations of forming a fake/bogus chain for passing on Input Tax Credit.
3. Accused-applicant's involvement in fraudulent activities.
4. Opposition to bail application based on economic offences and loss to the State Exchequer.

Analysis:
1. The judgment pertains to an application for regular bail filed by the accused-applicant, who is alleged to be involved in a scheme where a group of entities, including a company owned by the accused, formed a fake/bogus chain to pass on Input Tax Credit. The investigation revealed discrepancies in the export of goods from the company's GST portal, leading to suspicions of fraudulent activities. The accused admitted involvement during the inquiry, and further investigations uncovered non-existent businesses linked to the accused, resulting in a loss of Rs. 5,64,79,334 to the Government Exchequer under the CGST Act, 2017.

2. The defense argued that the accused-applicant is innocent and falsely implicated, with all transactions claimed to be genuine and legitimate. It was contended that the accused had proper registrations and availed Input Tax Credit lawfully, supported by documentary evidence in the custody of the authorities. The defense sought bail on the grounds of no fraudulent activities and the inability to tamper with evidence. However, the prosecution opposed the bail application, citing the accused's involvement in availing wrongful input tax credit through non-functional/non-existent firms, resulting in a significant loss to the State Exchequer.

3. The court considered the serious nature of economic offences, emphasizing the need for a zero-tolerance approach towards deep-rooted conspiracies affecting public funds. Economic offences were deemed to pose a severe threat to the country's financial health and required stringent action. Referring to precedents, the court highlighted the importance of preventing fraud in the GST system, stressing the interconnectedness of sellers and purchasers and the potential for fraud to undermine the tax structure. Ultimately, the court dismissed the bail application, emphasizing the gravity of the economic offence and the need for a strict stance against such activities to safeguard the economy.

4. Citing the observations of the Punjab and Haryana High Court in a related case, the judgment underscored the significance of maintaining the integrity of the GST system and preventing fraud that could harm the State's revenue. The court concluded that no grounds existed to grant bail to the accused-applicant, considering the seriousness of the economic offence and the potential impact on the economy. Consequently, the bail application was rejected, and the file was directed to be consigned to the record room after due compliance.