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 alleged a chain of documents without actual supply while claiming ITCs were obtained without input tax deposit. The court found contradictions in the Department's arguments and noted their failure to conduct comprehensive lab testing despite having samples since before the accused's arrest. The chemical examiner's report dated 02.11.2022 was inconclusive regarding presence of nicotine and tobacco, yet the Department made assumptions without seeking further testing. Given the investigative lapses, inconclusive evidence, and period already spent in judicial custody, the court admitted the accused to bail on furnishing bonds of Rs.10,00,000 with surety.

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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.

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