2025 (7) TMI 1386 - DSC - GST

Bail Denied for Scrap Dealer Accused of Fraudulent Input Tax Credit Under CGST Sections 132(1)(b), (c), and (i)

The Additional Sessions Court, Meerut, rejected the bail application of the accused proprietor of a scrap trading company charged under Sections ... Seeking grant of bail - availing and passing on of fraudulent ITC on the strength of bogus invoices issued without supply of concomitant goods - offences punishable under Section 132(1)(i) of CGST Act, 2017 - HELD THAT:- A perusal of record reveals that the present accused person Azharuddin son of Late Nawab Ahmed who is the proprietor of the said company M/S New Global Scrap Traders which is engaged in trading of various types of scrap like iron scrap, plastic scrap etc., has fraudulently availed ITC to the tune of Rs. 23,47,68,801/- based on fake invoices issued by the alleged fake suppliers, by issuance of fake invoices without actual supply of any underlying goods. It is also evident from the perusal of the record that the concerned department received information that M/S NEW GLOBAL SCRAP TRADERS having declared Principal Place of business at 0, near Radhika garden, Gulaothi road, Sikandrabad, Bulandshahr, Uttar Pradesh, 203205 is registered with GST department having GSTIN :09AIVPA9027C126. As per GST registration, the said company is engaged in trading of various types of scrap like iron scrap, plastic scrap etc. Shri Azharuddin s/o Late Shri Nawab Ahmed is proprietor of the company and looks after all day to day activities including sales, purchase and others and is responsible for all the tax compliance related to M/S NGST. M/S S Rose As per information, M/S NEW GLOBAL SCRAP TRADERS have wrongly availed and utilized Input Tax Credit on strength of invoices issued by some fake/non-existent firms without supply of goods/services. There is no violation of fundamental rights provided under Article 22(1) and (2) of the Constitution of India. From the perusal of record, it is apparently clear that on account of receipt of fake tax invoices without actual receipt of goods fraudulent availment of input tax credit to the tune of Rs. 23,47,68,801/- is detected till date. The applicant, if released on bail will definitely try to destroy the evidence and influence the witnesses and there is his flight risk. Thus, it would not be proper to enlarge applicant on bail at this stage - Bail application of applicant accused person Azharuddin son of Shri Nawab Ahmed, resident of 54, Mirdwara, Sikandrabad, Bulandshahr, Uttar Pradesh – 203205, Under Sections-132(1)(b),132(1)(c),132(1)(i) of C.G.S.T. Act, 2017, is hereby rejected. ISSUES: Whether the detention and arrest of the accused complied with statutory requirements, including timely production before a magistrate and furnishing of 'reasons to believe.'Whether the accused was lawfully implicated under Sections 132(1)(b), 132(1)(c), and 132(1)(i) of the CGST Act, 2017 for fraudulent availment and passing on of Input Tax Credit (ITC) based on bogus invoices without concomitant supply of goods.Whether statements recorded under Section 70 of the CGST Act, 2017, without cross-examination, are admissible as evidence against the accused.Whether the accused's right to legal representation and communication with relatives was violated during detention and arrest.The applicability of principles governing bail in economic offences, including considerations of gravity, evidence, risk of tampering, flight risk, and public interest.Whether the offence under the CGST Act is compoundable and the implications for the necessity of arrest and custodial interrogation.Whether the accused's business transactions with suppliers whose GST registrations were later cancelled or found fake can attract penal liability. RULINGS / HOLDINGS: The detention of the accused for more than 48 hours before production before the magistrate violated the statutory mandate that a detainee must be produced within 24 hours of detention, as per Section 58 of the Bhartiya Nagarik Suraksha Sanhita, 2024 read with Article 22(2) of the Constitution. The period of detention begins from the moment personal liberty is curtailed, not from formal arrest.The accused was arrested under Sections 132(1)(b), 132(1)(c), and 132(1)(i) of the CGST Act, 2017 for fraudulent availment and passing on of ITC amounting to Rs. 23,47,68,801/- based on fake invoices issued without actual supply of goods, constituting a grave economic offence.Statements recorded under Section 70 of the CGST Act without cross-examination are not ipso facto admissible and require corroboration through due process as mandated under Section 136 of the CGST Act.The accused's fundamental right to contact legal representatives and inform relatives about arrest was violated, contravening Supreme Court orders and Section 50 of the CrPC, rendering the arrest procedure flawed.Economic offences require a different approach in bail considerations, emphasizing the nature of accusations, severity of punishment, possibility of tampering with witnesses, flight risk, and larger public interest. Given the gravity and prima facie evidence, bail was denied.The offence under the CGST Act is compoundable under Section 138, but the seriousness of the offence and potential threat to investigation justified custodial arrest at this stage.The accused's business dealings with firms that were operational and registered at the time of transactions do not absolve liability if those firms later turned out to be fake or non-existent; buyer's due diligence and statutory conditions under Section 16 of the CGST Act govern eligibility of ITC. RATIONALE: The Court applied statutory provisions from the CGST Act, 2017, including Sections 16 (eligibility and conditions for Input Tax Credit), 69 (arrest), 70 (recording of statements), 132 (offences and penalties), and 138 (compoundable offences), alongside constitutional safeguards under Article 22(2) and procedural mandates under Section 50 of the CrPC and Section 58 of the Bhartiya Nagarik Suraksha Sanhita, 2024.Precedents from the Supreme Court and various High Courts were extensively relied upon to emphasize the importance of prompt production before magistrate, furnishing 'reasons to believe' in writing at the time of arrest, and the inadmissibility of statements recorded without opportunity for cross-examination.The Court recognized economic offences as a distinct category requiring stringent scrutiny due to their impact on the national economy and public interest, citing authoritative judgments emphasizing the need for balancing individual liberty with societal interests.The Court noted the absence of any grounds such as flight risk, tampering with evidence, or influencing witnesses being demonstrated by the prosecution, but held that the gravity of the offence and prima facie evidence warranted denial of bail.The Court acknowledged the compoundable nature of the offence but found that the investigation was ongoing and custodial interrogation was justified to prevent obstruction of justice.The Court rejected arguments that the accused's transactions were legitimate based on Section 16(2)(b) deeming provisions and prior existence of supplier firms, holding that the prosecution's prima facie case and admissions by the accused outweighed these contentions at bail stage.The Court distinguished between detention and arrest, clarifying that detention begins when personal liberty is curtailed, and stressed compliance with constitutional and statutory safeguards to prevent misuse of power by enforcement agencies.