2025 (7) TMI 788 - HC - GST

Three applicants granted regular bail in fake firms input tax credit fraud case after seven months custody

Sanjeev Dixit Alias Sanjeev Kumar, Rohit Mishra Versus Union of India And Viprendra Kumar Upadhyay Alias Vikash Versus Indian Union Finance Ministry

The Allahabad HC granted regular bail to three applicants charged with creating fake firms to wrongfully claim input tax credit. The court noted the ... Seeking grant of Regular Bail - creating, operating and managing a nexus of fake firms for availing wrongful input tax credit from the firms having no actual inward supplies - HELD THAT:- Admittedly, the alleged offences are triable by Magistrate and the maximum punishment provided for these offences is five years imprisonment, and after the arrest, the applicants have already undergone a period of nearly seven months in judicial custody. Revenue has fairly stated that at present, the investigation qua the applicants is complete, and the charges against the accused-applicants have not been framed so far, therefore, it becomes clear that the trial is yet to commence. Most importantly, the material prosecution witnesses are official witnesses, and at present, there does not seem any possibility of their being won over, and because the trial is not likely to conclude in near future, therefore, 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. Resultantly, without meaning any expression of opinion on the merits of the case, the bail applications are allowed, and it is ordered that the applicants–Sanjeev Dixit Alias Sanjeev Kumar, Rohit Mishra and Viprendra Kumar Upadhyay Alias Vikash 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. The core legal questions considered by the Court in this matter include:1. Whether the applicants are entitled to regular bail during the pendency of trial under Section 483 of the Bhartiya Nagarik Suraksha Sanhita, 2023, given the allegations of their involvement in a large-scale GST fraud under various provisions of the Central Goods and Services Tax Act, 2017 ('CGST Act').2. The sufficiency and admissibility of the evidence against the applicants, particularly the reliance on confessions and statements under Section 70 of the CGST Act, 2017, and the extent to which these implicate the accused in the alleged offences.3. The adequacy and completeness of the investigation, including the efforts made to trace and interrogate the proprietors of the seven firms involved in the alleged fraudulent input tax credit scheme.4. The seriousness of the offences alleged and the impact of the applicants' continued detention on the progress and fairness of the trial.Issue-wise Detailed Analysis1. Entitlement to Bail under Section 483 of the Bhartiya Nagarik Suraksha Sanhita, 2023Legal Framework and Precedents: Section 483 provides for the grant of regular bail during the pendency of trial. The Court must balance the nature and gravity of the offence, the evidence against the accused, and the likelihood of their absconding or tampering with evidence.Court's Interpretation and Reasoning: The Court observed that the offences alleged under Sections 132(1)(b), 132(1)(c), 132(1)(i), and 132(1)(l) of the CGST Act, 2017, though serious, carry a maximum punishment of five years imprisonment and are triable by a Magistrate. The applicants had already undergone nearly seven months of judicial custody. The investigation was complete, but the trial had not commenced, and no pre-charge evidence had been adduced.Application of Law to Facts: Given the delay in trial commencement and the nature of the offences, the Court found that continued detention would not serve any useful purpose. The official nature of prosecution witnesses reduced the risk of their being influenced or won over, mitigating concerns about the applicants tampering with evidence.Conclusions: The Court deemed it appropriate to grant regular bail, subject to furnishing bail bonds and abiding by bail conditions.2. Sufficiency and Admissibility of Evidence Against the ApplicantsLegal Framework and Precedents: Confessions and statements under Section 70 of the CGST Act, 2017, are critical evidentiary components but must be tested for voluntariness and corroboration. The Court must assess whether the evidence prima facie connects the accused to the offences.Court's Interpretation and Reasoning: The prosecution's case primarily rested on confessions and statements implicating the applicants as masterminds behind the fake firms and fraudulent input tax credit claims. However, the Court noted that no incriminating documents were found at the residence of one applicant, and the evidence was largely based on statements of co-accused and related persons.Key Evidence and Findings: The statements indicated that the firms were created and operated under the direction of the applicants, with dummy proprietors being paid salaries. However, the Court observed that these statements' truthfulness would be tested during trial.Treatment of Competing Arguments: The applicants' counsel argued that the confessions were weak and possibly inadmissible, and that the mere filing of returns or acting as an accountant did not implicate the accused in the alleged fraud. The prosecution contended that the applicants masterminded the scheme, supported by a detailed chart of input tax credits availed and passed on.Conclusions: The Court held that the evidence was prima facie sufficient to proceed with trial but was not conclusive enough to deny bail at this stage.3. Adequacy and Completeness of InvestigationLegal Framework and Precedents: The prosecution is obligated to conduct a thorough investigation, including identifying and interrogating all relevant persons to establish the offence and the accused's role.Court's Interpretation and Reasoning: The Court critically noted that although the complaint identified seven firms and their proprietors, none of the proprietors were interrogated or arraigned as accused. The prosecution's attempts to summon these proprietors were unsuccessful, and bank accounts of the firms were not examined or verified to ascertain the authorized persons operating the accounts.Application of Law to Facts: The Court found that the investigation was incomplete in crucial respects, which weakened the prosecution's case and justified the grant of bail.Conclusions: The Court emphasized the need for serious efforts to trace and interrogate the proprietors and verify financial records, which had not been adequately done.4. Seriousness of Offences and Impact of Detention on TrialLegal Framework and Precedents: The Court must consider the gravity of the offences and the impact of detention on the accused's rights and the administration of justice.Court's Interpretation and Reasoning: While the offences involved large sums (approximately Rs. 37 Crores input tax credit availed and Rs. 50 Crores passed on), the maximum punishment was limited, and the trial had not commenced even after seven months of custody. The official nature of prosecution witnesses reduced concerns about witness tampering.Application of Law to Facts: The delay in trial and the absence of pre-charge evidence weighed in favor of bail, as further detention would be punitive rather than preventive.Conclusions: The Court concluded that bail was warranted to prevent unnecessary incarceration pending trial.Significant Holdings'The complainant ought to have made a serious effort to trace these proprietors, as during the course of hearing, it is fairly stated by the learned counsel for the opposite party that the bank accounts of these firms were not examined or verified to ascertain the authorized person(s) maintaining and operating the accounts of the seven fake firms.''The case of the prosecution is mainly founded upon their confession, but the truthfulness of the same would be tested during trial in the light of the other prosecution evidence.''Admittedly, the alleged offences are triable by Magistrate and the maximum punishment provided for these offences is five years imprisonment, and after the arrest, the applicants have already undergone a period of nearly seven months in judicial custody.''The investigation qua the applicants is complete, and the charges against the accused-applicants have not been framed so far, therefore, it becomes clear that the trial is yet to commence.''Most importantly, the material prosecution witnesses are official witnesses, and at present, there does not seem any possibility of their being won over, and because the trial is not likely to conclude in near future, therefore, 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.'The Court established that where investigation is incomplete in vital respects and the trial is delayed, bail may be granted even in serious economic offences, especially when the evidence is primarily based on confessions subject to trial scrutiny. The balance between the rights of the accused and the interest of justice requires such a measured approach.Accordingly, the Court allowed the bail applications of the accused-applicants, subject to furnishing bail and surety bonds and compliance with bail conditions imposed by the trial court.