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2021 (1) TMI 100 - HC - GSTGrant of Bail - availment/utilisation of bogus input tax credit (ITC) of ₹ 2.48 crores on the strength of fake purchase invoices issued in the name of 21 fictitious entities - guilt of the accused person have not crystallized yet - HELD THAT - This Court while dealing with the contention of the counsels for the parties has taken note of the fact that in such matters the evidence is largely based on documentary evidence. Once the charge-sheet has been filed unless antecedents to the contrary can be demonstrated, the presence of the accused may not be required to take the prosecution to its logical conclusion. The object of the law in question is to act as a deterrent in blocking loopholes in an otherwise nascent law which concerns itself with the collection of revenue for the State. Section 132(1) (i)of the Act provides that in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken, exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine. Similarly, Section 132(ii) of the Act provides a punishment with imprisonment for a term which may extend to three years and with fine when the amount in question is greater than ₹ 2 crores but does not exceed ₹ 5 crores. Likewise, the punishment prescribed under Section 132 (1)(iii) for amount between one crore to two crores, the maximum imprisonment can be for a maximum period of one year. In cases where the amount is less than one crore of rupees, the same has been made compoundable. It may also be noted that the present proceedings are still at a teething stage and may, if the parties choose, be subject to the rigours of law as prescribed under the Statute i.e. assessment, appeal and revision etc. Till such time the guilt of the accused person would not have crystallized and it would difficult to pre-judge at the stage of hearing an application for bail what the ultimate punishment imposed would be. In such circumstances, keeping an accused in custody, might not ultimately achieve the ends of justice. Reliance may be placed in the case of M/S. JAYACHANDRAN ALLOYS (P) LTD. VERSUS THE SUPERINTENDENT OF GST AND CENTRAL EXCISE, THE DEPUTY COMMISSIONER OF GST AND CENTRAL EXCISE HEAD QUARTERS PREVENTIVE UNIT, THE ADDITIONAL COMMISSIONER OF GST AND CENTRAL EXCISE, THE COMMISSIONER OF GST AND CENTRAL EXCISE 2019 (5) TMI 895 - MADRAS HIGH COURT , where on similar issue it was held that When recovery is made subject to determination in an assessment, the argument of the department that punishment for the offence alleged can be imposed even prior to such assessment, is clearly incorrect and amounts to putting the cart before the horse. It is directed that the petitioner be released on bail on furnishing a bail bond with one surety for the like amount to the satisfaction of the learned trial court with the conditions imposed.
Issues Involved:
1. Validity of the arrest and detention under Section 132(1)(b)(c)(i) of OGST Act 2017. 2. Allegations of availing and passing on bogus Input Tax Credit (ITC). 3. Petitioner's contention of genuine business practices and cooperation with the investigation. 4. State's argument on misuse of GST registration and involvement with fictitious entities. 5. Legal precedents and judicial discretion in granting bail for economic offences under GST. Issue-wise Detailed Analysis: 1. Validity of the arrest and detention under Section 132(1)(b)(c)(i) of OGST Act 2017: The petition arises from an arrest memo issued by the Enforcement Unit Bhubaneswar dated 13.03.2020, under Section 132(1)(b)(c)(i) of the OGST Act 2017. The petitioner has been in custody since 12.03.2020. The court noted that the charge sheet was filed on 07.05.2020, and the petitioner’s earlier bail application was rejected. 2. Allegations of availing and passing on bogus Input Tax Credit (ITC): The CT & GST Enforcement unit alleged that the petitioner’s firm availed and utilized bogus ITC worth ?2.48 crores using fake purchase invoices from 21 fictitious entities. Additionally, the petitioner allegedly created and operated six fictitious firms to avail bogus ITC of ?34.23 crores without physical receipt of goods, passing on this ITC to recipients within and outside Odisha. 3. Petitioner's contention of genuine business practices and cooperation with the investigation: The petitioner’s counsel argued that the petitioner conducted genuine business transactions, paid due GST, and has been in custody for an extended period without further investigative progress. The petitioner is willing to cooperate with the prosecution and produce relevant audit reports. The petitioner’s past compliance and tax payments were highlighted to support the claim of genuine business practices. 4. State's argument on misuse of GST registration and involvement with fictitious entities: The State’s counsel detailed the alleged fraudulent activities, emphasizing that mere registration under the Act does not authorize misuse of the law. The petitioner allegedly received invoices and E-waybills from other accused persons, and discrepancies in financial transactions were highlighted to support the allegations of fictitious transactions and collusion with other accused. 5. Legal precedents and judicial discretion in granting bail for economic offences under GST: The court considered various precedents where bail was granted in similar economic offences, noting that evidence in such cases is primarily documentary. The court emphasized that keeping an accused in custody might not serve justice, especially when the trial could be prolonged. The court referenced cases from other High Courts and the Supreme Court, acknowledging that bail should not be categorically denied in economic offences, and each case must be assessed on its merits. The court also cited the Madras High Court’s reasoning in Jayachandran Alloys (P) Ltd. v. Superintendent of GST & C. Ex., Salem, emphasizing that punishment should follow the determination of excess credit through proper assessment procedures. Conclusion: The court directed the petitioner’s release on bail with conditions to ensure cooperation with the trial, prevention of witness tampering, and prohibition of similar offences. The petitioner was required to furnish a bail bond of ?5,00,000 with one surety and submit passports to the trial court. The court clarified that the observations were limited to the bail application and did not influence the assessment of tax liability. The bail application was disposed of with instructions for the adjudicating authority to expedite the assessment process.
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