2025 (4) TMI 1306 - HC - GST

Regular bail granted to applicants charged with claiming ineligible Input Tax Credit through fake firms

Ankit Rajput, Mayank Rajput Versus Union of India

The Allahabad HC granted regular bail to applicants charged with availing ineligible Input Tax Credit through fake firms. The court noted the case relied ... Seeking grant of regular bail - availment of ineligible Input Tax Credit by utilizing the fake firms - HELD THAT:- This Court finds that the entire case of the prosecution is based upon the documentary material and the investigation in the alleged crime is also complete. Further, during the course of hearing, it is not disputed by Mr. Parv Agarwal, learned counsel that the complaint against the applicants, as well as the other complaints dated 14th November, 2024 and 13th December, 2024 filed against the Shivam Goyal and Vikrant Singhal, etc. respectively, are part of same transactions and the said co-accused have already been extended the concession of regular by this Court. Admittedly, the alleged offences are triable by Magistrate and provide for a maximum punishment of five years imprisonment, and trial is likely to consume considerable time to conclude, therefore, this Court has no hesitation in holding that the further detention of the applicants behind the bars would not serve any useful purpose, who are confined in judicial custody. Further, the prosecution witnesses are official witnesses and presently there does not appear to be any possibility of their being won over, therefore, considering the nature of the trial as well as period of more than six months undergone by the applicants as an undertrial, this Court deems it appropriate to extend the concession of regular bail to the applicants on the ground of parity. Conclusion - Admittedly, the alleged offences are triable by Magistrate and provide for a maximum punishment of five years imprisonment, and trial is likely to consume considerable time to conclude, therefore, this Court has no hesitation in holding that the further detention of the applicants behind the bars would not serve any useful purpose. The bail applications are allowed. The core legal questions considered by the Court in this matter are:1. Whether the applicants, accused under Sections 132(1)(b), 132(1)(c), and 132(1)(i) of the Central Goods and Services Tax Act, 2017 (CGST Act), are entitled to regular bail during the pendency of trial.2. Whether the evidence collected during investigation sufficiently establishes the involvement of the applicants in the creation and operation of fake firms for the purpose of availing and passing on ineligible Input Tax Credit (ITC) under the CGST Act.3. The applicability of parity in granting bail, considering that co-accused persons involved in the same transactions have been granted bail.4. The impact of the stage of investigation and trial on the grant of bail, including the fact that the investigation is complete but trial has not yet commenced.Issue-wise Detailed Analysis1. Entitlement to Regular Bail under the CGST ActThe legal framework governing bail in offences under the CGST Act involves consideration of the seriousness of the offence, the evidence on record, the stage of investigation and trial, and the likelihood of the accused absconding or tampering with evidence. Sections 132(1)(b), (c), and (i) of the CGST Act pertain to offences involving fraudulent availment or utilization of ITC and issuance of invoices without supply of goods or services, which are cognizable and non-bailable offences, punishable with imprisonment up to five years.Precedents emphasize that bail is not a matter of right but a concession, especially in economic offences involving large-scale fraud. However, courts also recognize that once investigation is complete and the trial is yet to commence, prolonged detention may not serve the ends of justice, particularly where the prosecution witnesses are official and unlikely to be influenced.The Court noted that the applicants had been in custody since their arrest on 25.10.2024 and that the investigation was complete with the filing of the charge-sheet on 20.12.2024. The trial was yet to commence, and charges were yet to be framed.The Court also observed that the offences are triable by a Magistrate and carry a maximum punishment of five years, which is a relevant factor in bail consideration.Applying these principles, the Court found that further detention of the applicants would not serve any useful purpose, especially given the period of over six months already spent in custody.2. Sufficiency and Nature of Evidence Against the ApplicantsThe complaint alleged that the applicants, Mayank Kumar Rajput and Ankit Rajput, masterminded the creation and operation of multiple fake firms by misusing documents of various individuals and firms, including M/s Shiv Wire Udhog, M/s MG Wire Udyog, and others, to fraudulently avail and pass on ITC.Key evidence included:Statements recorded under Section 70 of the CGST Act, where the accused admitted operating fake firms created using other persons' IDs.Electronic evidence and incriminating documents recovered during searches at the residences of the applicants.Statements of proprietors of alleged fake firms denying knowledge of transactions and asserting misuse of their documents.Data analysis, including IP address tracking of GST returns, linking Mayank Kumar Rajput to the filing of returns for supplier firms.Confession by Mayank Kumar Rajput of creating 17 firms and working in partnership with another accused, Vikrant Singhal.However, the applicants' counsel argued that the involvement of the applicants was not directly established by the complainant, as the proprietors of the alleged fake firms had denied knowledge of the transactions and claimed misuse of their documents. The counsel also pointed out that separate complaints against other accused persons were pending trial, and the applicants had been falsely implicated.The Court acknowledged that the evidentiary value of the confessions and documentary evidence would be tested during the trial, which had not yet commenced, and therefore refrained from expressing any opinion on the merits of the case at this stage.3. Application of Parity in Granting BailThe Court noted that co-accused persons, namely Vikrant Singhal and Shivam Goyal, involved in the same transactions and offences, had already been granted regular bail by this Court. The prosecution did not dispute this fact.Given that the applicants were similarly situated in relation to the offences and the stage of trial, the Court applied the principle of parity, holding that the applicants should not be discriminated against in the grant of bail.4. Stage of Investigation and TrialIt was undisputed that the investigation was complete, and the charge-sheet had been filed against the applicants on 20.12.2024. However, the trial was yet to commence, and charges were not framed.The Court observed that the trial process was likely to be protracted and that the applicants had already been in judicial custody for over six months. It also noted that proceedings under Section 74 of the CGST Act for assessment and recovery of tax had not been initiated against the accused persons.These factors weighed in favor of granting bail, as continued detention during a lengthy trial would not be justified.Treatment of Competing ArgumentsThe prosecution emphasized the seriousness of the offences, highlighting the large amounts of fraudulent ITC involved (over Rs. 9 crore and Rs. 15 crore availed and passed on by the respective applicants) and argued that the applicants were the masterminds behind the fake firms. It contended that such serious economic offences warranted denial of bail.Conversely, the defense argued lack of direct evidence, the existence of separate complaints against other accused persons, the applicants' lawful business background, and the grant of bail to co-accused, urging the Court to extend the same concession to the applicants.The Court balanced these arguments, noting the seriousness of the offence but also the stage of proceedings, the nature of evidence, and the principle of parity. It concluded that the applicants' continued detention was not necessary.Significant HoldingsThe Court held:'The entire case of the prosecution is based upon the documentary material and the investigation in the alleged crime is also complete... the admissibility of the confession of the accused-applicants recorded under Section 70 GST Act is concerned, the evidentiary value would be tested during trial, which is yet to commence.''Admittedly, the alleged offences are triable by Magistrate and provide for a maximum punishment of five years imprisonment, and trial is likely to consume considerable time to conclude, therefore, this Court has no hesitation in holding that the further detention of the applicants behind the bars would not serve any useful purpose.''Considering the nature of the trial as well as period of more than six months undergone by the applicants as an undertrial, this Court deems it appropriate to extend the concession of regular bail to the applicants on the ground of parity.'Accordingly, the Court ordered that the applicants be released on regular bail subject to furnishing bail and surety bonds and compliance with bail conditions imposed by the trial court, without expressing any opinion on the merits of the case.