2020 (12) TMI 578 - HC - GST

Court denies bail for tax fraud involving fake invoices.

Sri Neeraj Karande Versus The Directorate General of GST Intelligence

The court denied the petitioner's regular bail application under Section 132(1)(i) of the CGST Act for wrongfully availing input tax credit and issuing ... Grant of Regular Bail - wrongful availment and utilization of input tax credit - availment of input tax credit on the basis of the invoices / bills issued without supply of actual goods or services - offence under Clause (b) and (c) of Sub-Section (1) of Section 132 of the CGST Act which is punishable under Section 132(1)(i) of the CGST Act - HELD THAT:- The modus operandi adopted by the petitioner is that he indulged in issuing GST invoices and e-way bills and passing on input tax credit to various customers without actual supply of goods. It is also specifically mentioned in the remand application that the registered office and also the factory of the petitioner are non-existent one. According to the respondent authorities, the bank has sold the unit of the Company by invoking the procedure laid down under SARFAESI Act. Both the registered office and the factory are found to be not in possession of the Company since 2016. The petitioner has filed irregular inward ITC credit of ₹ 5.46 crores and outward irregular ITC credit of ₹ 5.43 crores from 01.07.2017 to 31.08.2020. In the statement recorded under Section 70 of the CGST Act, the petitioner has admitted that presently there is no registered premises of the factory. The business is being run by him from the vehicle viz., Grey Colour Swift Dezire TS07 1667. He is also conducting business by using his laptop and mobile No.9493895762. He has answered that based on the invoices created in the laptop, he has raised documents like e-way bills using hotspot and transfer documents created through e-mail [email protected]. He also answered that he will submit all the related documents like invoices, e-way bill after retrieval from his mail, as far as possible. Due to ongoing investigation, the department could lay its hand on an amount of ₹ 42,90,133/- in the electronic credit ledger of the Company of the petitioner. Further, a provisional attachment order under Section 83 of CGST Act was issued to the banker of the Company. Steps have been undertaken to get the laptop recovered under panchanama dated 02.11.2020 to be forensically examined by CFSL, Hyderabad. Such forensic science laboratory report is awaited - Steps have been taken to prevent further loss to the Government exchequer by blocking the ITC credit under Rule 86A(1)(a) of the CGST Act as the competent authority i.e., the Additional Director General has accorded approval along with reasons to believe that the ITC has been fraudulently availed and is ineligible due to two counts i.e. the petitioner has availed credit on fake invoices obtained without supply of goods and Company of the petitioner not conducting business from its registered place. There are several aspects to be investigated into by the investigating officer during the course of investigation. The modus operandi said to have been adopted by the petitioner in commission of offence is to be investigated into by the investigating officer. The GST amount involved for the operations carried out by him for the period from 01.7.2017 to 31.08.2020 is ₹ 10.89 crores. Admittedly, the investigation is pending - this Court is not inclined to grant regular bail to the petitioner. Petition dismissed. Issues:Regular bail application under Section 132(1)(i) of the CGST Act - wrongful availment of input tax credit and issuance of fake GST invoices without supply of goods.Analysis:1. The petitioner, as the managing director of a Company, is accused of violating the CGST Act by issuing invoices without actual supply of goods, leading to wrongful availment of input tax credit. The alleged modus operandi involved issuing GST invoices and e-way bills without actual supply of goods, increasing the Company's turnover to enhance loan facilities, and helping other parties show expenses in their accounts. The petitioner is accused of avoiding cash GST payments by supplying invoices without goods, violating Section 31 of the CGST Act and availing fake input tax credit under Section 16.2. The petitioner is alleged to have wrongfully availed input tax credit amounting to Rs. 10.89 crores from July 2017 to August 2020, exceeding the threshold for punishable offences under Section 132(1)(i) of the CGST Act. The respondent authorities argue that the petitioner's actions resulted in a loss to the government exchequer, justifying the severity of the offence and the denial of bail.3. The respondent authorities contend that the petitioner operated without a registered office or factory since 2016, engaging in a complex scheme to defraud the exchequer through fraudulent issuance of tax invoices without actual supply of goods. The petitioner's admission that there is no registered factory premises and conducting business from a vehicle raises suspicions of fraudulent practices, further supported by the investigation's ongoing nature and the significant amount involved.4. The investigation revealed discrepancies in the Company's operations, with the petitioner admitting to conducting business from a vehicle and using electronic means to create invoices and e-way bills. The respondent authorities have taken steps to prevent further loss by blocking ITC credit and awaiting forensic examination of the petitioner's laptop. The seriousness of the allegations, ongoing investigation, and potential interference with evidence led to the court's decision to deny regular bail to the petitioner.5. The court dismissed the bail application, considering the gravity of the offences alleged, the substantial amount involved, the ongoing investigation, and the risk of interference. The decision underscores the need for thorough investigation into the petitioner's actions and the potential impact on the government exchequer, emphasizing the seriousness of the charges and the complexity of the case.