2021 (6) TMI 382 - HC - GST

Input Tax Credit - dummy and sham firms - fake and fabricated invoices without supply of any physical goods - bogus ITC availed and passed on by the petitioner in collusion with others in the name of 12 fictitious entities - HELD THAT - The accusations against the petitioner relate to the commission of economic offences which are considered grave and therefore must be viewed seriously. Offences of this nature affect the economy of the country as a whole and usually involve a deep-rooted conspiracy to cause huge loss of public funds wherein the individual would rather achieve personal gains through illicit means than act in the best interest of the society. Although this Court is cognizant of the fact that in some similar matters the accused persons have been admitted to bail, however, every case turns on the facts and circumstances of the case itself - In the instant case, the aspect of conspiracy seems to be forthcoming inasmuch as the co-accused persons have named each other an aspect which is of sanguine consequence. As the law stands, in such type of offences, while granting bail, the Court has to keep in mind, inter alia, the larger interest of the public and State. The exchange of incriminating documents relating to the non-existent firms between Smruti Ranjan Mohanty and the petitioner, the contrasting statement rendered by the petitioner and the deposition given by Smruti Ranjan Mohanty prima facie leads this Court to form an opinion that the petitioner is hand in gloves with the other accused in creation and operation of the non-existent business entities for availing and passing of bogus ITC thereby defrauding the state exchequer - the nature of supporting evidence, availability of prima facie case against the petitioner, coupled with the fact that a huge amount of public money has been misappropriated and also the fact that further investigation of the case is under progress and taking into account the apprehension of the petitioner in tampering with the evidence. Bail application dismissed.

Issues Involved:
1. Legality of the bail application under Section 439 of the Code of Criminal Procedure, 1973.
2. Alleged fraudulent business transactions and creation of fictitious firms.
3. Alleged evasion of tax and defrauding of the state exchequer.
4. Incriminating evidence and involvement of the petitioner.
5. The nature and gravity of economic offences.
6. The risk of tampering with evidence and influencing the investigation.

Issue-wise Detailed Analysis:

1. Legality of the bail application under Section 439 of the Code of Criminal Procedure, 1973:
The petitioner, currently in custody, filed a bail application under Section 439 of the Code of Criminal Procedure, 1973, in connection with 2(c) CC Case No.03 of 2020 pending in the Court of the learned Judicial Magistrate First Class (Rural), Cuttack. The petitioner is accused of offences punishable under Section 69 read with Sections 132(1)(b), 132 (1)(c), and 132(1)(i) of the Odisha Goods and Services Tax Act, 2017. A prior bail application was rejected on 25.01.2021.

2. Alleged fraudulent business transactions and creation of fictitious firms:
The petitioner allegedly engaged in numerous fraudulent business transactions through several fictitious firms, including M/s. Nayak Enterprises, M/s. Sahoo Enterprises, and others. These entities were fraudulently registered under the OGST Act, 2017, by the petitioner in collusion with others. Identity documents were misappropriated to obtain GST registration certificates to conduct fake business transactions, defrauding the state exchequer.

3. Alleged evasion of tax and defrauding of the state exchequer:
The petitioner and other accused were involved in peddling bogus input tax credit (ITC) secured through fake invoices without the supply of physical goods. This resulted in a significant loss to the state exchequer, amounting to approximately ?42.36 crores. The petitioner allegedly arranged fake purchase invoices from non-existent entities and adjusted the tax mentioned in these invoices while effecting sales without payment of tax.

4. Incriminating evidence and involvement of the petitioner:
During the investigation, several incriminating documents were seized, revealing the business transactions of the fictitious firms. The petitioner initially denied involvement but later admitted to being closely involved with another accused, Smruti Ranjan Mohanty, in some scrap-related business. The petitioner failed to explain how he possessed confidential GST information of the fictitious firms. Statements from co-accused indicated the petitioner’s role in managing accounts and sharing GST-related information of the fake entities.

5. The nature and gravity of economic offences:
Economic offences, such as those alleged, are considered grave and have serious repercussions on the country's economy. The Hon’ble Supreme Court in Nimmagadda Prasad vs. Central Bureau of Investigation (2013) 7 SCC 466 emphasized that economic offences need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole. The court must consider the nature of accusations, evidence, severity of punishment, and the larger interests of the public/state while granting bail.

6. The risk of tampering with evidence and influencing the investigation:
The State argued that the petitioner might manipulate or destroy evidence, alert other conspirators, cause further damage to the revenue, or attempt to flee. The investigation is ongoing, and inconsistent statements by the petitioner necessitate securing his presence to prevent any hindrance to the investigation. The Hon’ble Supreme Court in Adri Dharan Das v. State of W.B. (2005) 4 SCC 303 highlighted the importance of arrest in the investigation process to secure various purposes, including the discovery of material facts.

Conclusion:
Considering the nature and gravity of the accusations, the supporting evidence, the prima facie case against the petitioner, the misappropriation of a significant amount of public money, and the ongoing investigation, the court concluded that releasing the petitioner on bail would not be in the larger interest of society. Consequently, the bail application was rejected. The observations made are specific to the bail application and do not influence the trial court's proceedings.

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