2025 (3) TMI 57 - HC - GST

Directors get bail in GST fraud case involving fake invoices and Input Tax Credit scam under Section 132

Allahabad HC granted regular bail to two accused directors charged under Section 132(1)(b)(c) of Central Goods and Services Tax Act, 2017 for fraudulent ... Seeking grant of regular bail - fraudulent availment of Input Tax Credit - passing of ITC through five firms/companies without supply of relevant goods - offences under Section 132(1)(b) & (c) Central Goods and Services Tax Act, 2017 - HELD THAT:- This Court finds that as per the prosecution, the accused-applicants are directors of M/s Siwon Enterprises Pvt. Ltd. and M/s MS Singhal Trading India Pvt. Ltd., who were allegedly involved in arranging fake invoices for various buyers or end-users in order to pass on fake Input Tax Credit to them, and they also arranged availment of fake Input Tax Credit in the fake firms, and in return the accused-applicants had been receiving commission in cash. A perusal of the complaint/charge sheet dated 13.12.2024 would show that the applicants were associated in investigation on 16.10.2024 and their statements under Section 70 Central Goods and Services Act, 2017 were recorded, and as per these statements the accused had given the separate lists of suppliers and recipients of their above noticed two firms. The complaint/ charge sheet dated 13.12.2024 though is silent about number of the beneficiaries, but according to the additional counter affidavit dated 10.2.2025, total 1267 persons received the benefit of fraudulent Input Tax Credit, however neither their particulars have been given in the additional counter affidavit nor the amount of commission received by the applicants has been disclosed. The sole piece of evidence relied upon by prosecution regarding involvement of accused-applicants with fake firms is the confession of the applicants recorded under Section 70 Central Goods and Services Tax Act, 2017, but the truthfulness of the same would be tested during trial, which is yet to commence. Admittedly, the alleged offences are triable by magistrate and carry a maximum punishment of five years. As far as the investigation relating to the applicants is concerned, the same has been completed, as the complaint/ charge sheet dated 13.12.2024 has been filed against the applicants and their firms, whereupon the cognizance order dated 13.12.2024 has also been passed. However, the charges against the accused-applicants have not been framed and trial is yet to start - keeping in view the nature of the trial, period of more than five months undergone by the applicants as an undertrial as well as the fact that there is no likelihood of conclusion of trial in near future, this Court deems it appropriate to extend the concession of regular bail to the applicants, as their further detention behind the bars would not serve any useful purpose. Conclusion - Bail is granted holding that detention was not justified given the completion of the investigation and the lack of immediate trial commencement. The bail application is allowed and it is ordered that the applicants–Vikrant Singhal and Sachin Singhal be released on regular bail in the above case subject to their furnishing the requisite bail bonds and surety bonds to the satisfaction of the trial court. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the applicants, Vikrant Singhal and Sachin Singhal, should be granted regular bail during the pendency of the trial under Sections 132(1)(b), 132(1)(c), and 132(1)(i) of the Central Goods and Services Tax Act, 2017.The extent of the applicants' involvement in the alleged fraudulent Input Tax Credit (ITC) scheme and their role in issuing fake invoices without supplying underlying goods.The admissibility and impact of the applicants' confessions recorded under Section 70 of the Central Goods and Services Tax Act, 2017.The appropriateness of granting bail in cases involving economic offences, particularly in light of the alleged large-scale fraud involving Rs. 885 crores.ISSUE-WISE DETAILED ANALYSIS1. Grant of Bail Under Section 483 Bharatiya Nagarik Suraksha Sanhita, 2023Relevant Legal Framework and Precedents:The applicants sought bail under Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023. The legal framework for granting bail involves assessing the nature of accusations, evidence, punishment likely upon conviction, and the principle that bail is a rule and denial an exception, as reiterated in Sanjay Chandra Vs. CBI.Court's Interpretation and Reasoning:The Court considered the applicants' prolonged detention, the completion of the investigation, and the fact that the trial had not yet commenced. The Court emphasized that bail is generally granted unless there are compelling reasons to deny it, especially when the accused has not yet been convicted.Key Evidence and Findings:The applicants were accused of availing and passing on fraudulent ITC through fake invoices. Their confessions under Section 70 of the GST Act were pivotal, but the truthfulness of these confessions would be tested during the trial.Application of Law to Facts:The Court applied the principle that pre-trial detention should not be punitive and that the accused should be presumed innocent until proven guilty. The lack of immediate trial commencement and the completion of the investigation were significant factors favoring bail.Treatment of Competing Arguments:The prosecution argued against bail, citing the economic nature of the offences and the large-scale fraud. However, the Court found that the documentary nature of the evidence and the official status of most witnesses reduced the risk of tampering, thus supporting bail.Conclusions:The Court concluded that the applicants should be granted bail, as further detention would not serve any useful purpose, given the circumstances.2. Involvement in Fraudulent ITC SchemeRelevant Legal Framework and Precedents:The allegations involved Sections 132(1)(b), 132(1)(c), and 132(1)(i) of the GST Act, which pertain to fraud and false invoices. The precedents highlight the seriousness of economic offences but also emphasize the need for evidence to substantiate claims.Court's Interpretation and Reasoning:The Court scrutinized the evidence presented, including the applicants' confessions and the financial analysis of transactions. It noted that the prosecution relied heavily on these confessions, which would be tested during the trial.Key Evidence and Findings:The prosecution alleged that the applicants were involved in a scheme to issue fake invoices and pass on fraudulent ITC. However, the Court found that the evidence linking the applicants to the broader fraudulent network was not conclusively presented at this stage.Application of Law to Facts:The Court applied the law by balancing the seriousness of the allegations with the evidence available. It recognized the potential for the applicants' involvement but noted that the trial would be the appropriate forum for determining guilt.Treatment of Competing Arguments:The defense argued that the applicants' involvement was not conclusively proven and that the prosecution's case relied on confessions made under duress. The Court acknowledged these arguments, noting the need for a trial to resolve these issues.Conclusions:The Court did not make a final determination on the applicants' involvement in the fraudulent scheme but highlighted the need for a trial to assess the evidence thoroughly.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:'In bail applications, generally, it has been laid down from the earliest times that the object of bail is to secure the appearance of the accused person at his trial by reasonable amount of bail. The object of bail is neither punitive nor preventative.'Core Principles Established:Bail is a rule, and denial is an exception, particularly when the trial has not commenced, and the investigation is complete.The nature of economic offences requires careful consideration, but the presumption of innocence and the right to liberty remain paramount.Final Determinations on Each Issue:The Court granted bail to the applicants, emphasizing that their continued detention was not justified given the completion of the investigation and the lack of immediate trial commencement. The Court ordered their release on regular bail, subject to furnishing requisite bonds and abiding by conditions set by the trial court.