2023 (11) TMI 1052 - DSC - GST

Bail granted for GST fraud despite Rs. 38 lakh tax liability, fake invoices without goods supply

The DSC at Patiala House Courts granted bail to the applicant charged with availing and passing ineligible ITC through fake invoices without actual goods ... Seeking grant of bail - avalling and passing on of ineligible ITC on the strength of fake invoices issued without actual supply of goods - HELD THAT:- In the present matter, the tax liability above bailable offence of 5 Cr. is Rs. 38,81,443, the entities who supplied articles to the applicant are active on GST Portal but not verified by the department, there is no chance of accused fleeing from the country nor he is a habitual offender and applicant is no more required for custodial interrogation when the custodial interrogation of applicant was not sought by the department and applicant was sent to judicial custody directly on 14.10.2023, the offence falls within preview of Section 41 A CrPC having punishment of 5 years but no notice u/s 41 A CrPC has been given, therefore, in view of the abovesaid facts and circumstances, the present applicant Iftikar Malik is admitted to bail, on furnishing personal bond in the sum of Rs. 1,00,000/- with two sureties of like amount and subject to the satisfaction of Ld. MM/Ld. Link MM/Ld. Duty MM with the conditions imposed. Bail application disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether arrest and continued custody of the accused was justified where the alleged wrongful availment of input tax credit (ITC) exceeds Rs. 5,00,00,000/-, and whether the offence falls within the non-bailable category under the GST statutory scheme. 2. Whether Section 41A, Criminal Procedure Code (CrPC) procedures (notice before arrest in specified offences) apply or were required to be complied with in the present GST investigation/arrest. 3. Whether grounds relied upon by the revenue (non-existence of suppliers at declared addresses, concealment of documents, admission under departmental statement) suffice to deny bail pending trial/custody. 4. Whether jurisdictional objections raised by the accused (that certain supplier-entities fall outside the relevant jurisdictional office) affect the bail/merits of detention. 5. Appropriate conditions and safeguards if bail is to be granted in a case alleging large-scale fraudulent ITC availment. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the offence is non-bailable because alleged ITC evaded exceeds Rs. 5 crores Legal framework: The GST scheme and allied provisions empower arrest where evasion exceeds statutory thresholds; criminal procedure principles distinguish bailable and non-bailable offences based on statutory thresholds. Precedent Treatment: The Court relied on authoritative judicial guidance recognizing that arrest powers in revenue offences should be exercised sparingly and that statutory thresholds inform bailability; such precedents delineate circumstances where arrest is warranted despite large alleged evasion. Interpretation and reasoning: The Court examined the analytics showing alleged ITC of Rs. 5,38,81,443/-. However, the Court noted that portions of the claimed ITC pertain to suppliers whose supplies and GST filings appeared active on the portal and had not been verified by the revenue. The Court treated the exact quantum as material but not determinative where investigative verification is incomplete. Ratio vs. Obiter: Ratio - where alleged evasion marginally exceeds threshold, mere arithmetic exceedance does not automatically justify continued custody if other exceptional arrest-justifying factors are absent and investigation does not require custodial interrogation. Obiter - general commentary that offences up to Rs. 5 Cr. are bailable as a guideline where statutory scheme and precedent so indicate. Conclusion: The Court concluded that the circumstances did not justify denying bail merely because the alleged ITC exceeded Rs. 5 crores on paper; custody was not necessary in absence of other exceptional criteria (see Issue 2 & 3). Issue 2: Applicability and compliance with Section 41A CrPC (notice before arrest) in GST investigations Legal framework: Section 41A CrPC requires notice to appear before arrest in certain offences where punishment is up to five years; arrest without such notice is discouraged except in specified circumstances. Precedent Treatment: The Court relied upon established judicial guidance holding that arrest powers should not be exercised routinely and that Section 41A protections apply to offences attracting imprisonment up to five years unless exceptional conditions justify immediate arrest. Interpretation and reasoning: The Court found that the alleged offence attracts a maximum punishment in the category considered under Section 41A, and the statutory protection should have been considered. The prosecution did not give a Section 41A notice before arrest and the accused was sent to judicial custody without custodial interrogation being sought by the department. Ratio vs. Obiter: Ratio - failure to comply with Section 41A procedural safeguards, absent exceptional arrest-justifying circumstances, weighs in favor of bail. Obiter - list of illustrative exceptional circumstances (e.g., likelihood to flee, habitual offender, originator of fake invoices, nonexistence of place of business) as culled from prior authorities. Conclusion: Non-compliance with Section 41A, in context of no demonstrated need for custodial interrogation and absence of exceptional circumstances, supported grant of bail. Issue 3: Sufficiency of revenue's investigative grounds (non-existent suppliers, concealment, admissions) to deny bail Legal framework: Pre-trial custody depends on criteria including risk of tampering with evidence, risk of flight, need for custodial interrogation, and seriousness of charge. Admissions in departmental statements and documentary analysis are relevant but require corroboration. Precedent Treatment: Courts have held that allegations based on e-waybill analytics, portal status, and departmental statements require corroborative verification, and that arrests on such bases must meet stringent standards. Interpretation and reasoning: The Court acknowledged the departmental assertions: L-1 suppliers allegedly involved in passing ineligible ITC, inability to locate certain supplier entities at registered addresses, and the accused's voluntary statement admitting at least some fraudulent availment and use of bills supplied by agents. But the Court balanced these against: (a) presence of material/articles noted in panchnama suggesting actual purchases; (b) several supplier entities showing active status and GST filings (unverified by the department); (c) no request by IO for custodial interrogation; and (d) lack of indicia of flight risk or habitual offending. Ratio vs. Obiter: Ratio - where investigative materials are incomplete and key assertions (non-existence of suppliers, fake invoices) remain unverified, such grounds alone do not justify continued detention. Obiter - admissions in departmental statements are important but must be weighed against independent verification and overall investigative necessity. Conclusion: Revenue's grounds were insufficient to deny bail; verification of supplier activity and documentary evidence remained part of ongoing investigation, and custodial detention was unnecessary. Issue 4: Jurisdictional objections affecting detention and investigation Legal framework: Jurisdictional competence of a revenue office can be relevant to investigative propriety but does not per se determine bailability unless misuse of jurisdiction results in prejudice to accused or impedes investigation. Precedent Treatment: Courts recognize that disputes as to territorial jurisdiction are matters for investigation and trial; they do not ordinarily justify custodial detention where other bail factors favor release. Interpretation and reasoning: The accused argued certain supplier entities fall outside the office's territorial jurisdiction and that, after excluding those supplies, the alleged ITC falls below the non-bailable threshold. The Court noted these contentions and observed that the department had not verified supplier claims; however, the jurisdictional objection did not mandate continued custody. Ratio vs. Obiter: Ratio - jurisdictional contentions, being relevant to merits, do not justify detention where investigation is complete/does not require custody and other bail factors favor release. Obiter - jurisdictional disputes should be resolved during trial/investigation without routine use of arrest merely to secure attendance. Conclusion: Jurisdictional objections weighed in favor of granting bail where they undermined the asserted basis for non-bailable detention and were unverified by the prosecution. Issue 5: Conditions to be imposed on bail in large-scale GST fraud allegations Legal framework: When bail is granted in serious economic offences, courts may impose supervisory and restrictive conditions tailored to secure attendance, prevent tampering, and protect investigation integrity. Precedent Treatment: Judicial practice supports imposition of electronic tracking, regular reporting, restrictions on travel, and non-contact with witnesses as reasonable conditions in economic offence bail orders. Interpretation and reasoning: The Court balanced the accused's right to liberty with public interest and investigation needs. It imposed specific conditions: furnishing of sureties, provision of mobile number, keeping phone switched on, daily live-location PIN to IO, weekly reporting to revenue office, prohibition on influencing witnesses, no foreign travel without permission, undertaking to join investigation when required, and liberty for prosecution to move for cancellation on new FIRs. Ratio vs. Obiter: Ratio - tailored supervisory conditions that facilitate monitoring and investigation are appropriate when granting bail in economic offence cases. Obiter - such conditions should be proportionate and aimed at facilitating investigation rather than punitive. Conclusion: Bail was granted subject to stringent monitoring and reporting conditions designed to address investigative concerns and ensure attendance at trial, while recognizing that continued custody was not justified on given facts.