2025 (4) TMI 1369 - DSC - GST

Seeking grant of anticipatory bail - fraudulent availment and passing of Input Tax Credit (ITC) without actual supply of goods - HELD THAT - The analysis of GSTR-2A of M/s. Khwaish Enterprise revealed that more than 90 percent of the supply made by them were to M/s. AC Goel Tradelinks Pvt. Ltd. and it was also found that all supply made to M/s. Khwaish Enterprise was from M/s Sunrise Enterprises which is also a fictitious firm. Further analysis of GSTR-2A of M/s. Sunrise Enterprises revealed that top supplier of the said firm happen to be M/s. JMV Papers Private Limited. M/s. Sunrise Enterprises is the only supplier of M/s. Khwaish Enterprise who in turn has passed on fake ITC to M/s. AC Goel Tradelinks Private Ltd. whose de-facto controller is Ashwin Goel and M/s. Sunrise Enterprises has availed and utilised ITC to the tune of Rs. 8 Crore (approximately) and it is also a fictitious firm. As per investigation conducted so far M/s. JMV Papers Private Ltd. passes bills without delivery of goods to M/s. Sunrise Enterprises (which is a non-existent firm) and M/s. Sunrise Enterprises passes bills without delivery of goods to M/s. Khwaish Enterprises (which is also a non-existent firm). M/s. Khwaish Enterprises passes bills without delivery of goods to M/s AC Goel Tradelinks Private Ltd. Statement of Sh. Vikram was recorded u/s 70 of the CGST Act 2017 who is accountant of both the firms i.e. M/s. Khwaish Enterprises and M/s. Sunrise Enterprises and he has admitted in his statement that these firms only raise tax invoices/ passes bills without delivery of goods. It is a nexus/ syndicate in which all these fictitious firms/ companies are involved. Further investigation qua other firms and persons still pending. It is established from the report that cumulatively these firms have availed and utilized and passed on seemingly fake ITC to the tune of Rs. 15 crores (approximately). Despite issuance of four summons to applicant/ accused he has not joined the investigation. Conclusion - The applicant/accused is a key member of a syndicate involved in fraudulent availment and passing of fake ITC through fictitious firms causing massive loss to the exchequer. This Court is not inclined to grant anticipatory bail to applicant/ accused. Therefore present bail application stands dismissed.

Summary

Issues Presented and Considered

1. Whether anticipatory bail under Section 482 of the Code of Criminal Procedure is warranted for the applicant/accused in light of allegations of fraudulent availment and passing of Input Tax Credit (ITC) without actual supply of goods, contravening provisions of the Central Goods and Services Tax (CGST) Act, 2017.

2. Whether the applicant/accused is involved in a syndicate operating fictitious firms to generate and pass fake ITC, thereby causing substantial loss to the government exchequer.

3. Whether the applicant/accused has complied with investigation procedures, including appearance in response to summons issued under Section 70 of the CGST Act, 2017.

4. Whether the issuance of summons by CGST authorities from multiple jurisdictions violates principles of jurisdiction and amounts to harassment.

5. Whether the applicant/accused poses a flight risk, may tamper with evidence or influence witnesses, thereby justifying custodial interrogation and denial of anticipatory bail.

Issue-wise Detailed Analysis

1. Grant of Anticipatory Bail in Economic Offences under CGST Act

The legal framework for anticipatory bail applications in economic offences is guided by established precedents emphasizing the gravity of such offences. The Court relied extensively on the Supreme Court judgment in "Y. S. Jagan Mohan Reddy Vs. CBI," which underscores that economic offences involving large-scale fraud and loss to public funds must be approached with caution. The Court reiterated that factors such as the nature of accusations, severity of punishment, character of accused, risk of tampering with evidence, and public interest must be balanced when considering bail.

Similarly, the judgment in "State of Gujarat Vs. Mohanlal Jitamalji Porwal" was cited to highlight that economic offences are committed with deliberate design and have far-reaching consequences on the community and national economy, necessitating stringent judicial scrutiny.

The Court noted that the maximum punishment under the CGST Act for such offences is five years, and arrest is only warranted in exceptional circumstances where necessity is clearly established.

2. Allegations of Fraudulent ITC and Role of Applicant/Accused

The investigation revealed a complex syndicate involving multiple firms, including fictitious entities, engaged in generating and passing fake ITC. The applicant/accused is alleged to be a key member of this syndicate, owning M/s Apna Transport, which is implicated in passing ITC benefits to other firms linked to the fraud.

Searches conducted at the applicant's premises recovered incriminating documents such as cheque-books, stamps, and seals of various fictitious firms, including M/s Bhawani Traders, M/s Delhi Enterprises, M/s Maa Jagdamba Traders, and others. These firms were found to be registered in the names of the applicant's employees but operated by him to issue invoices without actual supply of goods.

The investigation traced a chain of fictitious firms: M/s JMV Papers Pvt. Ltd. allegedly passed bills without delivery to M/s Sunrise Enterprises (non-existent), which in turn passed bills to M/s Khwaish Enterprise (also fictitious), which finally passed fake ITC to M/s AC Goel Tradelinks Pvt. Ltd. The latter is controlled by Ashwin Goel, who is in judicial custody and whose statement under Section 70 of the CGST Act corroborated the fraudulent nature of these transactions.

The cumulative fake ITC involved was approximately Rs. 15 to 25 crores, indicating a large-scale and sophisticated tax evasion scheme.

3. Compliance with Investigation and Summons

The applicant/accused was issued multiple summons under Section 70 of the CGST Act to appear and tender statements as part of the investigation. Despite these summons, the applicant failed to appear, raising concerns about his willingness to cooperate with the investigation.

The applicant contended that summons issued by CGST authorities from Noida and Kanpur, based on intimation from Delhi, were without jurisdiction and amounted to harassment. However, the Court did not find merit in this contention, noting that the investigation involves multiple jurisdictions due to the widespread nature of the alleged fraud.

4. Jurisdiction and Harassment Claims

The applicant argued that issuance of summons by CGST authorities from multiple locations violated jurisdictional limits and was intended to harass him. The Court observed that the CGST Act empowers authorities to investigate across jurisdictions where offences are committed or have nexus. Given the multi-location operations of the applicant's firms and the syndicate's activities, the issuance of summons from various CGST units was justified and lawful.

5. Risk of Flight, Tampering, and Necessity of Custodial Interrogation

The applicant claimed to be a permanent resident of Delhi and not a flight risk, expressing readiness to abide by any conditions imposed by the Court. However, the Court noted that despite repeated summons, the applicant did not cooperate with the investigation, which was ongoing and at a crucial stage.

Given the recovery of incriminating documents and the complexity of the syndicate, the Court found a reasonable apprehension that the applicant could tamper with evidence or influence witnesses if released on anticipatory bail. The seriousness of the offence and potential for obstruction justified denial of anticipatory bail and the need for custodial interrogation.

6. Treatment of Competing Arguments and Precedents

The applicant relied on a prior judgment ("Tarun Jain Vs. Director General of GST Intelligence") to support the grant of anticipatory bail. The Court distinguished that case on facts, noting that the present matter involves a larger conspiracy and higher quantum of tax evasion.

The Department relied on multiple precedents emphasizing the stringent approach towards economic offences, including the need to prevent tampering with evidence and ensuring thorough investigation.

The Court balanced these arguments, giving due weight to the nature and gravity of the offence, the evidence collected, and the applicant's conduct during investigation.

Significant Holdings

"Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offence having deep rooted conspiracies and involving huge loss of public funds needs to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country."

"The entire Community is aggrieved if the economic offenders who ruin the economy of the State are not brought to books. A murder may be committed in the heat of moment upon passions being aroused. An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community."

The Court concluded that the applicant/accused is a key member of a syndicate involved in fraudulent availment and passing of fake ITC through fictitious firms, causing massive loss to the exchequer.

Despite multiple summons, the applicant's non-cooperation and failure to appear for investigation justified the denial of anticipatory bail.

Considering the gravity of allegations, the complexity and scale of the fraud, and the risk of tampering with evidence, the Court declined to grant anticipatory bail.

The application for anticipatory bail was accordingly dismissed without prejudice to the merits of the case.