2025 (4) TMI 91 - DSC - GST

Bail denied for mastermind of Rs. 54 crore GST fraud using 12 fake firms for fraudulent Input Tax Credit

DSC Meerut dismissed bail application of accused involved in GST fraud scheme. Accused operated 12 fake firms to avail and pass fraudulent Input Tax ... Seeking grant of bail - fake billing - creation and operation of fake firms for the purpose of availing and passing on fraudulent Input Tax Credit (ITC) - reasons to believe - HELD THAT:- The proprietor/partners of the 12 firms were summoned by issuing summons at the registered Principle Place of Businesses of those firms as well as the registered residential address of each of them but except Shri Mohd. Azad, Proprietor of M/s Manav Enterprises, none appeared. Shri Mohd, Azad, in his statement dated 14.01.2025 stated that he is MTS Staff (on contract basis) in LNJP Hospital, Delhi and he did not register any firm with the GST department on his PAN No. BUUPV3897D. Analysis of the GSTR-1M of all the 12 firms managed and controlled by Gaurav Gupta revealed that ITC amounting to Rs. 54.03 Crores has been passed by issuing tax invoices of those firms. Gaurav Gupta emerged out as the mastermind for the 12 firms managed and controlled by him, and the brain behind the entire of availment of fake ITC on the strength of invoices taken without receipt of underlying goods and passing on of the fake ITC by issuing invoices of those firms without supply of goods. The intention of the accused is of having transactions without actual supply of goods, for claiming input tax credit (ITC) and for the aforesaid purpose fake invoices and bills were prepared. Thus the applicant/accused Gaurav Gupta appears to be the mastermind in defrauding the Government exchequer by availing and utilizing ineligible ITC of GST without any concomitant supply of goods and also by creating and operating firms which are not owned by him. The offence in the present is affecting the public interest at large - The present case relates to economic offences. Such offence like large scale fraud, money laundering and corruption, are often viewed seriously because they affect the economic fabric of the society. The Courts may deny bail in such cases especially if the accused holds a position of influence or power. Conclusion - The present case is a grave economic offence. The total GST evasion has so far workout amounts to Rs. 53.03 Crores. The investigation is under progress. The applicant if released on bail will definitely try to destroy the evidence and influence the witnesses and there is his high flight risk considering his role. Considering these facts, as well as gravity of the offence, it would not be proper to enlarge him on bail at this stage. The bail application, preferred by the applicant is liable to be rejected at this stage. Bail application dismissed. ISSUES PRESENTED and CONSIDEREDThe primary legal issues considered in this judgment include:Whether the applicant, Gaurav Gupta, is involved in the creation and operation of fake firms for the purpose of availing and passing on fraudulent Input Tax Credit (ITC) under the Central Goods and Services Tax (CGST) Act, 2017.Whether the arrest of Gaurav Gupta was conducted in accordance with the legal provisions under the CGST Act, particularly Section 69, and whether the reasons for arrest were adequately recorded.Whether the applicant is entitled to bail considering the nature of the alleged economic offences and the evidence presented.The impact of the alleged offences on public interest and the economic fabric of society.ISSUE-WISE DETAILED ANALYSIS1. Involvement in Fake Firms and Fraudulent ITCRelevant legal framework and precedents: Sections 132(1)(b), 132(1)(c), and 132(1)(i) of the CGST Act, 2017, which pertain to fraudulent activities related to tax evasion and are cognizable and non-bailable offences.Court's interpretation and reasoning: The Court considered the evidence presented by the prosecution, including the statements of Gaurav Gupta where he admitted to managing 12 fake firms and passing on fraudulent ITC. The investigation revealed that these firms were non-existent at their registered addresses, and Gaurav Gupta was identified as the mastermind behind the fraudulent activities.Key evidence and findings: The prosecution provided evidence of fake invoices and the absence of actual goods transactions. The analysis of GSTR-1M forms showed a significant amount of ITC passed fraudulently. Statements from individuals associated with the firms, such as Mohd. Azad, further corroborated the non-existence of legitimate business activities.Application of law to facts: The Court applied the provisions of the CGST Act to the facts, concluding that the actions of Gaurav Gupta fell under the fraudulent activities outlined in the Act, warranting his arrest and denial of bail.Treatment of competing arguments: The defense argued that Gaurav Gupta was falsely implicated and that the statements were coerced. However, the Court found the prosecution's evidence compelling and noted that the investigation was ongoing, with potential for additional findings.Conclusions: The Court concluded that there was substantial evidence indicating Gaurav Gupta's involvement in the fraudulent activities, justifying the charges under the CGST Act.2. Legality of ArrestRelevant legal framework and precedents: Section 69 of the CGST Act, which outlines the conditions and procedures for arrest, and the precedent set by the Supreme Court in Arnesh Kumar v. State of Bihar regarding the necessity of recording reasons for arrest.Court's interpretation and reasoning: The Court examined whether the arresting authority recorded sufficient reasons for arrest as required by law. It found that the Additional Director General had recorded specific reasons based on the material collected during the investigation.Key evidence and findings: The Court noted that the reasons for arrest were documented, and the arrest was communicated to Gaurav Gupta, fulfilling the procedural requirements.Application of law to facts: The Court determined that the arrest complied with the legal requirements under Section 69 of the CGST Act, and the principles in Arnesh Kumar were adhered to.Treatment of competing arguments: The defense contended that the arrest was unlawful due to lack of proper documentation. However, the Court found that the procedural requirements were met.Conclusions: The Court concluded that the arrest was legally justified and procedurally sound.3. Entitlement to BailRelevant legal framework and precedents: The principles governing bail in economic offences, particularly the precedent set in Y.S. Jagan Mohan Reddy v. CBI, which highlights the serious nature of economic offences.Court's interpretation and reasoning: The Court considered the gravity of the offence, the potential impact on public interest, and the ongoing nature of the investigation. It emphasized the serious nature of economic offences and the need for a different approach in granting bail.Key evidence and findings: The Court found that the fraudulent activities involved a substantial amount of money, posing a threat to the economic health of the country.Application of law to facts: The Court applied the principles from the precedent, considering the nature of accusations, evidence, and potential impact on the investigation.Treatment of competing arguments: The defense argued for bail based on precedents in other cases, but the Court emphasized the need to consider the specific facts and circumstances of each case.Conclusions: The Court concluded that granting bail was not appropriate given the seriousness of the allegations and the potential risk to the investigation.SIGNIFICANT HOLDINGSThe Court held that Gaurav Gupta was not entitled to bail due to the serious nature of the economic offences and the substantial evidence against him. It emphasized the need to view economic offences as grave threats to the financial health of the country, requiring a different approach in bail considerations.Core principles established: Economic offences require careful consideration in bail applications due to their impact on society and the economy. The procedural requirements for arrest under the CGST Act must be strictly followed to ensure legality.Final determinations on each issue: The Court determined that the evidence supported the charges against Gaurav Gupta, the arrest was lawful, and bail was not warranted at this stage due to the ongoing investigation and potential risks.