2022 (5) TMI 129 - HC - GST

Bail cancellation quashed after accused used input tax credit from electronic ledger under Section 49 GST Act

Amit Gupta Versus Directorate General Of GST Intelligence Headquarters

Delhi HC quashed the cancellation of bail where the accused was required to deposit Rs.2.70 crores as a bail condition. The accused deposited part amount ... Cancellation of Bail granted - Failure to deposit amount as a pre-condition of Bail - Adjustment of amount with input tax credit (ITC) instead of depositing in Cash - fake invoices - availing Input Tax Credit (ITC) on the strength of bills of various suppliers which were non-existing and fictitious - HELD THAT:- A reading of Section 49 of GST Act permits availing of the amount in electronic ledger for making any payments towards output tax under the Act or under the Integrated Goods and Services Tax Act. Further Section 49 (5) and (6) describes the manner in which the amount of input tax credit available in the electronic ledger is to be utilised and provides that the balance in electronic cash ledger after payment of tax, interest, penalty, fee etc. may be refunded in accordance with the provisions of Section 54 of the GST Act. Though before the learned CMM and in the reply, the case of the respondent is that the ITCs being fraudulent the same cannot be availed of, during the course of arguments, learned counsel for the respondent does not dispute that the payment of tax could be made from the electronic ledger under Section 49 (4) of the GST Act however, contends that since the learned Trial Court directed the petitioner to deposit the amount of ₹2.70 crores, he could not have availed the amount of ₹1.60 crores by debiting the ITCs - the petitioner has to his credit ITC worth ₹260 crores and the investigation does not show that beyond approximately ₹42 crores ITCs rest are fraudulent till now. Hence the reversal of the ITC credit for depositing the part amount of ₹2.70 crores with the department as directed by the learned Trial Court cannot be said to be illegal or unwarranted, warranting cancellation of the bail granted to the petitioner. Undoubtedly, non-compliance of the conditions of bail is a ground for cancellation of the same however, in the present case the condition was to deposit a sum of ₹2.70 crores with the department which stands satisfied by the petitioner depositing part amount by transfer of ITCs. Further in case the learned Trial Court felt that its order warranted deposit of money only with the department it could have granted time to the petitioner to deposit the same. The petitioner having fulfilled the condition of deposit of the amount partly by cash ledger and partly by debit ledger of the ITC it cannot be said that the petitioner has failed to fulfil the conditions imposed on him. - Order of cancellation of Bail quashed Petition disposed off. Issues:Challenge to cancellation of bail order and quashing of proceedings under CGST Act.Analysis:1. The petitioner challenged the order cancelling bail granted on December 23, 2019, by the learned CMM, Patiala House Courts. The petitioner sought setting aside of the cancellation order and restoration of the bail. The prosecution alleged the petitioner's involvement in fraudulent ITC worth crores through non-existent suppliers.2. The respondent contended that the petitioner failed to deposit the full amount of Rs. 2.70 crores as a bail condition, leading to the cancellation of bail. The petitioner deposited Rs. 1.10 crores in cash and Rs. 1.60 crores through ITC reversal, which the respondent objected to.3. The respondent argued that since the ITC availed was fraudulent, depositing part of the amount through ITC reversal was impermissible. The investigation revealed fraudulent ITC worth Rs. 27.05 crores and total ITC availed of Rs. 260 crores.4. The petitioner cited GST rules allowing deposit through electronic credit ledger. The respondent highlighted Rule 86A, introduced in December 2019, restricting the use of electronic credit ledger for fraudulent credits.5. The Court found that the petitioner's partial deposit through ITC reversal was valid, as the investigation did not establish all ITC as fraudulent. The Court emphasized that bail conditions were met, and the cancellation was unwarranted.6. The Court set aside the order cancelling bail, concluding that the petitioner complied with the deposit condition. The judgment was uploaded on the Court's website, disposing of the petition and application.This detailed analysis of the judgment highlights the legal arguments, bail conditions, and the Court's reasoning in setting aside the cancellation order based on the petitioner's compliance with the deposit condition.