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 under Section 439 Cr.P.C. - Arrest under Section 132 of the Central Goods and Services Tax Act, 2017 - Power of arrest under Section 69 and 132 of the Act to be exercised sparingly - Illustrative circumstances for arrest in tax evasion cases - Economic offences and bail jurisprudence - Tampering with evidence and influencing witnesses - Veil piercing to identify true persons behind firms - Presumption of validity of statutory provisionsGrant of bail under Section 439 Cr.P.C. - Arrest under Section 132 of the Central Goods and Services Tax Act, 2017 - Power of arrest under Section 69 and 132 of the Act to be exercised sparingly - Tampering with evidence and influencing witnesses - Veil piercing to identify true persons behind firms - Illustrative circumstances for arrest in tax evasion cases - Whether the petitioner should be granted bail pending investigation into alleged offences under Section 132 of the CGST Act, 2017. - HELD THAT: - The Court refused bail. The investigation was ongoing with 'missing links' yet to be joined and the period for filing challan not expired; these facts weighed against bail. Material collected pointed to the petitioner having hidden his identity and acting as an alias (Dharminder Arora @ Raja Bhaiya), and to his role in creating and operating bogus firms to procure and misuse Input Tax Credit; the veil over the firms therefore needed to be pierced. Given that registration, compliance and much evidence are electronic and the petitioner allegedly organized and assigned roles to others, there existed a realistic risk that on bail he could tamper with electronic evidence and influence witnesses. The Court held that clauses (a)-(d) of Section 132 are not confined to the person physically issuing invoices and that the petitioner's case fell within the illustrative circumstances permitting arrest (including concrete evidence of active involvement) as identified in Akhil Krishan Maggu. Although a factual error in the lower court's order about the transferee of a disputed payment was noted and corrected, that error was not decisive because other valid reasons supported denial of bail. The Court also observed that challenge to the vires of Sections 69 and 132 did not justify bail since those provisions remained operative and are entitled to a presumption of validity. Applying established principles for economic offences-whose gravity and potential for large-scale public harm demand caution in bail- the petition was dismissed. [Paras 31, 32, 33, 36, 37]Bail refused and petition dismissed.Final Conclusion: The bail application under Section 439 Cr.P.C. is dismissed; the petition is accordingly rejected and the petitioner shall remain in custody while investigation continues. 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.