2021 (12) TMI 948 - HC - GST

High Court denies anticipatory bail in tax credit fraud case, orders custodial interrogation for fake entities

The High Court rejected the applicant's plea for anticipatory bail, agreeing with the revenue's argument for custodial interrogation to investigate the ... Grant of anticipatory bail - illegal tax credit availed by the applicant - fake companies - HELD THAT:- Mr. Merchant is justified in claiming that the companies with whom the applicant has dealt with and from whom he has availed tax input credit, were granted registration certificate. He could also be justified in claiming that the documents relating to such transactions in availing input tax credits are available with the department - However, during the inquiry in the State of Karnataka, so also in Bombay, it revealed that the five firms with whom the applicant has dealt with and has availed input cash credit are not physically in existence as was found on physical verification. As such, it can be noticed that even if the applicant claimed to have transactions with the companies, custodial interrogation is necessary so as to find out who was operating such fake companies and further investigation as to the whether such fake firms are in operation - there is substance in the contention of the learned counsel for the revenue, particularly in the verification reports stating that the five firms with whom the applicant has dealt with are not physically in existence. No case for grant of bail is made out - Application rejected. Issues:1. Application for grant of anticipatory bail rejected by Sessions Judge.2. Applicant seeking anticipatory bail in High Court.3. Allegation of passing illegal tax credit from non-existent companies.4. Interpretation of GST Act section 25 for registration procedure.5. Argument against custodial interrogation due to bailable offense and lack of liability assessment.6. Claim that companies involved have valid GST registration.7. Need for custodial interrogation to investigate fake companies.Analysis:1. The applicant's plea for anticipatory bail was turned down by the Sessions Judge, leading to the appeal before the High Court seeking the same relief.2. The revenue alleges that the applicant passed illegal tax credit from companies that exist only on paper, raising concerns about the authenticity of transactions.3. The applicant's counsel argues that registration under the GST Act is granted based on KYC documents and emphasizes the need for liability assessment before custodial interrogation.4. The contention is made that if the alleged illegal tax credit is below a certain threshold, the offense is bailable, and the absence of liability assessment precludes custodial interrogation.5. The revenue's counsel justifies custodial interrogation to uncover the individuals behind the fake companies used to obtain illegal tax credit, emphasizing the necessity of further investigation.6. The High Court acknowledges that the applicant transacted with companies holding valid GST registration but notes that physical verification revealed these companies do not exist.7. Given the discrepancy between the claimed transactions and the non-existence of the companies involved, the Court finds merit in the revenue's argument for custodial interrogation to ascertain the operators of the fake entities, leading to the rejection of the anticipatory bail application.