2021 (2) TMI 437 - DSC - GST

Grant of Bail - fake invoices without supply of goods - fraudulent availment of ITC - offence punishable under Section 132 of GST Act - HELD THAT - The contention of the respondent that information is pouring in and, as of date, wrongful availment of ITC to the tune of ₹8,82,55,520/- has come to the fore, cannot be ex-post facto justification for arrest of the applicant. It will not be out of place to mention that wrongful/fraudulent availment of ITC of more than ₹5 crores has to be seen at the time of authorizing arrest. If the amount falls short, then the Commissioner has no reason to believe that a person has committed a cognizable and non-bailable offence within the meaning of Section 132 of the Act so as to justify his arrest in order to investigate further. Needless to say that in ₹5 cases where there is no cogent material to show that ITC of more than ₹5 crores has been wrongfully/ fraudulently availed, the authorities may continue with the investigation without arrest of the applicant. If, on conclusion of investigation, it is found that the amount so availed was more than ₹5 crores, complaint will be instituted under 132 (a) or (b) or (c) or (d) of sub Section 1 read with Clause (i) of sub Section 1 of Section 132 of the Act. Otherwise, complaint will be filed either under Clause (ii) or clause (iii) or clause (iv) of sub Section 1 of Section 132 of the Act but, by no stretch of imagination, can arrest of a person be justified to enable the department to collect evidence if at the time of arrest, the material fell short of indicating the availment of ITC of more than ₹5 crores. The manner in which the statement of Nitish was pleaded to have been recorded at his residence, but now it is being tried to be projected that it was recorded in the office of CGST at Kamal in response to notice under Section 7 of the CGST Act raises a serious suspicion about manipulation, so is the attempt by the authorities to surreptitiously incorporate in the panchnama that record pertaining to M/S Dholagiri Enterprises was recovered from the premises of the applicant. It will not be out of the place to mention that the statement of the applicant was recorded on 9.1.2021. He was allegedly shown the panchnama dated 8.1.2021 drawn at the registered premises of M/s Dholagiri Enterprises and was asked about invoices worth ₹133.47 crores involving ITC amounting to ₹24.28 crores approximately. It is not clear as to how and on what basis this figure of ₹133.47 crores was arrived at particularly when in his statement Nitish Kumar has simply referred to ITC amounting to ₹24.25 crores. Needless to say that the applicant acknowledged having received the invoices but never admitted availment of ITC amounting to ₹24.28 crores. He is alleged to have admitted that he wrongly availed ITC amounting to ₹4.50 crores approximately from Dholagiri Enterprises. This was all the more a reason for the commissioner not to pull the trigger by authorizing arrest of the applicant even after he had reversed an amount of ₹2.55 crores immediately. In Rakesh Arora Versus State of Punjab CRM-M 1511- 2021 on which reliance is being placed by counsel for respondent, the Hon'ble High Court did not differ with the guidelines laid down in Akhil Krishan Maggu 2019 (11) TMI 942 - PUNJAB AND HARYANA HIGH COURT , but it rejected the plea for bail of the applicant on the ground that the case was covered by illustration 6. In this case, the guidelines/illustrations at serial No.l, 2, 3 and 5 are not applicable. In so far as the guideline at serial No.4 is concerned, there is least possibility of the applicant fleeing from country given the fact that he has a large number of government contracts in his hands. Even otherwise, this aspect can be taken care of by making a condition for surrender of passport. Coming to guideline No.6, as observed, herein above, there was no direct documentary or otherwise concrete evidence available on record indicating tax evasion of more than ₹5 crores. Moreover, the applicant has established business. It is not denied that he is paying good amount of direct and indirect taxes. He is not a fly by night operator - As rightly pointed out by counsel for the respondent, the guidelines are illustrative and not exhaustive, but he has not been able to persuade the court as to apart from these guidelines/ illustrations which other grounds could be there. The court is conscious that in some aspects it has gone into merits which, at the time of deciding application for bail is not advisable, but this was necessary because the contention before the court was that the applicant was authorised to be arrested by the Commissioner without there being material to form a reasonable belief that he had committed offence punishable under Clause (i) of Sub-Section 1 of Section 132 of the Act. In view of the law laid down in Akhil Krishan Maggu (supra), the Court was required to look into the entire facts and circumstances to find out if there was credible material to justify arrest of the applicant. In Dhruv Krishan Maggu versus Union of India decided by the Hon'ble Delhi High Court on January 8, 2021 on which reliance has been placed by the respondent also, it was held that though it was not inclined to interfere with investigation at that stage and that too, in writ proceedings, but at the same time innocent persons cannot be arrested or harassed. The Hon'ble High Court went on to observe that it has no doubt that the trial court, while considering the bail or remand or cancellation of bail application, will separate the wheat from the chaff and will ensure that no innocent person, against whom baseless allegation has been made, is remanded to police judicial custody . It follows that a bail application in a case under CGST Act has to be treated differently from a bail application in oridnary matter in which merits are not to be dwelt upon. The court is of the opinion that while authorising arrest of the applicant, there was no credible material with the commissioner to form a reasonable belief that the application had wrongfully/fraudulently availed ITC of more than ₹5 crores. 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. Now that, he is in custody since 9.1.2021 and, he has already paid ₹2.55 crores which is 10 per cent of the disputed liability, he deserves bail as on the same condition the Hon'ble Supreme Court had directed no coercive action against the petitioner in C.Pradeep Versus the Commisioner of GST and Central Excise Selam and another Special leave to appeal (Crl.) No.6834/2019. The apprehension of the respondents that he will interfere in investigation by tampering with evidence or by winning over the witnesses seems to be unfounded for the reason that entire record is in the custody of department - Whatever information is to be collected from other entities will be available with them or on the portal/ in the records of the department. At this stage, no entity will be in position to manufacture or destroy record. If the department has become more active after filing reply in the Court on 29th January 2020 and has searched the premises of various suppliers of M/s Dholagiri Enterprises and the applicant has placed on record affidavits of some of those suppliers that they were forced to make statements, it cannot be said that he is so powerful as to influence the witnesses. There are always two sides of coin. The Court does not want to go into the question as to whose version is correct, but definitely this is not a case to justify further incarceration of the applicant. The application is admitted to bail on his furnishing personal bonds in the sum of ₹5 lacs with one surety in the like amount to the satisfaction of Ilaqua/Duty Magistrate. He shall not leave India without prior permission of the Court and shall surrender his passport while furnishing bonds - Application allowed.

Summary

Issues Involved:

1. Legality of the arrest under Section 69(1) of the CGST Act.
2. Justification for the formation of reasonable belief by the Commissioner.
3. Admissibility and voluntariness of statements recorded under Section 70 of the CGST Act.
4. Sufficiency of material for authorizing inspection, search, and seizure under Section 67 of the CGST Act.
5. Grounds for granting bail under Section 439 of the Code of Criminal Procedure.

Issue-wise Detailed Analysis:

1. Legality of the Arrest under Section 69(1) of the CGST Act:

The applicant was arrested on 9.1.2021 under Section 69(1) of the CGST Act for allegedly availing ITC fraudulently. The court emphasized that the Commissioner must have a reasonable belief based on credible material before authorizing an arrest. The court noted that the belief must not be based on mere suspicion, conjectures, or surmises but on logical assessment of facts. The formation of such belief is a precondition for the Commissioner to authorize an arrest, and it must be based on credible information and material.

2. Justification for the Formation of Reasonable Belief by the Commissioner:

The court scrutinized the material available at the time of the applicant's arrest. It was found that the Commissioner relied on the statement of Nitish Kumar, who claimed that M/s Dholagiri Enterprises had passed on ITC amounting to ?24.25 crores to M/s Garg and Company. However, the court observed that the Commissioner did not verify the records properly, particularly regarding the transactions with M/s JEY Oil and Bitumen Products India Pvt. Ltd., which had not filed the necessary returns. The court concluded that the Commissioner failed to form a reasonable belief based on credible material, as the amount of wrongful ITC availed was less than ?5 crores after proper verification.

3. Admissibility and Voluntariness of Statements Recorded under Section 70 of the CGST Act:

The court examined the statements of Nitish Kumar and the applicant recorded under Section 70 of the CGST Act. It was contended that Nitish Kumar's statement was manipulated, and there were discrepancies regarding where and how the statement was recorded. The court noted that the statement's admissibility and voluntariness are to be scrutinized during the trial, but at this stage, the court found significant inconsistencies that raised doubts about the statement's authenticity.

4. Sufficiency of Material for Authorizing Inspection, Search, and Seizure under Section 67 of the CGST Act:

The court analyzed the conditions under Section 67 of the CGST Act, which requires a reasonable belief for authorizing inspection, search, and seizure. It was found that the authorities had information regarding wrongful ITC availment amounting to ?6,83,20,272/-, but this included amounts related to entities that had not even filed necessary returns. The court concluded that the authorities did not verify the material properly before authorizing the arrest, inspection, search, and seizure.

5. Grounds for Granting Bail under Section 439 of the Code of Criminal Procedure:

The applicant sought bail on several grounds, including the lack of credible material to justify his arrest, his cooperation with the investigation, and the impact of his prolonged custody on government projects. The court noted that the applicant had already paid ?2.55 crores, which is 10% of the disputed liability. The court found that the applicant was not a flight risk, had no prior criminal record, and there was no concrete evidence of his direct involvement in tax evasion exceeding ?5 crores. Consequently, the court granted bail, emphasizing that the applicant's further incarceration was not justified.

Conclusion:

The court allowed the bail application, finding that there was no credible material to justify the applicant's arrest and that the Commissioner failed to form a reasonable belief based on verified facts. The applicant was granted bail on furnishing personal bonds and was required to surrender his passport. The court reiterated the importance of credible material and reasonable belief in authorizing arrests under the CGST Act.