Bail granted to accused under CGST Act for alleged fictitious GST registrations and wrongful ITC claims; arrest needs rational nexus

Bombay HC granted bail to the accused arrested under the CGST Act for allegedly procuring GST registration on fictitious documents and claiming accumulated ITC without real supplies. The court held that "reasons to believe" for arrest require a rational nexus to material and cannot rest on mere suspicion. Having noted searches, recorded statements, payment of Rs.81 lakh towards tax, the maximum punishment of up to five years and availability of compounding, the HC found detention unnecessary. In view of these factors and applicable SC guidance on arrests, the criminal application was allowed.

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Issues Involved:
1. Legality of the Applicant's Arrest
2. Applicability of Section 41A of the Code of Criminal Procedure
3. Allegations of Tax Fraud and Evidence
4. Application of Judicial Precedents and Guidelines
5. Conditions for Granting Bail

Summary:

1. Legality of the Applicant's Arrest:
The applicant was arrested on 28.11.2023 in connection with Case No. DGGI/INTL/1082/2023 for offences under Sections 132(1)(b), 132(1)(c), 132(1)(i) read with Section 132(5) of the CGST Act, 2017. The Directorate General of GST Intelligence (DGGI) conducted a search and seized three mobile phones, revealing that the applicant's trade firm, Arihant Traders, was non-existent and had no business activity. The applicant allegedly managed multiple firms under one PAN, issued fake invoices, and claimed fraudulent ITC, thus committing the offence.

2. Applicability of Section 41A of the Code of Criminal Procedure:
The applicant's counsel argued that the arrest was unwarranted and violated Section 41A of the Code of Criminal Procedure, which mandates recording reasons for arrest. The non-applicant's counsel contended that Section 69 of the CGST Act, 2017, empowers the Commissioner to arrest a person based on "reasons to believe" that an offence has been committed, thus overriding Section 41A. The court noted that "reasons to believe" must be based on information and evidence, not mere suspicion.

3. Allegations of Tax Fraud and Evidence:
The applicant allegedly committed a tax fraud of Rs. 144.65 crores by availing and passing on inadmissible ITC. During the search, no documents of business activity were found. The applicant admitted to obtaining GST registrations for multiple firms on the same PAN and issuing invoices without actual supply of goods, thereby availing fraudulent ITC. The court considered these admissions and the material evidence collected during the search.

4. Application of Judicial Precedents and Guidelines:
The applicant's counsel cited several judicial precedents, including the cases of Satender Kumar Antil vs. CBI and State of Gujarat vs. Choodamani Parmeshwaran Iyer, arguing that the arrest was unjustified without proper adjudication. The court acknowledged that the power to arrest under Section 69 of the CGST Act, 2017, must be exercised with care and circumspection, and the guidelines issued by the Honourable Apex Court must be followed.

5. Conditions for Granting Bail:
The court emphasized that "bail is rule and jail is exception" and noted that the maximum punishment for the alleged offences is imprisonment up to five years. The applicant had already paid Rs. 81.00 lacs towards the tax amount. Considering the non-heinous nature of the crime and the completion of the investigation, the court granted bail with conditions, including executing a P.R. Bond of Rs. 2.00 lacs, surrendering the passport, and not leaving the jurisdiction without prior permission.

Order:
1. The criminal application is allowed.
2. The applicant shall be released on bail on executing a P.R. Bond in the sum of Rs. 2.00 lacs with one solvent surety.
3. The applicant shall attend the office of the non-applicant as required for investigation.
4. The applicant shall surrender his passport within a week from release.
5. The applicant shall not leave the jurisdiction of Nagpur district without prior permission of the Court.

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