2021 (2) TMI 41 - HC - GST

Denial of Bail: Involvement in Fraudulent Activities Justifies Custody

The court denied the petitioner's bail application, citing his involvement in creating bogus firms and availing fraudulent Input Tax Credits as ... Grant of Bail - petitioner is in custody since 5th December, 2020 and that no interrogation is done - HELD THAT:- It was held that power to arrest under Sections 69 and 132 of the Act should not be exercised for terrorizing or creating atmosphere of fear. Illustrative circumstances where arrest be made were mentioned - The judgment of Gujarat High Court in VIMAL YASHWANTGIRI GOSWAMI VERSUS STATE OF GUJARAT [2020 (11) TMI 40 - GUJARAT HIGH COURT] is of no avail to the petitioner. It was held that power of arrest under Section 69 read with Section 132 of the Act can be invoked before completion of adjudication of process. The prerequisite being that Commissioner has reasons to believe that person had committed offence under clauses (a) to (d) of sub clause (1) of Section 132 of the Act. In case in hand reasons were recorded for arresting the petitioner. The bail cannot be granted solely on the ground that vires of Section 132 and 69 of the Act are under challenge. There is always presumption of validity of the provision. The operation of the provisions has not been stayed - In the case in hand, bills were being procured from the firms based at Delhi who had no purchases. The tax which was not deposited for these transaction was utilized by the firms for not only availing ITCs but for getting the refunds by showing the sales to export units. In other words, the refund was received for the tax which was actually never received by the Revenue. The factual error pointed out in impugned order cannot in itself be a reason for allowing the prayer. The Court below had given other reasons also for denying the bail. While deciding the present petition, the facts have been re-considered and this court has reached the same conclusion that the prayer of petitioner for grant of bail is liable to be rejected - Petition dismissed. Issues Involved:1. Grant of bail under Section 439 of Cr.P.C.2. Allegations under Section 132 of the Central Goods and Services Tax Act, 2017.3. Validity of arrest under Section 69 of the Act.4. Relevance of previous judgments and interim bail orders.5. Impact of economic offences on the bail decision.Detailed Analysis:1. Grant of Bail under Section 439 of Cr.P.C.:The petitioner sought bail under Section 439 of Cr.P.C., having been arrested under Section 132 of the Central Goods and Services Tax Act, 2017. The petitioner argued that he had been in custody since December 5, 2020, and no complaint had been filed against him. The contention was that the matter was of Magistrate trial, punishable for a maximum of five years, and there was no evidence suggesting an attempt to flee before being put in custody.2. Allegations under Section 132 of the Central Goods and Services Tax Act, 2017:The petitioner was implicated in a scam involving bogus Input Tax Credits (ITC) worth Rs. 21.60 crores and issuance of bills worth Rs. 158 crores. The mechanism involved procuring bills from firms with no purchases and billing to export units to utilize the ITC. The petitioner, identified as Dharminder Arora @ Raja Bhaiya, was alleged to have created three bogus firms and availed fraudulent ITC. Statements from various individuals and documentary evidence linked the petitioner to these activities.3. Validity of Arrest under Section 69 of the Act:The petitioner challenged the validity of his arrest, arguing that powers under Section 69 should be used sparingly and with recorded reasons. The Union of India contended that the arrest was necessary due to the petitioner's involvement in a Rs. 150 crore scam, his change of identity, and the risk of tampering with evidence and influencing witnesses. The court noted that the reasons for arrest were duly recorded, and the circumstances necessitated the petitioner's arrest.4. Relevance of Previous Judgments and Interim Bail Orders:The petitioner relied on several judgments and interim bail orders to support his bail application. However, the court distinguished these cases based on the specifics of the current case. For instance, the court noted that in Anil Jain's case, bail was granted because no custodial interrogation was required, whereas, in the present case, the investigation was ongoing with fresh information. The court also referred to the Division Bench's judgment in Akhil Krishan Maggu's case, which outlined circumstances where arrest under Sections 69 and 132 should be made. The court found the petitioner's case covered under the example of active involvement in tax evasion.5. Impact of Economic Offences on the Bail Decision:The court emphasized the seriousness of economic offences, citing Supreme Court judgments that highlighted the grave impact of such offences on the economy and the need for a different approach in bail matters. The court referred to the Supreme Court's observations in State of Gujarat vs. Mohanlal Jitamalji Porwal and Y.S. Jagan Mohan Reddy vs. CBI, underscoring the need to view economic offences seriously and consider the larger interests of the public and State.Conclusion:The court concluded that the petitioner’s involvement in creating bogus firms and availing fraudulent ITC was substantiated by the evidence. Given the ongoing investigation, the risk of tampering with evidence, and the potential influence on witnesses, the court denied the bail application. The petition was dismissed, affirming the necessity of the petitioner's custody to ensure a thorough investigation.