2023 (9) TMI 1126 - HC - GST

Bail granted in input tax credit case as department failed to show custody necessity

Gujarat HC granted bail to applicant charged with wrongful passing of input tax credit through bogus firms. Court held that department failed to ... Seeking grant of bail - wrongful passing of input tax credit - bogus firms - case based on documentary evidence which are in custody of Department - HELD THAT:- The respondent department failed to point out the facts that the further custody of the applicant is necessary. The entire case is based on documentary evidence and same are in the custody of the department. The record indicates that after filing the complaint still no show cause notice for determining the liability is issued by the department. In such circumstances, considering the observations made by the Apex Court in case of P. Chidambaram Vs. Directorate of Enforcement, (2020) 13 SCC 791, i.e. “even allegations of grave economic offence, it is not a rule that bail should be denied in every case and whether bail is granted or not, will have to be on the case to case basis of the facts involved therein and securing the presence of the accused to stand trial.”, it is deemed fit to exercise the discretion in favour of the applicant and accordingly, the applicant is allowed to be released on bail. The applicant is ordered to be released on regular bail on executing a personal bond of Rs.25,000/-, with one surety of the like amount to the satisfaction of the learned Trial Court and subject to the conditions imposed - application allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether regular bail under Section 439 Cr.P.C. should be granted to an accused charged under Section 132(1)(b) of the GST Act and corresponding CGST provision where investigation is complete and complaint is filed. 2. Whether further custodial interrogation is necessary where the prosecution relies primarily on documentary evidence which is in departmental custody and no show-cause notice fixing liability has been issued. 3. Whether the circumstances of alleged grave economic offence and risk of tampering with evidence justify continued detention despite completion of investigation. 4. Whether the arrest and seizure procedure contravened statutory procedure under Section 70(1) of the CGST/GST Acts (summons procedure) and whether such procedural irregularity affects bail consideration. ISSUE-WISE DETAILED ANALYSIS Issue 1: Grant of regular bail under Section 439 Cr.P.C. after completion of investigation and filing of complaint Legal framework: Section 439 Cr.P.C. confers discretionary power on the High Court to release an accused on bail. Principles governing grant of bail include protection of liberty, the need for custody for investigation or to secure attendance, and consideration of nature and gravity of offence. Precedent Treatment: The Court relied upon the proposition in P. Chidambaram v. Directorate of Enforcement that even in grave economic offences bail is not to be denied as a rule; each case requires case-by-case determination balancing liberty and need for custody. Interpretation and reasoning: The Court observed that investigation in the present matter was complete and complaint filed; prosecution did not demonstrate necessity of further custody. The primary materials are documentary and retained by the department, diminishing utility of custodial interrogation. The absence of any show-cause notice further suggested adjudicatory steps were not completed prior to prosecution. Ratio vs. Obiter: Ratio - Where investigation is complete, the prosecution must show specific reasons why further custody is necessary; absence of such showing and documentary nature of the case weighs in favour of bail. Obiter - General observations on the desirability of adjudication before prosecution (as urged) were noted but not treated as decisive legal precondition. Conclusion: Exercise of discretion in favour of bail was appropriate; regular bail granted on conditions. Issue 2: Necessity of further custody where evidence is documentary and held by authorities; impact of no show-cause notice Legal framework: Custodial detention for investigation is justified only where necessary to further inquiry (e.g., to preserve evidence, prevent tampering, or secure disclosures). Administrative possession of documents reduces need for continued physical custody of accused. Precedent Treatment: The Court applied established bail jurisprudence emphasizing liberty as the rule and jail an exception, and considered the Apex Court's direction that grant of bail even in economic offences depends on facts. Interpretation and reasoning: Since documentary evidence forming the basis of the prosecution was already seized and retained by the department, there was no material shown to indicate that custodial interrogation would produce additional evidence or that the accused's presence in custody was necessary. Additionally, prosecution had not initiated show-cause proceedings to determine liability, undermining the asserted urgency of custody. Ratio vs. Obiter: Ratio - Where the case relies on department-held documentary evidence and no specific justification for further custody is shown, detention is not necessary and bail should ordinarily be considered. Obiter - Comments on administrative practice of issuing show-cause notices prior to prosecution are persuasive but not strictly binding. Conclusion: Further custodial interrogation was not shown to be necessary; supports grant of bail subject to conditions. Issue 3: Alleged grave economic offence, risk of evidence tampering and the approach to bail in economic offences Legal framework: Economic offences are often regarded as serious, and courts may adopt caution when grant of bail risks interference with investigation or trial. However, such seriousness does not create a blanket bar on bail. Precedent Treatment: The Court followed the precedent that economic offences do not automatically preclude bail and that decisions must turn on case-specific consideration of risks (e.g., tampering, absconding, flight). The Court referenced P. Chidambaram to emphasize individualized analysis. Interpretation and reasoning: The prosecution alleged risk of evidence manipulation but did not point to any specific facts indicating likelihood of tampering if the accused were released. Given seizure and custody of documents by the department, the asserted risk was speculative. Standard protective conditions (personal bond, surety, surrender of passport, restrictions on changing residence and travel) were considered adequate to mitigate risk. Ratio vs. Obiter: Ratio - Risk of tampering must be shown with specific material facts; abstract contentions about economic gravity are insufficient to deny bail when documentary evidence is secured. Obiter - Observations that economic offences should be viewed with care in bail matters serve as guidance but do not displace the need for factual demonstration of risk. Conclusion: Denial of bail based solely on the economic nature of the offence and general assertions of risk was not warranted; conditional bail appropriate to secure trial and mitigate risk. Issue 4: Procedural irregularity in summons and arrest under Section 70(1) of the CGST/GST Acts and its relevance to bail Legal framework: Statutory summons under Section 70(1) require compliance with procedure; arrests and searches must follow lawful process. Procedural irregularities in arrest may be relevant in assessing legitimacy of detention and bail considerations. Precedent Treatment: The Court noted factual assertions that summons did not specify time and raid/arrest occurred in late night without allowing appearance, implying procedural lapse. While not treating criminality of arrest as dispositive, such irregularity informs the assessment of lawfulness of detention. Interpretation and reasoning: The record indicated arrest occurred late at night after issuance of summons that did not specify time; the Court observed that arrest appeared to have been made without following due procedure. This procedural context, coupled with lack of necessity for further custody, weighed in favour of release. Ratio vs. Obiter: Ratio - Procedural non-compliance in arrest and related actions is a relevant factor in bail evaluation where it affects the lawfulness or necessity of continued detention. Obiter - The Court did not annul the arrest outright but used the procedural lapse as part of overall assessment for bail. Conclusion: Procedural irregularity in arrest contributed to the decision to grant bail; no separate remedy on procedural grounds was pursued but it influenced discretionary exercise. Conditions and enforcement Legal framework: Bail may be granted on reasonable conditions to prevent misuse and secure attendance; trial court/sessions judge retains power to modify conditions. Interpretation and reasoning: To balance liberty with prosecution interest, the Court imposed monetary bond, surety, passport surrender, prohibition on leaving India without permission, address furnishing and restrictions on misuse of liberty; empowered the sessions judge to modify conditions as law requires. Ratio vs. Obiter: Ratio - Conditional release is an appropriate mechanism to protect prosecutorial interests while safeguarding constitutional liberty when detention is not necessary. Obiter - The Court expressly avoided any expression on merits. Conclusion: Bail granted on specified conditions; release to be effected unless accused is required for other offences; breach to be addressed by sessions judge.