2021 (3) TMI 541 - HC - GST

Grant of Bail under Section 69: Procedural Safeguards and Revenue Objectives Upheld

The court granted bail to the petitioners who were arrested under Section 69 of the CGST Act for alleged tax credit fraud. The court emphasized procedural ... Bail application - allegation of issuing fake invoices - issuing invoices or bills without supply of goods or services or both leading to wrongful availment or utilization of input tax credit or refund of tax and availing input tax credit using such invoices or bills - Constitutional validity of section 132(1)(b) and (c) of the Central Goods and Services Tax Act, 2017 - seeking declaration that power under section 69 can be exercised only upon determination of liability and consequent upon failure of the taxable person to meet such liability - seeking restraint on respondents from lodging any criminal complaint against the petitioners - enlargement of petitioners on bail. HELD THAT:- In the instant case, it is found that both the petitioners taken together had appeared before the respondents on multiple occasions particularly on 20.11.2020, 01.02.2021, 03.02.2021, 09.02.2021, 12.02.2021, 15.02.2021 and 16.02.2021 when their statements were recorded. Not only that a number of employees and officials of the petitioner company as well as independent directors had appeared before the investigating authorities and their statements were also recorded. As a matter of fact in the statement of Mr. Akashnand Karnik, director of the petitioner company recorded on 01.02.2021, he meticulously answered all the queries pertaining to various transactions of the petitioner company with M/s. Wiggins Coretech Equipments Pvt Ltd, M/s. Siddharth Education Services, M/s. HNO Furnishings Ltd, M/s. Creative Business Associates, M/s. Mystique Media Pvt Ltd, M/s. Gradient Infotainment Ltd and M/s. Cannon Ball Trading Pvt Ltd including supply of computers and whatever services were provided by them - there is no instance of the petitioners tampering with documents or trying to influence any witness being brought on record. Merely saying or apprehending that in future they may tamper with evidence or induce any witness as observed by the learned Magistrate cannot be a justification to deny bail. It is already noticed that the maximum sentence that can be imposed upon conviction for the said offence is imprisonment for five years. This brings us to section 167 of the Cr.P.C.. Section 167(2)(a)(ii) makes it clear that a person cannot be kept in detention beyond a total period of sixty days where investigation relates to an offence punishable for imprisonment for a term of not less than ten years and is not completed - there are no instance of the petitioners tampering with documents or trying to influence any witness being brought on record. Merely saying or apprehending that in future they may tamper with evidence or induce any witness as observed by the learned Magistrate cannot be a justification to deny bail. Without expressing any opinion at this stage as to the legality and validity of the initial arrest, the continued detention of the petitioners would not at all be justified - Let formal notice be issued to the respondents. Issues Involved:1. Constitutionality of Section 132(1)(b) and (c) of the CGST Act.2. Scope of power under Section 69 of the CGST Act.3. Restraining the respondents from lodging any criminal complaint.4. Bail for the petitioners.Issue-wise Detailed Analysis:1. Constitutionality of Section 132(1)(b) and (c) of the CGST Act:The petitioners sought a declaration that Section 132(1)(b) and (c) of the CGST Act is unconstitutional. The judgment does not explicitly address the constitutionality directly but focuses on the application and implications of these sections in the context of the case.2. Scope of Power under Section 69 of the CGST Act:The petitioners argued that the power under Section 69 can only be exercised upon determination of liability and consequent failure to meet such liability. The court analyzed the powers conferred upon the Commissioner under Section 69, emphasizing that the 'recording of reasons to believe' by the Commissioner that a person has committed the offense and is required to be arrested is essential. The court reiterated that the CGST Act is primarily for revenue collection, with arrest being incidental. The court noted that the petitioners had cooperated with the investigation and appeared before the authorities multiple times, which should have precluded the need for arrest under the principles laid down in the Supreme Court's judgment in Arnesh Kumar vs. State of Bihar.3. Restraining the Respondents from Lodging Any Criminal Complaint:The petitioners sought to restrain the respondents from lodging any criminal complaints against them. The court did not provide a specific ruling on this prayer but focused on the legality of the arrest and the necessity of continued detention.4. Bail for the Petitioners:The petitioners were arrested on 16.02.2021 under Section 69 of the CGST Act for allegedly availing ineligible input tax credit using fake invoices. The court examined the arrest memo and the remand application, noting that the maximum punishment for the alleged offense is five years. The court found no justification for the arrest, given the petitioners' cooperation and the lack of evidence of tampering or influencing witnesses. The court emphasized that continued detention without formal accusation is unjustified. Consequently, the court directed the release of the petitioners on bail with specific conditions, including the execution of a personal bond, furnishing surety, cooperation with the investigation, and surrendering passports.Conclusion:The court granted bail to the petitioners, emphasizing the need for adherence to procedural safeguards and the principles laid down in Arnesh Kumar vs. State of Bihar. The court underscored that the CGST Act's primary objective is revenue collection, with arrest being a secondary measure, and highlighted the importance of 'reasons to believe' in the exercise of arrest powers under Section 69.