GST Evasion: Sessions Judge, Karnal Grants Regular Bail to Person alleged of wrongfully claiming ITC to the tune of ₹ 24 Crore

[Sandeep Goyal]

An arrest of a resident of Karnal was made on 09.01.2021 under Section 69(1) of the GST Act in connection with the offence punishable U/s 132 of the Act primarily on the ground that his firm has received invoices without supply of goods involving ITC amounting to ₹ 24.25 crores. The bail application filed by the applicant before the Chief Judicial Magistrate, Karnal was rejected on 18.01.2021.

Thereafter, the applicant filed a subsequent bail application under Section 439 of Criminal Procedure Code before Sessions Judge, Karnal. Sh. Sandeep Goyal & Sh. Avneet Singh counsels of the applicant during the course of arguments submitted that the firm of the applicant is involved in execution of Govt. contract and every single penny of receipt is being accounted for. It was further submitted that the department drew a wrong panchnama on which signatures of the applicant and fake panchas were obtained with a sole motive of showing that documents pertaining to M/s Dholagiri Enterprises were recovered during search. After insisting by the applicant that the contents of panchnama are wrong, the department drew a fresh panchnama. Moreover, the applicant was threatened that he would be arrested and would be implicated in such a manner that he will not be able to get bail and under this manner the applicant was coerced to deposit ₹ 2.30 crore. It was also submitted that there was no reason with the commissioner to order arrest of taxable person which violates section 69 of the Act.

On the other hand, the application was opposed by Sh. Sourabh Goel Counsel for the department submitting that the investigation is under progress. There are numerous firms which are engaged in passing on fake ITC on the strength of fraudulent invoices without actual supply of goods to M/s Dholagiri Enterprises (Proprietorship).

The Court observed that to authorize arrest, there had to be credible material to show that the applicant had wrongly availed or utilised or taken ITC of more than 5 Crores. In the present case there was no figure as how the department has ascertained the figure of 24.25 Crores. The court observed that the deponent has failed to establish the possession of credible information on the date of arrest which would justify the tax evasion exceeding ₹ 5 crore. On the hand it has been established that the alleged ITC was never availed by the applicant as the seller had not even filed his return for the period in question.  

The Court further observed that while authorizing arrest of the applicant, there was no credible material with the Commissioner to form a reasonable belief that the applicant had wrongfully/fraudulently availed ITC of more than 5 crore. Moreover there was nothing to suspect that the applicant was a fly by night operator, who would vanish if not arrested immediately. Therefore, his arrest may not be justifiable. The applicant is in custody since 9.01.2021 and, he has already paid Approx. 2 Crores which is 10% of disputed liability.

The Court allowed the application and ordered that the applicant be released on bail. The Court has directed that the application is admitted to bail on his furnishing personal bond in the sum of ₹ 5 lakhs with one surety in the like amount to the satisfaction of Ilaqua/Duty Magistrate and the applicant shall not leave India without prior permission of the Court and shall surrender his passport while furnishing bond.