Bail can be granted to an accused of furnishing purchases from fake suppliers if trial is prolonged

[CA Bimal Jain]

The Hon’ble Punjab and Haryana High Court in the case of VISHAL CHAUHAN VERSUS HARYANA STATE GST (INTELLIGENCE UNIT) THROUGH EXCISE TAXATION OFFICER-CUM-PROPER OFFICER, ROHTAK - 2024 (8) TMI 1095 - PUNJAB & HARYANA HIGH COURT granted bail to the Assessee, where the Assessee was arrested for wrongful availment of Input Tax Credit (“ITC”) by showing purchases from non-existent or fraudulent suppliers, was granted regular bail as trial was likely to be prolonged, the  Show Cause Notice (“SCN”) under Section 74(1) was yet to be adjudicated, and Assessee had no prior criminal record, and there was no risk of flying away, as the  Assessee was willing to surrender his passport.

Facts:

Mr. Vishal Chauhan (“the Petitioner”) was proprietor of M/s Jai Shree Balaji Traders engaged in the business of iron scrap/ferrous scrap. On examination of GST returns, it was found that the firm had shown inward supplies of iron scrap/purchases from various suspicious dealers/tax payers of the State of Delhi, who had been availing ITC and was discharging its GST liability mainly through utilization of credit ledger by discharging less than 1% of its liability through cash ledger.

Consequently, inspection/search proceedings were carried out in the business premises of the firm of the Petitioner, and it was found that no business was in fact being carried out at the given address. The additional place of business of his firm, as disclosed by the Petitioner, was also checked and documents kept therein were taken into possession. Reports were sought from the jurisdictional authority of the State of Delhi, as per which, all the 29 firms shown as suppliers of the firm of the Petitioner were either non-existent or were non-functional or were carrying out no business activity or were involved in fraudulent activities and none of those firms was registered for dealing in the business of iron scrap. It was revealed that the firm of the Petitioner had availed and utilized wrongful ITC worth Rs. 12,48,60,671/-.

The Petitioner, on April 12, 2023, had transferred an amount of Rs. 75,00,000/- to one unknown bank account, which was not related to any purported supplier of the firm. Summons were issued against the Petitioner.

Consequently, the Petitioner was arrested on orders passed by Commissioner of State Tax. The Petitioner sought regular bail under Section 439 of The Code of Criminal Procedure, 1974 (“Cr.P.C.”) in relation to Criminal Complaint under section 132 of CGST Act, 2017. Hence, writ petition was filed by the Petitioner.

Issue:

Whether bail should be granted to accused of showing purchases from fraudulent suppliers?

Held:

The Hon’ble Punjab and Haryana High Court in VISHAL CHAUHAN VERSUS HARYANA STATE GST (INTELLIGENCE UNIT) THROUGH EXCISE TAXATION OFFICER-CUM-PROPER OFFICER, ROHTAK - 2024 (8) TMI 1095 - PUNJAB & HARYANA HIGH COURT held as under:

• Noted that, the Petitioner was in custody since February 20, 2024. He had no criminal antecedents, had a permanent abode. There was no likelihood of the Petitioner's fleeing from the country. He was also ready to surrender his passport. SCN issued under Section 74(1) of the CGST Act was yet to be adjudicated upon and the exact liability of the Petitioner was yet to be fixed. The sentence to be awarded in this case was directly linked with the quantum of evasion of tax and the prosecution of the Petitioner was also linked with determination of evasion of tax because if there is no evasion of tax, there can be no criminal liability. The determination of tax liability is subject to the challenge before tribunals and courts and does not fall within the realm of criminal courts. Further, in view of the fact that one M/s Tata Steels Ltd. has also been issued notice under Section 74(1) of the CGST Act jointly with the Petitioner on the allegations of being major recipient of the ITC and its liability is also to be adjudicated upon, which obviously may reduce the liability to be imposed upon the Petitioner, coupled with the fact that maximum period of punishment to be awarded under Section 132 of the CGST Act is 05 years and also in view of the ratio of law as laid down.
• Held that, the Petitioner to be released on regular bail, subject to his executing personal bonds with two solvent sureties each in the sum of Rs. 50 Lakhs to the satisfaction of the Trial Court and further subject to the condition that he will surrender his passport before the trial Court and shall not leave the country during trial without prior permission of the Court. Hence, the petition was allowed.

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