TaxTMI 
TaxTMI 
2021 (2) TMI 437
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....ss of M/s Garg and company and; House no.1334 Sector-6, Karnal, the residential premises of Shashank Garg, Proprietor of M/s Garg and Company. The firms Dholagiri Enterprises (partnership firm) and Dholagiri Enterprises (proprietorship firm) were not found to be working. The premises at Jind were found locked. House No. 1334 Sector 6, Karnal was found to be under construction. M/S Garg and Company was found functioning from House No.212, Sector-32, Narsi Village, Karnal. Nitish Kumar, Proprietor of M/s Dholagiri Enterprises was found present at House No.55, village Chorpura, District Kamal. He made statement that M/s Dholagiri Enterprises (proprietorship) was ideated to supply invoices without actual supply of goods to M/s Garg and Company. Accordingly, the same was done so as to enable Shashank Garg, Proprietor of M/s Garg and Company to avail ITC on those invoices. In response to the question as to whether he could quantify the transactions between M/s Dholagiri Enterprises (Proprietorship) and M/s Garg and Company, he replied that M/s Dholagiri Enterprises (Proprietorship) had passed on ITC amounting to Rs.24.25 crores approximately to M/s Garg and Company on invoices without ac....
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....ual supply of goods, the authorities presumed that all the purchases of M/s Dholagifi Entemrises (proprietorship firm) amounting to Rs.133 crores were without actual supply of goods. Giving a list of some reputed companies, the applicant contended that out of the alleged ITC of 24.25 crores approximately, M/S Dholagiri Enterprises (proprietorship film) had received ITC of around 8.10 crores from those companies, but without checking the records the authorities continued believing that M/S Dholagiri Enterprises (proprietorship firm) had passed on ITC amounting to Rs.24.25 crore to the firm of the applicant. On one hand, Nitish Kumar was pressurized to put his signatures on pre-written statements and some documents, on the other hand the applicant was verbally informed that out of the total claim of input tax credit of M/S Dholagiri Enterprises (proprietorship firm) and M/S Dholagiri Enterprises (partnership firm), the authorities had a doubt over admissibility of input tax credit of about 2.30 crores, which was passed by two firms under investigation i.e. M/s JEY Oil and Bitumen Products India Private limited and M/S P.S. Intemational to M/S Dholagiri Enterprises and which was furth....
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....idence which could be tampered with; there are no chances of influencing the witnesses as primarily the case is based on documentary evidence and; that the applicant is engaged in construction of Government projects which are time bound, therefore his prolonged custody would not only impact the execution of the contracts but also the livelihood of thousands of workers. 7. The application is being contested, inter-alia, on the grounds that from the statements of Nitish Kumar and the applicant recorded under Section 70 of the CGST Act, which carry evidentiary value and the evidence collected, it is amply clear that the applicant has committed an offence under Section 132 (1) (c) read with Section 132 (1) (b) of the CGST Act by availing irregular ITC of more than Rs.5 crores from bogus firm by the name of M/S Dholagiri Enterprises GSTIN No.06DMLPK8324RIZ8. It is further contended that investigation is under progress. There are numerous firms which are engaged in passing on fake ITC on the strength of fraudulent invoices without actual supply of goods to M/S Dholagiri Enterprises (proprietorship) and if left to his own devices, the applicant may influence the witnesses and also attemp....
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....arrest then such action amounts to malice in law. Malice in its legal sense means such malice as may be assumed from the doing of a wrongful act intentionally but also without just cause or excuse or for want of reasonable or probable cause. Any use of discretionary power exercised for an unauthorized purpose amounts to malice in law. It is immaterial whether the authority acted in good faith or bad faith. 12. I would pause for a while, and refer to Section 67 of the Act by virtue of which the proper Officer not below the rank of Joint Commissioner, having reasons to believe that a taxable person has suppressed any transaction relating to supply of goods or services or both or stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax, may authorize in writing any other Officer of the central tax to inspect any place of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place and, where the proper Officer, either pursuant to a....
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.... is contended that the figure of Rs.24 crores approximately towards fraudulent ITC having been passed by M/s Dholagiri Entemrises to M/s Garg and Company, came up in the statement of Nitish, Proprietor of M/s Dholagiri Enterprises, which coupled with the upfront list of 12 firms as per the above table, was sufficient for the Commissioner to form reasonable belief that a case was made out to arrest the applicant. 16. Learned counsel for the applicant would contend that in the list of 12 firms, the name of M/s JEY Oil and Bitumen Products India Pvt. Ltd. was at the top and the ITC amount involved in connection with that entity was Rs.2,14,40,685/- Had the authorities checked the record and the relevant data from their portal, it would have been evident that M/s JEY Oil and Bitumen Products India Pvt. Ltd. had not even passed on this ITC to M/s Dholagiri Enterprises in as much as return GSTR-I GSTR-3GB had not been filed. Accordingly, it would have been clear that M/S Dholagiri Enterprises had not claimed such ITC and passed it to M/S Garg and Company and had this amount been deducted, there would have been reason to believe that there was wrong availment of ITC to the tune of -Rs.4,....
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....p firm, whereas the latter had not made even a single penny sale to that firm. Moreover, in response to question No.3, it was mentioned that both the firms have no additional place of business though in actual M/s Dholagiri Enterprises, Partnership firm has an additional place of business at Mathana, District Kurukshetra, regarding which intimation has already been given on GST portal on 29.12.2020. 18. Per contra, learned counsel for respondent would argue that sufficiency of material available before the Commissioner is not to be looked into. He argued that what was required to be seen that material was available on the basis of which a reasonable belief could be entertained that wrongful/fraudulent availment of ITC was more than Rs.5 crores and since there was material to show that M/s Dholagiri Enterprises (proprietorship firm) and M/s Dholagiri Enterprises (partnership firm) were floated with sole motive of issuing invoices to the firm of the applicant without supply of goods in order to assist him in availing ITC, the entire transactions were material at that stage. Therefore, the Commissioner committed no error in authorizing arrest of the applicant on the basis of inputs a....
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....the relevant and credible information, learned counsel for respondent argued that the very fact that the affidavits of the suppliers of M/S Dholagiri Enterprises, Karnal have fallen in the hands of the applicant establishes link between him and M/S Dholagiri Enterprises and also proves that he is an influential person who, while sitting in jail, is in a position to procure affidavits of persons who have tendered statements under Section 70 of the Act. Therefore, it can be well imagined as to what he is capable of on being granted bail. It was again contended that there were more than 130 firms from whom M/s Dholagiri Enterprises was getting invoices. It was virtually impossible for the authorities to verify the records of all those firms before arrest of the applicant and since verifications are under way and some of the firms have gone underground, there is every reason to keep the applicant behind the bars till investigation is complete. While arguing so, learned counsel canvassed that the court has to keep in mind that economic offence is committed with cool mind and proper pre-planning and since the applicant is the master mind of the entire web, investigation would be hampered....
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.... Maggu and another Versus Deputy Director, Directorate General of GST Intelligence and others laid in no uncertain terms that power of arrest should be resorted to in exceptional circumstances and with full circumspection. 24. It has to be appreciated that in P.V.Ramana Reddy Versus Union of India, Special Leave to Appeal (Crl.) No.4430/2019, the Hon'ble High Court of Telangana did not approve the argument that there has to be summary assessment or special audit determining the liability before authorising arrest. The Hon'ble High Court of Punjab and Haryana in Akhil Krishan Maggu (supra) while referring to P.VRamana Reddy (supra), observed that such opinion cannot be made applicable to each and every case and cannot be treated the authority to conclude that DGGI has power to an-est in every case during investigation and that too without determination of tax evaded as well as finding that accused has committed an offence described under Section 132 of CGST Act. 25. Learned counsel for respondent would argue that these observations of the Hon'ble High Court in Akhil Krishan Maggu's (supra) are per incuriam for the reason that the opinion expressed by the Hon'ble Te....
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..../s Dholagiri Enterprises and the same was claimed as ITC by M/s Dholagiri Enterprises. But on the basis of field visit report dated 21.1.2021, it was concluded by the authorities that the business of 0m Cement and Steel Traders was not in existence. In these circumstances, the Commissioner should have made atleast some effort to look into the material and to verify it, if not while authorizing inspection, search and seizure, but definitely while authorizing arrest of the applicant. Had the facts been looked into properly, perhaps the amount of Rs.1,70,72,475/- would not have been suspected. All these facts go a long way in substantiating the contention of the applicant that a sum of Rs.24.25 crores was deliberately introduced in the statement of Nitish Kumar to justify authorization of arrest. No wonder that the search proceedings, as per the panchnama, concluded at 3.00 P.M. and the applicant was arrested at 4.30 P.M. It means that there was no time for the Commissioner to apply his mind so as to form reasonable belief that a cognizable and non-bailable offence has been committed by the applicant. 28. The contention of the respondent that information is pouring in and, as of date....
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..... Needless to say that the applicant acknowledged having received the invoices but never admitted availment of ITC amounting to Rs.24.28 crores. He is alleged to have admitted that he wrongly availed ITC amounting to Rs.4.50 crores approximately from Dholagiri Enterprises. This was all the more a reason for the commissioner not to pull the trigger by authorizing arrest of the applicant even after he had reversed an amount of Rs.2.55 crores immediately. 29. In Akhil Krishan Maggu (supra), the Hon'ble High Court laid down as under :- "10. Taking cue from judgment of Delhi High Court in the case of Make My Trip (supra) followed by Madras High Court in the case of Jayachandran Alloys (P) Ltd (supra), law laid down by Hon'ble Supreme Court in the case of Siddharam Satlingappa Mhetre (supra) as well keeping in mind Section 69 and 132 of CGST Act which empower Proper Officer to arrest a person who has committed any offence involving evasion of tax more than Rs.5 crores and prescribed maximum sentence of 5 years which falls within purview of Section 41 A of Cr.P.C., we are of the opinion that power of arrest should not be exercised at the whims and caprices of any officer or for....
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....out the availment of ITC to the tune of Rs.24.25 crores. As rightly pointed out by counsel for the respondent, the guidelines are illustrative and not exhaustive, but he has not been able to persuade the court as to apart from these guidelines/ illustrations which other grounds could be there. 31. The court is conscious that in some aspects it has gone into merits which, at the time of deciding application for bail is not advisable, but this was necessary because the contention before the court was that the applicant was authorised to be arrested by the Commissioner without there being material to form a reasonable belief that he had committed offence punishable under Clause (i) of Sub-Section 1 of Section 132 of the Act. In view of the law laid down in Akhil Krishan Maggu (supra), the Court was required to look into the entire facts and circumstances to find out if there was credible material to justify arrest of the applicant. In Dhruv Krishan Maggu versus Union of India decided by the Hon'ble Delhi High Court on January 8, 2021 on which reliance has been placed by the respondent also, it was held that though it was not inclined to interfere with investigation at that stage ....