2023 (12) TMI 737 - HC - GST

Regular bail denied in GST evasion case involving Rs.6.14 crore tax fraud through suppressed turnover

BADHA RAM Versus INTELLIGENCE OFFICER, STATE OF KERALA

Kerala HC dismissed regular bail application in tax evasion case. Petitioner suppressed turnover of Rs.34.15 crores across multiple years and evaded tax ... Seeking grant of Regular Bail - tax evasion - supply of goods without issuing invoices - Power to arrest - HELD THAT:- The transaction by the petitioner was with an intention to suppress his actual outward taxable supplies and thus was involved in large-scale tax evasion. Permission for the search was sought under Section 67(2) of the Act at the principal place of business and the additional place granted by the Joint Commissioner on 20.10.2023. In the search that followed, business transaction books of 480 pages from the business places of Lakshmi Mobile Accessories at Kottayam were seized. On verification, it was found that the petitioner had suppressed a total turnover of Rs.34,15,42,040/- for the years 2021-2022, 2022-2023 and 2023-2024 and has evaded tax approximately to the tune of Rs.6,14,77,567/- being 18% of the taxable turnover. It was also found that the petitioner was doing business even from the VAT regime, and therefore, the suppression for the years 2017-2018, 2018-2019, 2019-2020 and 2020-2021 had to be verified. Based on the above accusations, the petitioner had committed cognizable and non-bailable offences under Section 132(5) of the GST Act, 2017. Power to arrest - HELD THAT:- The power to arrest is one, and the exercise of the same is another. In the instant case, it has to be seen that for a proper investigation of the offence and to prevent the petitioner from causing the evidence of the offence to disappear or to tamper with the same, continued custody of the petitioner is warranted. The power to arrest under Section 69 can be invoked if the Commissioner has a reason to believe that the person has committed offences that are prescribed and which are punishable under Section 132 of the CGST Act, 2017. Thus, the reference to Section 132 in Section 69 is only to indicate the nature of the offences based on which reasonable belief is found and recorded by the Commissioner to pass an order for arrest - in cases of alleged violation of a technical nature, like where a demand of tax is based on a difference of opinion regarding the interpretation of law or such analogous grounds, the power to arrest must be very carefully exercised, having regard to the provisions of S.41 Cr.P.C. that stipulated the situations requiring an arrest. It is also relevant to note that the expression ‘any person’ in Section 69 includes any person suspected or believed to be concerned with tax evasion for availing legal input tax credit. It has to be seen that there is an evasion of more than Rs.6.5 crores alleged against the petitioner. A serious allegation is made, which warrants a thorough investigation. Under such circumstances, when the investigation is going on, bail cannot be granted to the petitioner at this stage - bail application dismissed. Issues Involved:1. Application for regular bail under Section 439 of the Code of Criminal Procedure.2. Allegations of tax evasion under Section 132(1) of the Kerala State Goods and Service Act, 2017.The petitioner, a wholesale distributor of mobile accessories and electronic items, is accused of evading tax payment by supplying goods without issuing invoices, leading to an estimated tax evasion of 6.14 crores. The petitioner's defense includes being a registered dealer regularly paying returns, disputing the inclusion of income from other concerns, and asserting innocence based on proper documentation of transactions. The petitioner's counsel argues that arrest should only follow assessment, citing relevant case law from Madras and Madhya Pradesh High Courts.The prosecution presents evidence of significant tax evasion by the petitioner, alleging suppression of actual taxable supplies and evasion of over 6 crores. The prosecution opposes bail, citing ongoing investigation, dismissal of staff, and potential evidence tampering by the petitioner. The prosecution argues that arrest can be made before assessment under Section 132(5) of the GST Act, emphasizing the seriousness of the offenses and the need for continued detention to prevent interference with the investigation.The court notes the petitioner's registration under GST, the alleged evasion of tax through unrecorded transactions, and the suppression of turnover leading to a substantial tax liability. The court rejects the petitioner's argument that arrest should follow assessment, emphasizing that certain offenses under the GST Act do not require completed assessment for prosecution. The court upholds the prosecution's contention that continued custody is necessary to prevent evidence tampering and influence on witnesses, given the seriousness of the alleged offenses and the early stage of the investigation.In conclusion, the court denies the bail application, considering the substantial alleged tax evasion, the ongoing investigation, and the need to prevent interference with evidence or witnesses. The court emphasizes that arrest powers can be exercised to ensure a proper investigation and prevent tampering with evidence, especially in cases involving significant financial implications and potential witness influence.