2025 (10) TMI 58 - HC - GST

Pre-arrest bail denied under CGST s.70 for alleged fictitious firm, fraudulent ITC of Rs.14.7 crore, evidence tampering risk

HC dismissed the petition seeking pre-arrest bail under CGST s.70. The court found specific and serious allegations that the petitioner floated a ... Grant of pre-arrest bail in pursuance to the summons issued by respondent No. 3 u/s 70 of the Central Goods & Service Tax Act, 2017 - availing fraudulent Input Tax Credit - HELD THAT:- There are specific and serious allegations against the petitioner as he is not only alleged to have floated a fictitious firm but is also alleged to have passed on fake ITC to M/s Sona, availed ITC amounting to Rs. 14,69,94,129/- and Rs. 14,70,59,558/-, prepared false e-way bills to show fictitious inward supplies, provided his wrong bank account number, facilitated rotation of money from one bank account to another without any profit or margin just to avoid payment of government exchequer and is also alleged to have given details of fictitious suppliers. The inquiry is at its nascent stage. The petitioner is alleged to have not cooperated in the investigation/inquiry conducted so far. Huge amount of exchequer is involved. Proper and thorough investigation is required to be conducted in the matter. There is possibility of the petitioner’s misusing the concession of pre-arrest bail. Any latitude may enable him to avoid custodial interrogation, tamper with evidence or manipulate records by taking undue advantage of the legal and procedural loopholes. This Court is of the considered opinion that the petition does not deserve to be allowed. Accordingly, the same is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether pre-arrest bail should be granted under the inherent powers invoked in Section 482 of the BNSS to a person summoned under Section 70 of the CGST Act, where allegations include formation of a fictitious firm and large-scale fraudulent availing/passing of Input Tax Credit (ITC). 2. Whether the nature and weight of the material collected in the preliminary inquiry (including alleged bogus invoices, non-existence of business premises, false e-way bills, bank transaction anomalies and rotation of funds) justify denial of pre-arrest protection because custodial interrogation, risk of tampering with evidence, or influencing witnesses is reasonably apprehended. 3. Whether the petitioner's cooperation with inquiry to date (appearance on summons, replies to show-cause notices, voluntary statement, and an interim stay of suspension of registration in separate proceedings) suffices to justify grant of pre-arrest bail despite the above allegations. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework for pre-arrest bail in revenue offences and interplay of Sections relied upon Legal framework: The petition is brought under Section 482 of BNSS seeking pre-arrest relief from a summons issued under Section 70 of the CGST Act; allegations invoke offence provisions including Section 132(1)(b) and (c) of the CGST Act (serious revenue offences involving fraud and abetment to evade tax). Precedent Treatment: No judicial precedents are cited or relied upon in the judgment for altering established principles; the Court proceeds on statutory and factual considerations in the exercise of its inherent/curative jurisdiction. Interpretation and reasoning: The Court treats Section 482/extraordinary jurisdiction as available to regulate abuse of process but emphasizes that pre-arrest relief in serious revenue frauds must be balanced against the State's interest in a thorough investigation and preservation of evidence. The statutory matrix and object of CGST (protecting public exchequer) weigh against prematurely curtailing investigative tools where credible materials indicate sophisticated tax fraud. Ratio vs. Obiter: Ratio - inherent jurisdiction to grant pre-arrest bail is circumscribed where prima facie materials disclose serious, organised frauds attracting custodial inquiry and risk to the investigation. Conclusions: The Court declines to grant pre-arrest bail under Section 482/BNSS in the circumstances because the statutory scheme and facts suggest custodial questioning and continued inquiry are necessary to safeguard the revenue and the integrity of the investigation. Issue 2 - Sufficiency and nature of material obtained in preliminary inquiry to deny pre-arrest relief Legal framework: The Court examines material collected during preliminary inquiry under CGST investigation provisions (including inspection, summons, panchnama, e-way bill and bank statement analyses) to assess whether allegations are serious enough to deny pre-arrest relief. Precedent Treatment: The Court does not overrule or follow any specific authorities; it applies fact-sensitive principles governing grant of pre-arrest relief in alleged economic offences. Interpretation and reasoning: The Court relies on concrete investigative findings reproduced in the respondents' reply: (a) registered business address found non-existent; (b) recorded statements indicating lack of basic operational knowledge; (c) physical inspection yielding almost vacant shop and non-functional computer; (d) inward supply analysis showing availed ITC of large sums, including from suspended/cancelled firms; (e) e-way bill/RFID mismatch indicating absence of physical movement; (f) bank statement anomalies and wrong/missing account numbers; (g) rotation of funds across accounts without commercial rationale; and (h) alleged passing of fake ITC to a larger fraudster. The Court reasons these items collectively furnish specific and serious allegations supporting the inference of a sophisticated tax-fraud scheme rather than a mere procedural or technical lapse. Ratio vs. Obiter: Ratio - where preliminary material discloses indicia of fabricated records, fictitious entities, financial rotation and large revenue loss, pre-arrest protection should ordinarily be withheld to permit custodial interrogation and prevent tampering/influence. Conclusions: The Court concludes that the assembled material is sufficient to justify denial of pre-arrest bail because the inquiry is at a nascent stage, significant exchequer loss is alleged, and there is a real risk of misuse of bail protection to impede investigation. Issue 3 - Effect of alleged cooperation (appearance, replies, voluntary statement, stay of suspension) on entitlement to pre-arrest bail Legal framework: The Court considers whether asserted cooperation and procedural compliance reduce the need for custodial interrogation or mitigate other risks relevant to pre-arrest relief. Precedent Treatment: No specific authorities cited; Court applies ordinary evaluative balance between cooperation and the gravity of allegations. Interpretation and reasoning: The Court acknowledges the petitioner's appearances, responses to notices, a voluntary statement and a separate stay of suspension of registration. However, it finds these acts insufficient in the face of the specific investigative material indicating fabrication and potential for evidence tampering or witness influence. The Court also notes respondent allegations that the petitioner has not produced requested documents and in places has provided inconsistent or false particulars, which undermines the weight of claimed cooperation. Ratio vs. Obiter: Ratio - mere procedural cooperation does not automatically entitle a person to pre-arrest protection where credible materials indicate a need for custodial interrogation to advance the investigation and protect the revenue. Conclusions: The Court finds that the petitioner's limited cooperation does not outweigh the investigative imperatives and risks; therefore it does not constitute a ground for granting pre-arrest bail in the present facts. Issue 4 - Risks of tampering, influencing witnesses, and delaying investigation as grounds to refuse pre-arrest bail Legal framework: The Court evaluates the statutory purpose of investigation and supervisory jurisdiction to prevent abuse of process, considering whether pre-arrest liberty would materially interfere with the inquiry. Precedent Treatment: No express precedent cited; the Court applies established discretionary criteria (risk to investigation, possibility of tampering, seriousness of loss) in denying interim relief. Interpretation and reasoning: Given the allegation of a fictitious firm, fictitious suppliers, rotation of funds, and lack of documentary/physical corroboration for transactions, the Court reasons that custodial interrogation may be necessary to elicit truthful disclosure, prevent destruction or manipulation of records, secure cooperation of personnel, and protect witnesses. The possibility that pre-arrest bail could be misused to frustrate evidence collection is held to be real and material here. Ratio vs. Obiter: Ratio - where there is a reasonable apprehension that pre-arrest release will enable tampering, influencing witnesses, or delaying the investigation, courts may properly refuse pre-arrest relief despite some cooperation by the accused. Conclusions: The Court holds that such risks are present on the material before it and constitute a valid ground for refusal of pre-arrest bail. Final Disposition and Limitation on Observations Conclusions: Taking the aggregate of the materials, the Court dismisses the petition for pre-arrest bail. The Court clarifies that observations are confined to the limited purpose of deciding the petition and are not an expression on the merits of the substantive allegations in the investigation.