2020 (10) TMI 570 - HC - GST

Denial of Anticipatory Bail to One Applicant, Granted to Another with Conditions

The court denied anticipatory bail to applicant no.1 due to the necessity of custody to prevent tampering with evidence and ensure a thorough ... Anticipatory bail under Section 438 of the Criminal Procedure Code - power to arrest under Section 69 of the Central Goods and Services Tax Act, 2017 - cognizable and non-bailable offence under Section 132(1)(b) and (c) read with Section 132(5) of the CGST Act - fraudulent input tax credit / circular trading - distinction between assessment proceedings and criminal prosecution under the CGST Act - necessity of custody to prevent tampering with evidenceAnticipatory bail under Section 438 of the Criminal Procedure Code - cognizable and non-bailable offence under Section 132(1)(b) and (c) read with Section 132(5) of the CGST Act - fraudulent input tax credit / circular trading - power to arrest under Section 69 of the Central Goods and Services Tax Act, 2017 - necessity of custody to prevent tampering with evidence - Pre-arrest bail application of applicant no.1 (husband/active partner) is rejected. - HELD THAT: - On the material placed on record and file-notings the Court found prima facie that the firm availed substantial Input Tax Credit on invoices allegedly issued by a sole supplier without proof of receipt, movement (no e-way bills), or payment. The supplier has lodged an FIR alleging forged invoices and the applicant admitted in statements that goods were not received and payments were not made; those admissions have not been retracted. The Court rejected the submission that prosecution can be launched only after completion of assessment, holding that the chapters dealing with offences and assessment are distinct and prosecution is not rendered nugatory by pending assessment. The Commissioner had 'reason to believe' commission of offences under Section 132(1)(b) and (c) and is empowered under Section 69 to authorise arrest. Given the prima facie findings and the risk of evidence disappearing or being tampered with, custody was held to be necessary and the exercise of discretion under Section 439 CrPC in favour of applicant no.1 was refused. [Paras 14, 15, 18, 19, 21]Reject anticipatory bail of applicant no.1.Anticipatory bail under Section 438 of the Criminal Procedure Code - fraudulent input tax credit / circular trading - distinction between active and dormant/sleeping partner for grant of bail - conditions collateral to grant of pre-arrest bail - Pre-arrest bail application of applicant no.2 (wife / dormant partner) is allowed subject to conditions. - HELD THAT: - Material on record indicated that applicant no.2 is a dormant/sleeping partner and a housewife not involved in day-to-day business. The Court concluded that custody of applicant no.2 would not further the investigation and, balancing the interests of investigation and personal circumstances, granted pre-arrest bail on furnishing bond/surety (and permitted cash bail in view of the pandemic) subject to standard conditions of furnishing residence/contact particulars, responding to summonses, not tampering with evidence, and cooperating with investigation. [Paras 20]Grant anticipatory bail to applicant no.2 on specified conditions.Final Conclusion: On the admitted facts and prima facie material, anticipatory bail of the active partner (applicant no.1) is refused because custody was held necessary to prevent tampering with evidence and because the Commissioner had reason to believe commission of cognizable offences; anticipatory bail of the dormant partner (applicant no.2) is granted subject to conditions including bond/surety (or cash bail), provision of contact particulars, cooperation with investigation and prohibition on tampering with evidence. Issues Involved:1. Legality of arrest under Section 438 of the Criminal Procedure Code.2. Allegations of availing fraudulent Input Tax Credit (ITC) under the CGST Act.3. Requirement of assessment before prosecution.4. Necessity of First Information Report (FIR) for arrest.5. Parity with other similar cases.6. Production and verification of documents supporting ITC claims.Detailed Analysis:1. Legality of Arrest under Section 438 of the Criminal Procedure Code:The applicants sought directions under Section 438 of the Criminal Procedure Code for anticipatory bail in the event of their arrest on accusations of committing non-bailable offenses under Section 132(1)(b) and (c) read with Section 132(5) of the CGST Act. The court noted that the Commissioner had 'reason to believe' the applicants' complicity in the offense, thus justifying the potential arrest under Section 69 of the CGST Act.2. Allegations of Availing Fraudulent ITC:The applicants, partners of a registered firm, were accused of availing ITC worth Rs. 63.50 crores based on invoices from a non-genuine firm, M/s. Jai Bajrang Traders, without actual receipt of goods. The investigation revealed the absence of proof of goods movement, e-way bills, or payment within 180 days, violating Section 16(2) of the CGST Act. The applicants' firm allegedly passed on the fraudulent ITC to other closely held entities, further implicating them in circular trading.3. Requirement of Assessment Before Prosecution:The applicants contended that prosecution under the CGST Act requires prior assessment or special audit to determine liability. The court rejected this argument, stating that the provisions of Chapter-XIX (offenses and penalties) and Chapter-XII (assessments) of the CGST Act are distinct and independent. The court emphasized that the prosecution provisions are not contingent upon the assessment procedures.4. Necessity of FIR for Arrest:The applicants argued that an FIR is a prerequisite for arrest. The court dismissed this contention, clarifying that under Section 69 of the CGST Act, the Commissioner can authorize an arrest based on 'reason to believe' that an offense under Section 132(1) has been committed. The court found sufficient grounds from the investigation to justify the belief in the applicants' involvement in the alleged offense.5. Parity with Other Similar Cases:The applicants sought relief based on a precedent where another individual was granted protection from arrest in a similar case. However, the court noted that the Supreme Court had directed High Courts to consider the divergent views on such matters and clarified that the precedent did not necessarily apply to the present case. Consequently, the court rejected the plea for parity.6. Production and Verification of Documents Supporting ITC Claims:The applicants claimed to possess relevant invoices and transport bills supporting their ITC claims, which they were willing to submit for verification. The court found these submissions to be an afterthought, given the applicants' previous non-cooperation with the investigation. The court highlighted discrepancies in the submitted documents, such as bogus vehicle numbers and mismatched dates, further undermining the credibility of the applicants' claims.Judgment:The court denied anticipatory bail to applicant no.1, citing the necessity of custody to prevent tampering with evidence and ensure thorough investigation. However, the court granted anticipatory bail to applicant no.2, considering her role as a dormant partner and housewife, with specific conditions to ensure her cooperation with the investigation.Order:1. Pre-arrest bail for applicant no.1 was rejected.2. Pre-arrest bail for applicant no.2 was granted with conditions, including a bond of Rs. 50,000, providing residence details, responding to summons, and not tampering with evidence.3. The interim relief for applicant no.1 was not extended.4. Observations made in the judgment were clarified to be for bail purposes only and not to influence the trial.