2022 (12) TMI 1130 - DSC - GST

Accused granted regular bail in fraudulent ITC claims case due to investigative lapses and inconclusive evidence

The Patiala House Courts - DSC granted regular bail to an accused in a case involving fraudulent ITC claims and spurious goods export. The Department ... Seeking grant of Regular Bail - fraudulent transactions - it is suspected that spurious goods have been exported and ITC claimed fraudulently - HELD THAT:- The case of the Department seems to be that there is a chain of documents without any actual supply of products while simultaneously there is no claim that the initial tax payment was not made and the entire claim of ITC in the chain is without any input tax deposit. Rather the Department is suggesting that, even though, there is payment of tax at one stage, all ITCs claimed in the chain are without any supply of goods. In the alternative and in my view, to explain the inherent contradiction in the said argument, the counsel for the Department has coined the parallel theory that if there was actual purchase of cigarettes by M/s Radiant Traders, the same were perhaps sold in the market without invoicing and spurious smoking mixture was used as a cover to explain its disappearance, as also, used for the purposes of claiming input tax credit for the export of the smoking mixture. This is proposed to be established by firstly, the lab test report dated 02.11.2022 and secondly, the statement of the applicant/accused. Surprisingly, even though, the report was given by the chemist on 02.11.2022, that is even before the arrest of the accused, the Department made no further attempt to seek an opinion from another lab on the subject. Rather, the Department chose to arrest the accused and even after the arrest and up till today the samples have not been sent to any other lab to seek answer to query no. 2 and 3 raised by the IO as far as back on 19.10.2022. The Department seems content with the assumed position that Tobacco was not used in the smoking mixture, which assumption is in the teeth of the inconclusive opinion given by the chemist on 02.11.2022 - Why the Department chose not to send the samples to another lab seeking answers to query no. 2 and 3 when the accused is languishing in Jail, that too, in the clear absence of any opinion on the presence of Nicotine and Tobacco in the product? The benefit of this serious lapse in the investigation has to be given to the accused at this stage. In view of the discussion pertaining to the assumption of the Department regarding non use of Tobacco as a input, even though the report of the chemical examiner being inconclusive on the presence of nicotine and tobacco for want of testing facility, the period already undergone by accused in JC and want of any evidence other than the statement of the accused and the aforesaid discussion, the accused is admitted to bail on furnishing bail bonds/surety bonds in the sum of Rs.10,00,000/with one surety of like amount to the satisfaction of the concerned Ld. MM/Duty MM and also subject to the conditions imposed. Bail application allowed. Issues Involved:1. Regular bail application of the accused.2. Allegations of fraudulent export and ITC claims.3. Examination of the spurious product claim.4. Custodial interrogation and preventive custody.5. Economic viability and technical feasibility of the smoking mixture.6. Absence of fake invoices or fraudulent ITC claims.7. Inconclusive laboratory report on the smoking mixture.8. Judicial precedents and assessment orders.9. Seizure of cash and its implications.10. Assumptions about previous transactions.Detailed Analysis:1. Regular Bail Application of the Accused:The case involves a regular bail application for the accused, who was associated with Radiant Traders. The accused was arrested after voluntarily joining the investigation and giving a statement.2. Allegations of Fraudulent Export and ITC Claims:The Department alleged that the accused sold a smoking mixture to Harsha International for export, claiming fraudulent refunds of IGST amounting to Rs. 19,95,32,076. They suspect previous exports were also fraudulent, leading to a claim of ITC availment of Rs. 200 Crores.3. Examination of the Spurious Product Claim:The Department's investigation revealed that the smoking mixture was spurious and not fit for human consumption, as per the Central Revenue Control Laboratory's report. This discovery led to the search of Radiant Traders, which was found to be non-existent.4. Custodial Interrogation and Preventive Custody:The accused's counsel argued that the accused was not subjected to custodial interrogation post-arrest, suggesting that the custody was preventive. The court did not delve into the issue of calculating the custody period for statutory bail.5. Economic Viability and Technical Feasibility of the Smoking Mixture:The Department argued that using cigarettes to manufacture the smoking mixture was neither economically viable nor technically feasible. They claimed that the ITC was availed fraudulently for passing it on to the buyer (exporter) for claiming IGST refunds.6. Absence of Fake Invoices or Fraudulent ITC Claims:The Department admitted that no fake invoices or fraudulent ITC without actual tax payment were detected. They suggested that cigarettes were sold in the local market without invoicing, supported by the accused's statement.7. Inconclusive Laboratory Report on the Smoking Mixture:The laboratory report dated 02.11.2022 was inconclusive regarding the presence of nicotine and tobacco. The Department assumed that tobacco from cigarettes was not used in the smoking mixture, an assumption not supported by scientific proof.8. Judicial Precedents and Assessment Orders:The accused's counsel cited the absence of a show cause notice or assessment order, relying on the decisions in Pawan Goel & Ors and Make My Trip Vs. Union of India. The court noted divergent views among various High Courts and adhered to the Delhi High Court's binding precedent.9. Seizure of Cash and Its Implications:A sum of Rs. 99.95 Lacs was seized from a co-accused's residence, but the court found this insufficient to conclude the accused's involvement in the offense, as the amount was below the threshold to treat the offense as non-bailable.10. Assumptions About Previous Transactions:The court rejected the Department's assumption that all previous export transactions were fake based on one intercepted shipment. It emphasized that scientific proof and empirical data were lacking to support the Department's claims.Conclusion:The court granted bail to the accused, considering the inconclusive lab report, lack of evidence other than the accused's statement, and the period already spent in judicial custody. The accused was admitted to bail on furnishing bonds of Rs. 10,00,000 with conditions to ensure cooperation in the investigation and prevent tampering with evidence or influencing witnesses. The bail application was disposed of accordingly.