Anticipatory bail denied in Rs 10.38 crore GST fraud case involving fake Input Tax Credit claims under Sections 16(2) and 155

The Bombay HC dismissed a writ petition seeking anticipatory bail and release of attached bank accounts in a GST case involving fraudulent Input Tax Credit claims worth Rs. 10.38 crores. The petitioner's firm and suppliers were found non-existent at registered addresses, constituting violations under Sections 16(2) and 155 of CGST Act, 2017. Despite multiple summons, the petitioner failed to participate in proceedings or prove eligibility for ITC. The court held the petitioner did not approach with clean hands, had committed fraud on public exchequer, and failed to establish a prima facie case for protection. The petition was dismissed and interim protection vacated.

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Issues Involved:
1. Pre-arrest bail under Section 69 of the CGST Act, 2017.
2. Reversal of Input Tax Credit (ITC).
3. Cancellation of GST registration.
4. Attachment of bank account under Section 83 of the CGST Act, 2017.
5. Summons under Section 70 of the CGST Act, 2017.
6. Alleged non-cooperation during investigation.
7. Validity of protection orders based on precedents.

Summary:

1. Pre-arrest bail under Section 69 of the CGST Act, 2017:
The petitioner sought pre-arrest bail pending investigation by respondent No. 2 and requested that the respondent be restrained from exercising arrest powers u/s 69 of the CGST Act, 2017, before determining tax and providing grounds of arrest.

2. Reversal of Input Tax Credit (ITC):
The petitioner contended that despite following the procedure for availing ITC, the respondent No. 2 forced the petitioner to reverse the ITC passed on by the supplier, M/s. Mahaveer Bullion, and issued a show cause notice for cancellation of registration.

3. Cancellation of GST registration:
A show cause notice was issued on 3rd November 2022, and the petitioner's registration was canceled on 12th January 2023. The petitioner claimed that these actions were arbitrary and without following principles of natural justice, causing heavy business losses.

4. Attachment of bank account under Section 83 of the CGST Act, 2017:
The petitioner's bank account was attached u/s 83 of the CGST Act, 2017, without a show cause notice, which the petitioner argued was done arbitrarily and in a high-handed manner.

5. Summons under Section 70 of the CGST Act, 2017:
The petitioner was summoned under Section 70 of the CGST Act, 2017, to give evidence or produce documents. The petitioner apprehended arrest u/s 69 of the CGST Act, 2017, in violation of Article 20(3) of the Constitution of India.

6. Alleged non-cooperation during investigation:
Respondent No. 2 alleged that the petitioner availed fake ITC from non-existent entities and was non-cooperative during the investigation. Summons were issued multiple times, but the petitioner remained elusive.

7. Validity of protection orders based on precedents:
The petitioner relied on the Supreme Court judgment in State of Gujarat V/s. Choodamani Parmeshwaran Iyer, arguing that he could seek protection orders fearing curtailment of liberty. However, the court found no merit in the petitioner's case for protection as the petitioner and suppliers were found to be non-existent.

Conclusion:
The court concluded that the petitioner did not make out a case for protection. The petitioner's conduct of availing ineligible ITC amounted to fraud on the Public Exchequer. The petition was dismissed, and interim protection was vacated. The court emphasized that the petitioner failed to prove eligibility for ITC and did not cooperate with the investigation. The petition stood disposed of accordingly.

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