2021 (9) TMI 936 - HC - GST

Seeking enlargement on bail - illegal input tax credit - issuance of fake invoices without supply of goods, passing the input credit illegally - HELD THAT - For deciding the application for bail, the Court generally desists from considering the merits of the matter in detail. However, as learned counsel for the applicant has raised various issues, the same are being dealt with only for the purpose of deciding the bail application. Section 69 of CGST Act empowers the Commissioner to authorize any Officer of central tax to arrest a person, if the Commissioner has reasons to believe that a person has committed any offence specified in Clause (a) or (b) or (c) or (d) of subsection (1) of Section 132. During search of the premises, number of incriminating documents were recovered which proved his involvement in G.S.T. evasion of more than 159 crores. The applicant is the mastermind of the entire fraud. The goods were sold on paper only without any actual production or supply. It is a financial fraud of more than 159 crores and if he is allowed to move around, he will manipulate the entire evidence - taking into consideration the gravity of the accusation, without expressing any opinion on the merits of the case, this Court finds that it is not a fit case for bail. Bail application dismissed.

Summary

Issues: Bail application under Sections 132(1)(B) and 132(1)(i) of the Central Goods and Services Tax Act, 2017 involving evasion of GST through fake firms.

Detailed Analysis:

1. Allegations and Investigation:
The applicant sought bail in a case involving evasion of GST under Sections 132(1)(B) and 132(1)(i) of the CGST Act. The complainant discovered significant GST evasion by the applicant through the creation and management of 47 fake firms, resulting in the passing of fake ITC amounting to approximately 159 crore. The Principal Commissioner authorized the applicant's arrest under Section 69 of the Act. Various incriminating evidences were found during the investigation, leading to the applicant's arrest and subsequent statements recorded under section 70 of the CGST Act.

2. Applicant's Contentions:
The applicant, through his counsel, argued that he was falsely implicated, being a semi-literate individual with no involvement in the alleged offences. It was contended that confessional statements made by the applicant in police custody were inadmissible as evidence. Reference was made to a Delhi High Court judgment to support the argument that punitive action under Section 132 of the CGST Act could only be initiated after due process, including the issuance of show cause notices and adjudication orders.

3. Prosecution's Case:
The prosecution contended that the applicant had admitted to creating non-existent firms and issuing fake invoices to facilitate the wrongful availing of input tax credit. Scrutiny of data revealed a total wrongful input tax credit of 159.29 crores passed through these fake firms. Physical verification confirmed the non-existence of the firms, and additional fake firms controlled by the applicant were uncovered. The prosecution asserted that the applicant was the mastermind behind the fraudulent scheme.

4. Decision on Bail Application:
The Court, while refraining from delving into the case's merits, considered the gravity of the accusations. Given the substantial amount involved in the GST evasion, the Court deemed it a non-bailable and cognizable offence under the CGST Act. The applicant was considered the mastermind of the fraud, orchestrating transactions on paper without actual goods or services. Concerns were raised regarding potential evidence tampering if the applicant was granted bail. Consequently, the bail application was rejected based on the severity of the allegations and the potential risks associated with releasing the applicant.

In conclusion, the Court denied the bail application, emphasizing the seriousness of the allegations, the substantial amount involved in the GST evasion scheme, and the applicant's perceived role as the mastermind behind the fraudulent activities.