2024 (8) TMI 1191 - HC - GST

GST fraud accused denied bail for creating fake companies and claiming inadmissible Input Tax Credit without actual supply

The Jharkhand HC rejected bail for a petitioner involved in GST fraud through creating fake companies and passing inadmissible Input Tax Credit without ... Grant of bail - creating fake companies/ firms and appointing their Directors/ Partners/ Proprietors, who is further involved in passing on the inadmissible Input Tax Credit - illegal passing of inadmissible Input Tax Credit of Goods and Services Tax - HELD THAT:- It is evident that Sumit Gupta without knowledge of so-called directors, proprietors and other staff of company had used to pass inadmissible and indelible input tax credit to various firms without supply of underlying goods/ services. The irregular input tax credit on the basis of invoices were issued by fictious/ fake suppliers without actual supply of goods for services, leading to the wrongful availment or utilization of input tax credit and passing thereof which resulted in huge loss in revenue to the government. Even an ordinary person of country is paying CGST & SGST of central and state government for the building and development of nation and state but the persons like petitioner who is white-collar criminals impede and obstruct the development of nation and state as well by creating fake and bogus firm committing forgery in well planned manner in cool calculation and dishonest design with a vulture eye on personal profit causing huge loss of public funds, affects economy of nation and state, should be dealt with different approach to send the eye opening message to such white-collar criminals of society. The Hon’ble Apex Court in the case of Y.S. Jagan Mohan Reddy Vs. CBI [2013 (5) TMI 896 - SUPREME COURT] held that 'Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offences having deeprooted conspiracies and involving huge loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country.' In view of the allegations made in the complaint, verified materials on record and also taking into consideration the cognizance order dated 04.06.2024 passed by the learned Presiding Officer, Special Court Economic Offences, Jamshedpur, whereby the cognizance has been taken against the petitioner for the offences under Sections 132 (1) (i) to (iv) read with 132 (4) and (5) of the CGST Act, 2017 as well as under Sections 201 (Part-3), 204, 420, 465, 467, 468 and 471 of the Indian Penal Code, 1860, the petitioner is not entitled for bail. Accordingly, the bail application of the petitioner is, hereby, rejected. Issues Involved:1. Legality of the petitioner's arrest and prosecution under the CGST Act.2. Allegations of masterminding a scheme involving fake companies and bogus GST invoices.3. Quantum of loss to the Government Exchequer.4. Applicability of Circular No. 171/03/2022-GST.5. Parity with co-accused granted bail.6. Judicial custody and trial duration.7. Relevance of cited judgments.Detailed Analysis:1. Legality of the Petitioner's Arrest and Prosecution under the CGST Act:The petitioner was arrested on 08.04.2024 and produced before the Additional Chief Judicial Magistrate, Alipore, Kolkata, for a transit remand. The petitioner was then taken to Jharkhand and sent to judicial custody on 09.04.2024. The prosecution report alleges that the petitioner created fake companies and passed inadmissible Input Tax Credit (ITC), causing a loss of Rs. 522.91 crores to the Government Exchequer. The petitioner contended that he was made a scapegoat and argued that he could not be prosecuted under Section 132 of the CGST Act as he did not retain any benefits and no adjudication proceedings were carried out against him.2. Allegations of Masterminding a Scheme Involving Fake Companies and Bogus GST Invoices:The prosecution report claims that the petitioner is the mastermind behind creating, operating, and managing 135 fake firms. These firms issued bogus GST invoices worth approximately Rs. 5122 crores without actual supply of goods, leading to a loss of Rs. 781.39 crores to the Government Exchequer. The petitioner allegedly managed ground-level office work, hired staff through fake interviews, and used their credentials to create bogus firms.3. Quantum of Loss to the Government Exchequer:The prosecution report indicates varying figures of loss at different stages. Initially, the loss was reported as Rs. 303.47 crores, which later increased to Rs. 522.91 crores. The petitioner's involvement was specifically linked to a loss of Rs. 4.87 crores through M/s Navya Commercial Pvt. Ltd. The prosecution asserts that the total loss from the petitioner's activities amounts to Rs. 781.39 crores.4. Applicability of Circular No. 171/03/2022-GST:The petitioner argued that as per Circular No. 171/03/2022-GST, he could not be arrested or prosecuted under Section 132 of the CGST Act. However, the court found this circular irrelevant given the significant loss to the Government Exchequer and the ongoing investigation, which could reveal an even higher amount of loss.5. Parity with Co-Accused Granted Bail:The petitioner sought bail on the grounds that a similarly situated co-accused, Amit Gupta, was granted bail. However, the court noted that the petitioner's role was significantly different and more severe, as he was the mastermind behind creating 133 fake firms. Therefore, the same parity could not be extended to the petitioner.6. Judicial Custody and Trial Duration:The petitioner has been in judicial custody since 09.04.2024, and the trial is not expected to conclude soon. The maximum punishment under Section 132 of the CGST Act is five years. Despite this, the court did not find sufficient grounds to grant bail, considering the gravity of the allegations and the potential impact on the economy.7. Relevance of Cited Judgments:The petitioner relied on the judgment in Ratnambar Kaushik Vs. Union of India, arguing for bail. However, the court found this judgment inapplicable as the present case involved allegations of forgery, which could lead to life imprisonment. The court also cited the Apex Court's judgments in Y.S. Jagan Mohan Reddy Vs. CBI and State of Gujarat v. Mohanlal Jitamalji Porwal, emphasizing that economic offences should be viewed seriously and handled with a different approach.Conclusion:Given the verified materials on record, the allegations against the petitioner, and the cognizance order dated 04.06.2024, the court concluded that the petitioner is not entitled to bail. The bail application was accordingly rejected.