2024 (8) TMI 1095 - HC - GST

Bail granted under Section 132 HGST Act for wrongful Input Tax Credit through fictitious invoices pending tax liability determination

Vishal Chauhan Versus Haryana State GST (Intelligence Unit) through Excise Taxation Officer-cum-Proper Officer, Rohtak

Punjab & Haryana HC granted regular bail to petitioner charged under Section 132 of HGST Act for wrongful Input Tax Credit through fictitious ... Seeking grant of regular bail - wrongful Input Tax Credit (ITC) - fictitious invoices shown to be issued by nonexistent/ suspicious firms - HELD THAT:- The provisions of Section 132 of HGST Act, which are pari materia with Section 132 of CGST Act are relevant for the purpose. As per Section 132 (1)(b) and (c), whoever issues an invoice or bill without supply of goods or service or both in violation of provisions of this Act, leading to wrongful availment or utilization of Input Tax Credit or refund of tax or avails Input Tax Credit using such invoice or bill ‘commits’ the offence under this Section and is liable for punishment with imprisonment for a term which may extent to 05 years and with fine in cases where the amount of tax evaded or the amount of Input Tax Credit wrongly availed or utilized or the amount of refund wrongly taken exceeds Rs. 500 Lakhs. In M/S. JAYACHANDRAN ALLOYS (P) LTD. VERSUS THE SUPERINTENDENT OF GST AND CENTRAL EXCISE, THE DEPUTY COMMISSIONER OF GST AND CENTRAL EXCISE HEAD QUARTERS PREVENTIVE UNIT, THE ADDITIONAL COMMISSIONER OF GST AND CENTRAL EXCISE, THE COMMISSIONER OF GST AND CENTRAL EXCISE [2019 (5) TMI 895 - MADRAS HIGH COURT], the allegation of the revenue was that the petitioner-company had contravened the provisions of Section 16(2) of the CGST Act and availed excess ITC insofar as there had been no movement of goods as against the supplier and the petitioner and the transactions were bogus and fictitious, created only on paper solely to avail ITC. Show cause notice issued under Section 74(1) of the HGST Act/CGST Act upon him is yet to be adjudicated upon and the exact liability of the petitioner/his firm is yet to be fixed. The sentence to be awarded in this case is directly linked with the quantum of evasion of tax and the prosecution of the petitioner is also linked with determination of evasion of tax because if there is no evasion of tax, there can be no criminal liability. The determination of tax liability is subject to the challenge before tribunals and courts and does not fall within the realm of criminal courts. The determination of tax liability is subject to the challenge before tribunals and courts and does not fall within the realm of criminal courts. Further in view of the fact that one M/s Tata Steels Ltd. has also been issued notice under Section 74(1) of the HGST Act/CGST Act jointly with the petitioner on the allegations of being major recipient of the ITC and its liability is also to be adjudicated upon, which obviously may reduce the liability to be imposed upon the petitioner, coupled with the fact that maximum period of punishment to be awarded under Section 132 of the HGST Act is 05 years. The petitioner is directed to be released on regular bail, subject to his executing personal bonds with two solvent sureties each in the sum of Rs. 50 Lakhs to the satisfaction of the trial Court and further subject to the condition that he will surrender his passport before the trial Court and shall not leave the country during trial without prior permission of the Court. The present petition is allowed. Issues Involved:1. Legality of the petitioner's arrest under Section 132 of the HGST Act.2. Requirement of adjudication and assessment of tax liability before arrest.3. Petitioner's compliance with summons and the validity of the arrest.4. Determination of the petitioner's tax liability and its impact on bail eligibility.5. The petitioner's risk of flight and criminal antecedents.6. Applicability of legal precedents in granting bail.Issue-Wise Detailed Analysis:1. Legality of the petitioner's arrest under Section 132 of the HGST Act:The petitioner argued that his arrest was illegal as he complied with all summons and notices. The petitioner cited the case of Arnesh Kumar vs. State of Bihar and Dr. Rini Johar vs. State of M.P., emphasizing that Sections 41 and 41-A of the Cr.P.C. were not followed, making the arrest unlawful. The court examined whether the arrest under Section 132(1)(b) and (c) of the HGST Act, which involves wrongful ITC claims, was justified.2. Requirement of adjudication and assessment of tax liability before arrest:The petitioner contended that his arrest without prior adjudication and assessment of tax liability was illegal. He believed that the cancellation of his GST certificate indicated the end of the investigation. The court referenced the cases of Akhil Krishan Maggu vs. Deputy Director, Directorate General of GST Intelligence and Jayachandran Alloys (P) Ltd. vs. Superintendent of GST & Central Excise, which state that adjudication is necessary before determining liability and initiating prosecution.3. Petitioner's compliance with summons and the validity of the arrest:The petitioner maintained that he had always complied with summons and provided necessary documents either personally or through a representative. His arrest on 20.02.2024 was argued to be premature and based on suspicion without credible evidence. The court considered the petitioner's compliance history and the procedural adherence by the authorities in making the arrest.4. Determination of the petitioner's tax liability and its impact on bail eligibility:The court noted that the exact tax liability of the petitioner and his firm was yet to be determined through adjudication under Section 74(1) of the HGST/CGST Acts. The involvement of M/s Tata Steel Ltd., a major recipient of ITC from the petitioner's firm, was also highlighted. The court emphasized that the determination of tax liability is essential before concluding criminal liability and that the petitioner's liability could be reduced upon adjudication.5. The petitioner's risk of flight and criminal antecedents:The petitioner argued that he had no criminal antecedents, a permanent place of business, and was willing to surrender his passport, indicating no flight risk. The court assessed these factors, considering the petitioner's readiness to comply with bail conditions and the completion of the investigation.6. Applicability of legal precedents in granting bail:The court referred to several precedents, including Ashutosh Garg vs. Union of India and Yash Goyal vs. Union of India, where bail was granted considering the maximum sentence, period of incarceration, and the time likely required for trial. The court found these precedents applicable, noting that the petitioner had been in custody for six months, the maximum sentence was five years, and the trial would take time.Conclusion:The court concluded that the petitioner's arrest was premature without adjudication of tax liability and that he had complied with summons. Considering his lack of criminal antecedents, permanent abode, and willingness to surrender his passport, the court granted bail. The petitioner was directed to be released on regular bail with conditions, including executing personal bonds and surrendering his passport. The observations made were specific to the bail petition and not to affect the case's merits.