2024 (3) TMI 968 - HC - GST

Bail granted for GST fraud accused due to lack of proper arrest reasoning and advanced investigation

Deepanshu Srivastava Versus Union of India Thru. Deptt. Of Revenue Directorate GST Intelligence Lko. Zonal Unit

The Allahabad HC granted bail to an applicant charged with fraudulent GST input tax credit availment through fake invoices and bogus firms. The court ... Seeking grant of bail - fraudulent availment and passing of input tax credit of G.S.T, by preparing fake invoices without any actual supply of goods by several firms created, managed and run by the applicant - creation of a number of bogus firms for the purpose of issuing fake invoices - HELD THAT:- Perusal of the provisions contained under Section 73 and 74 of the CGST Act would reveal that a mechanism has been provided therein with regard to the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilfull mis-statement or suppression of facts. Section 74 of the CGST Act provides for assessment of tax by the proper officer by issuing a notice to the assesee, however, sub-section 11 of Section 74 of the CGST Act would suggest that if the tax, which has been calculated along with the interest payable or the penalty is deposited, all proceedings in respect of the said notice shall be deemed to be concluded - it may be inferred that even if all the tax liability including penalty, etc. has been deposited, it would be only the 'notice' which would be discharged and the proceedings with regard to Section 132 of the CGST Act shall remain alive. Thus, there seems force in the submissions made by learned counsel for the Department that the process of prosecution and assessment may go on simultaneously. The arrest of the applicant has not been done for his non cooperation in the investigation or for further investigation. Nowhere it is stated that the applicant while at liberty may hinder the smooth progress of investigation and in this order it has also not been mentioned as to why the applicant is being arrested, which was required to be stated. The requirement under sub-section (1) of section 69 of CGST Act is reasons to believe that not only a person has committed any offence as specified but also as to why such person needs to be arrested. From a perusal of the reasons recorded by the Principal Additional Director General, it is reflected that no incident has been mentioned therein recording any act of the applicant or his conduct of threatening any witness or even of not co-operating with the investigation or of fleeing from investigation. It is true that economic offences constitute a class apart and need to be visited with a different approach in the matter of bail, because such offences pose serious threat to the financial health of the country, but there has to be a sound reason or belief for curtailing the liberty of a person, specially in the offences punishable with up to seven years of imprisonment. Keeping in view the fact that applicant has appeared before the department on 30, 31 January 2024 and on 01st February and his statements have been recorded on these days and he was arrested on 2nd February, 2024 and produced before the magistrate and no custody remand was sought by the department and it was after many days i.e. on 26.02.2024 the department has taken the permission from the Court concerned for interrogation of the applicant in jail and also that applicant has retracted his confessional statements and in the orders of arrest no reason has been mentioned as to why after recording of the statements of the applicant for many days his arrest is required and also keeping view that applicant is in jail in this case since 02.02.2024 and investigation appears to have reached an advanced statge and nothing has been shown before this Court which may justify the further detention of the applicant in prison and also considering that the alleged offence is punishable with up to 5 years maximum punishment and still no formal accusation in the form of FIR or complaint has been filed by the department and also keeping in view that in such circumstances continuing the detention of the petitioner may not at all be justified and it appears justified for this court to strike a fine balance between the need for further detention of the applicant when even custodial interrogation has not been claimed at all by the Department and considering the right of an accused to personal liberty, applicant may be released on bail, however subject to certain conditions. Let the accused/applicant- Deepanshu Srivastava involved in above-mentioned case, be released on bail on his furnishing a personal bond with two sureties in the like amount to the satisfaction of the court concerned subject to fulfilment of conditions imposed - bail application allowed. Issues Involved:1. False Implication and Arrest Without Tax Assessment2. Legality of Arrest and Detention3. Non-issuance of Notice Under Section 74 of CGST Act4. Recovery and Evidence Legitimacy5. Statements and Alleged Non-cooperation6. Economic Offence and Bail ConsiderationsSummary:1. False Implication and Arrest Without Tax AssessmentThe applicant argued that he was falsely implicated and arrested without any tax liability assessment. It was submitted that the department must first assess the tax liability before proceeding under \u/s 69 of the CGST Act for arrest. The department has not shown any assessed tax liability, making the arrest and detention unjustified.2. Legality of Arrest and DetentionThe applicant contended that no valid grounds were provided in the arrest memo, and vague language was used to justify the arrest. The applicant was detained illegally for three days before being formally charged. The department did not request custody remand, indicating that further detention was unnecessary.3. Non-issuance of Notice Under Section 74 of CGST ActThe applicant claimed that no notice was given under \u/s 74 of the CGST Act, and the offenses were initially shown as bailable. However, the department later associated the applicant with multiple shell companies without basis. The department argued that prosecution and adjudication can proceed simultaneously, citing Supreme Court precedents.4. Recovery and Evidence LegitimacyThe applicant challenged the legitimacy of the recovery memo, arguing it was not made in his presence and lacked his signature, violating \u/s 100 of the Cr.P.C. No incriminating articles were recovered from the applicant's premises, and statements from others were allegedly obtained under duress.5. Statements and Alleged Non-cooperationThe applicant's statements were recorded under duress, and he retracted them. The department claimed that the applicant admitted his involvement in the crime and was not cooperating with the investigation. The court noted that cooperation does not mean self-incrimination and that the applicant appeared before the investigating officer as required.6. Economic Offence and Bail ConsiderationsThe department argued that economic offenses require stringent handling and cited several Supreme Court judgments emphasizing the seriousness of such crimes. The applicant countered with precedents favoring bail when the offense is punishable with up to five years of imprisonment. The court found that the arrest lacked proper justification and that further detention was not warranted, especially since no formal complaint or FIR was filed.Conclusion:The court granted bail to the applicant, emphasizing the need to balance the right to personal liberty with the requirements of the investigation. The applicant was ordered to comply with specific conditions, including surrendering his passport and not tampering with evidence or engaging in criminal activities. The court's observations were limited to the bail application and did not reflect on the case's merits.