2021 (6) TMI 515 - HC - GST

Anticipatory Bail Granted with Conditions: Personal Bond and Compliance Rules

The court granted anticipatory bail to the petitioners, requiring them to furnish a personal bond of Rs. 5,00,000 each with one surety each of the same ... Anticipatory bail - Power of arrest under GST and exercise of coercive measures - Pre condition of adjudication / issuance of show cause notice before launching prosecution - Habitual offender exception to pre adjudication coercive action - Cooperation with investigation and absence of risk of tampering or absconding - Freezing and conditional defreezing of bank accounts as a revenue protective measureAnticipatory bail - Power of arrest under GST and exercise of coercive measures - Pre condition of adjudication / issuance of show cause notice before launching prosecution - Habitual offender exception to pre adjudication coercive action - Cooperation with investigation and absence of risk of tampering or absconding - Whether the petitioners are entitled to anticipatory bail pending investigation into alleged wrongful availment of ITC where adjudication is not complete and petitioners have cooperated with investigation and have no prior antecedents. - HELD THAT: - The Court applied established authorities holding that coercive measures including arrest should be exercised with circumspection and, as a rule, prosecution under penal provisions arising from the GST code ought to follow determination of liability by the adjudicatory process (issuance of show cause notice and completion of assessment), save in exceptional cases such as where an accused is a habitual evader or there is credible material showing likelihood of absconding, tampering with evidence or influencing witnesses. The petitioners had no prior criminal antecedents, had repeatedly joined the investigation, their premises and employees had been examined, key documents were in departmental custody, bank accounts had been frozen and partially unfrozen on deposit, and the department did not assert risk of flight, tampering or non cooperation. The main accused has been arrested and is on bail and show cause notices have been issued to certain persons; no final adjudication or show cause notice has been issued finally fixing liability of the petitioners. Balancing the need to protect the integrity of investigation with prevention of harassment and unjustified detention, and applying the illustrative factors articulated by the Punjab & Haryana High Court and other High Courts, the court concluded that custodial interrogation was not warranted in the facts of this case and anticipatory bail should be granted subject to conditions. [Paras 13, 14, 15]Anticipatory bail granted; in the event of arrest petitioners to be released on furnishing personal bond of Rs. 5,00,000 each with one surety of like amount, subject to conditions including availability for interrogation, no inducement or threat to witnesses, deposit of passports/permission for travel and automatic rejection of protection on failure to appear before proper officer.Final Conclusion: Anticipatory bail allowed on conditions because investigation relates to 2018, petitioners have cooperated, there is no allegation of prior habitual evasion or risk of tampering or absconding, and adjudication fixing liability has not been completed; custodial arrest was held unwarranted in the circumstances. Issues Involved:1. Rejection of anticipatory bail application.2. Allegations of wrongful Input Tax Credit (ITC) availed by the petitioners.3. Investigation and evidence submitted by the petitioners.4. Coercive measures by the GST Department.5. Status of co-accused and investigation completion.6. Allegations against subsequent manufacturers and transporters.7. Petitioners' cooperation and societal roots.8. Department's counter-affidavit and evidence.9. Legal precedents and judicial pronouncements on anticipatory bail and arrest.Detailed Analysis:1. Rejection of Anticipatory Bail Application:The petitioners challenged the order dated 04.02.2021, whereby their anticipatory bail application was rejected by the Additional Sessions Judge, Patiala House Court, New Delhi.2. Allegations of Wrongful ITC:The investigation pertains to the alleged wrongful availment of ITC amounting to Rs. 22.42 Crores based on invoices from companies controlled by Sanjay Dhingra and Gulshan Dhingra. The GST department alleges that M/s KMG Industrial Traders Pvt. Ltd. did not receive goods but only invoices, which were not genuine.3. Investigation and Evidence Submitted by Petitioners:The petitioners argued that they are bona fide recipients/purchasers of goods, with all payments made through bank transfers duly reflected in their books of accounts. They submitted evidence including Dharamkata slips and stocks worth over Rs. 7 crores, asserting no discrepancy was found during the GST department's search on 28.06.2018.4. Coercive Measures by GST Department:The GST department blocked the petitioners' bank account on 07.08.2020 under Section 83 of the CGST Act and also blocked pending ITC credit of Rs. 1.25 Crores, causing financial losses. The petitioners deposited Rs. 2.5 crores to get the bank account partially defreezed but were allowed only limited debit for salary payments.5. Status of Co-Accused and Investigation Completion:The co-accused Sanjay Dhingra and Gulshan Dhingra are on regular bail, and show cause notices have been issued to them. The petitioners argued no final assessment or show cause notice has been issued to them, which could conclusively determine their liability.6. Allegations Against Subsequent Manufacturers and Transporters:The petitioners contended that the department failed to investigate subsequent manufacturers to whom the goods were sold. They also argued against the department's claim that no goods were received, stating that all documents are in the department's custody.7. Petitioners' Cooperation and Societal Roots:The petitioners emphasized their cooperation in the investigation, attendance to summonses, and societal roots, arguing that arresting them after three years would be unfair. They highlighted their non-habitual offender status and deep societal roots.8. Department's Counter-Affidavit and Evidence:The department's counter-affidavit dated 17.03.2021 relied on statements of transporters and witnesses to show a missing chain of transportation. They alleged that no goods were received by M/s KMG from the firms in question and uncovered another firm, M/s Sant Overseas, from which ITC credit of Rs. 2.9 crores was availed.9. Legal Precedents and Judicial Pronouncements:The judgment extensively cited legal precedents, including:- Make My Trip Vs. Union of India: Emphasized the need for a proper procedure before arrest and the importance of credible material for arrest.- Jayachandran Alloys (P) Ltd. Vs. Superintendent of GST & C. Ex., Salem: Stressed that punishment under Section 132 of the CGST Act should follow the determination of excess credit through assessment.- Vimal Yashwantgiri Goswami Vs. State of Gujarat: Highlighted the need for care and circumspection in exercising arrest powers under Section 69 of the Act.- C. Pradeep Vs. Commissioner of GST and Central Excise Salem: Interim protection against arrest was granted by the Supreme Court.- P.V. Ramana Reddy Vs. Union of India: Discussed the sparing use of protection against arrest under Article 226 of the Constitution.Conclusion:The court allowed the anticipatory bail application, ordering that in the event of arrest, the petitioners be released on bail upon furnishing a personal bond of Rs. 5,00,000 each with one surety each of the like amount, subject to specific conditions including availability for interrogation, non-inducement of witnesses, non-leaving of India without court permission, and compliance with summonses. The court emphasized that arrest should be the last option and restricted to exceptional cases.