2025 (4) TMI 1054 - HC - GST

Seeking grant of first bail - availment of fake ITC - master-mind for creating a nexus of many fake firms to pass on fake Input Tax Credit (ITC) to various recipients - HELD THAT - It appears that applicant stands accused of creation of fake firms for the purposes of availing Input Tax Credit fraudulently. The aspect of whether applicant s signatures or his being instrumental in creation of fake firms is subject matter of evidence. It is admitted between learned counsel for parties that maximum sentence in the sections imputed against applicant is being only five years applicant is under incarceration since 14.11.2024. It is evident that investigation has already concluded. Conclusion - Considering the aforesaid facts and circumstances that as yet trial has not yet commenced after conclusion of investigation and maximum sentence being only a five years with the aspect of applicant s involvement in creation of fake firms being subject matter of evidence prima facie this Court finds the applicant is entitled to be released on bail in this case. The applicant is granted bail subject to fulfilment of conditions imposed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this bail application are:

• Whether the applicant, accused under Sections 132(1)(b) and (c) of the Central Goods and Services Tax (CGST) Act, 2017, for allegedly masterminding the creation of fake firms to fraudulently avail Input Tax Credit (ITC), is entitled to bail pending trial.
• The applicability and interpretation of the principles governing grant of bail in cases involving economic offences, particularly under the CGST Act, and the extent to which the gravity of offence and sentence prescribed influence bail decisions.
• The relevance of the stage of trial and investigation completion in deciding bail applications.
• The balancing of the accused's liberty rights under Article 21 of the Constitution against the interests of the State and the need to prevent tampering with evidence or witnesses.
• The appropriate conditions to be imposed on bail in economic offence cases to ensure the accused's attendance at trial and prevent abuse of liberty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Bail in Economic Offence Cases under CGST Act

Relevant legal framework and precedents: The applicant faces charges under Section 132(1)(b) and (c) of the CGST Act, 2017, which relate to offences involving fraudulent availment of ITC through creation of fake firms. The maximum sentence prescribed under these provisions is five years. The Court relied heavily on the Supreme Court precedents in Sanjay Chandra v. CBI and Satender Kumar Antil v. CBI, which clarify the principles governing bail in economic offences.

The Supreme Court in Sanjay Chandra emphasized that bail is the norm and jail an exception, highlighting that deprivation of liberty before conviction is a punishment and must be justified. It recognized the seriousness of economic offences but underscored that the right to bail cannot be denied merely on the basis of the offence's gravity or public sentiment. The Court also noted that the severity of punishment prescribed is a relevant factor in bail considerations.

In Satender Kumar Antil, the Supreme Court clarified that economic offences cannot be treated as a monolithic category denying bail outright. The Court held that the gravity of the offence, the object of the Special Act, and the circumstances of each case must be considered. It reaffirmed that bail jurisprudence does not create a blanket bar against bail in economic offences and that each case must be decided on its facts, ensuring the accused's presence at trial.

Court's interpretation and reasoning: The Court acknowledged that the applicant is accused of being the mastermind behind a nexus of fake firms to fraudulently pass ITC, but the actual involvement-such as whether the applicant's signatures appear on incriminating documents-is a matter for evidence during trial. The Court noted that the maximum sentence is five years, which is relatively moderate in the spectrum of economic offences.

It was also observed that the investigation has concluded, and no further steps have been taken in the trial since the applicant's incarceration began on 14.11.2024. The Court took into account that the trial has not yet commenced, and there are multiple witnesses (eleven) listed, indicating a protracted trial process.

Key evidence and findings: The complaint and investigation unearthed documents indicating the applicant's complicity, but the Court found that the allegations and evidence require detailed examination during trial. The applicant's counsel argued that the applicant's role was limited to filing returns and that no direct evidence implicates him in creating fake firms.

Application of law to facts: Applying the principles from the cited precedents, the Court balanced the gravity of the offence against the applicant's right to liberty and the stage of the proceedings. Since investigation was complete and the trial had not started, and considering the moderate sentence prescribed, the Court found no justification to deny bail.

Treatment of competing arguments: The prosecution argued that the evidence collected during raids clearly implicated the applicant. However, the Court noted that the evidence's probative value and the applicant's precise role are matters for trial, not for bail determination. The prosecution also acknowledged the maximum sentence is five years and did not provide information on trial progress.

Conclusions: The Court concluded that the applicant is prima facie entitled to bail, subject to stringent conditions, to ensure the applicant's attendance and prevent misuse of liberty.

Issue 2: Conditions of Bail and Safeguards to Prevent Abuse

Relevant legal framework: The Court invoked provisions of the Criminal Procedure Code (Cr.P.C.) and Indian Penal Code (IPC), specifically Sections 229-A (punishment for failure to appear in court), 174-A (punishment for failure to appear after proclamation), and Section 313 Cr.P.C. (recording of accused's statement). The Court also referred to the principle that bail is not to be abused and that courts can impose conditions to secure attendance and prevent obstruction of justice.

Court's interpretation and reasoning: The Court imposed specific conditions to ensure the applicant's presence at critical stages of trial and to prevent adjournment abuse. These include:

• Filing an undertaking not to seek adjournments when witnesses are present;
• Mandatory presence at trial dates, personally or through counsel;
• Consequences under Section 229-A IPC for absence without sufficient cause;
• Initiation of proceedings under Section 174-A IPC if the applicant fails to appear after proclamation;
• Mandatory presence at opening of the case, framing of charges, and recording of statement under Section 313 Cr.P.C., with the trial court empowered to treat deliberate absence as abuse of bail.

Key evidence and findings: The Court's conditions reflect the need to balance liberty with judicial efficiency and integrity of trial proceedings.

Application of law to facts: Given the serious nature of the allegations, the Court tailored conditions to prevent delay tactics and ensure the applicant's cooperation with the trial process.

Treatment of competing arguments: While the applicant sought bail on grounds of false implication and absence of direct evidence, the Court recognized the potential for abuse of bail and accordingly framed stringent conditions.

Conclusions: The Court's conditions aim to safeguard the trial process while respecting the applicant's right to liberty.

3. SIGNIFICANT HOLDINGS

The Court held:

"Bail is to be a norm and committal to jail an exception. The object of bail is neither punitive nor preventative. Deprivation of liberty must be considered a punishment, unless it is required to ensure that an accused person will stand his trial when called upon."

"Even economic offences would fall under the category of 'grave offence' and in such circumstance while considering the application for bail in such matters, the Court will have to deal with the same, being sensitive to the nature of allegation made against the accused. However, it is not a rule that bail should be denied in every case since there is no such bar created in the relevant enactment passed by the legislature nor does the bail jurisprudence provide so."

"The grant or refusal to grant bail lies within the discretion of the court and is regulated to a large extent by the facts and circumstances of each particular case. The primary purposes of bail are to relieve the accused of imprisonment pending trial and to assure that he will submit to the jurisdiction of the court."

"Considering the aforesaid facts and circumstances... prima facie, this Court finds, the applicant is entitled to be released on bail in this case."

Core principles established include:

• Bail is the rule, jail is the exception, even in economic offences.
• The gravity of offence and sentence prescribed are relevant but not determinative factors for bail.
• Completion of investigation and stage of trial are critical considerations.
• Stringent conditions can be imposed to prevent abuse of bail and ensure attendance.
• Each bail application must be decided on its own facts, without blanket denial based on offence category.

Final determinations:

• The applicant, accused of offences under Section 132(1)(b) and (c) CGST Act, 2017, is entitled to bail pending trial.
• Bail is granted subject to furnishing personal bond and two sureties, and compliance with specified conditions to secure attendance and prevent abuse.