Case Law Details
Dhaval Jagdishbhai Patel Vs Superintendent of CGST And C.EX. HQ Prev. Gandhinagar & Anr. (Gujarat High Court)
Conclusion: The authorities will release the applicant/s only if he was not required in connection with any other offence for the time. If breach of any of the prescribed conditions was committed, the Sessions Judge concerned would be free to issue warrant or take appropriate action in the matter.
Held: Assessee was a Director of M/s. Nandeshwari Steel Limited, was involved in the manufacturing and clearing of SS ingots and SS round bars, falling under Chapter 72 of the Harmonized System of Nomenclature. The Company was registered with the Goods & Service Tax (GST) Department under GST Certificate No. 24AABCN3464B1ZY and regularly paid GST on the goods supplied from its factory. The Company availed ITC after confirming from the GST portal that the suppliers have valid GST registrations and have filed necessary returns (GSTR-1 and GSTR- 3B), and the tax has been paid. The Company ensured that the invoices from the suppliers were genuine and that all payments for the goods and GST had been made correctly. However, despite following the law, the applicant was wrongfully arrested as a Director of the Company when some suppliers’ GST registrations were subsequently cancelled. It was important to note that the credits were availed when the suppliers’ GST registrations were valid and the suppliers had filed the statutory returns. The applicant was arrested on 20/07/2024, and although bail applications were filed in various courts, the bail was denied. A criminal complaint was filed against the Company and its Directors, including the applicant, for an alleged offence under sections 132(1)(c), 137(1), and 137(2) of the CGST/SGST Act, 2017, punishable under section 132(1)(i) of the said Act. As the charge-sheet was filed while the bail application was pending in the High Court of Gujarat, the applicant withdrew the bail application. This Court allowed the withdrawal and directed the applicant to file a fresh bail application before the Additional Chief Judicial Magistrate, Ahmedabad. The authorities contended fraudulent ITC to the tune of Rs. 51.53 crores had been unearthed out of a total ITC of Rs. 327.53 crores availed by the company to date. The department had verified that the accused persons had taken undue advantage and siphoned off the Input Tax Credit. No goods had been sold, and forged bills were prepared. Furthermore, no vehicles had passed through toll plazas, and no registration numbers were available. On appeal. It was held that the Court considered several factors in granting bail, including the non-violent nature of the offense, the completion of the investigation, and the prolonged trial process. It imposed strict conditions on Patel, including surrendering his passport, marking monthly attendance at the police station, and refraining from interfering with the case. Additionally, the company must pay Rs. 2 crores in installments, failing which a non-bailable warrant could be issued. The ruling emphasized the principle that “bail is the rule, jail is the exception” while ensuring compliance with legal proceedings. The Court also clarified that its decision should not influence the trial’s outcome, and the prosecution retains the right to seek bail cancellation if any conditions were breached.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. RULE. Learned APP waives service of rule for the respondent-State.
2. The present application is filed under Section 483 of the Bharatiya Nyaya Suraksha Sanhita, 2023 (for short “BNSS”) for successive regular bail in connection with Arrest Memo CBIC – DIN- 20240764WU0000222BB1 dtd. 20/07/2024 (F.No. GEXCOM/AE/INV/GST/392/2022- DC, (C.C. 146143 of 2024 pending in the Court of Additional Chief Judicial Magistrate, Ahmedabad)
3. Learned Advocate appearing on behalf of the applicant submits that the applicant has nothing to do with the offence and he is falsely implicated in the offence. The applicant is in jail since 07.2024. It is submitted that nothing is required to be recovered or discovered from the applicant and maximum punishment is upto 5 years as per section 132 of the CGST Act. Learned advocate for the applicant has further submitted that the applicant, a Director of M/s. Nandeshwari Steel Limited (hereinafter referred to as “the Company”), is involved in the manufacturing and clearing of SS ingots and SS round bars, falling under Chapter 72 of the Harmonized System of Nomenclature. The Company is registered with the Goods & Service Tax (GST) Department under GST Certificate No. 24AABCN3464B1ZY and regularly pays GST on the goods supplied from its factory. As per Section 16 of the Central Goods & Service Tax Act, 2017, the Company is eligible to claim Input Tax Credit (ITC) for the GST paid on the inputs received. In line with the provisions of the Act, the Company avails ITC after confirming from the GST portal that the suppliers have valid GST registrations and have filed necessary returns (GSTR-1 and GSTR- 3B), and the tax has been paid. The Company ensures that the invoices from the suppliers are genuine and that all payments for the goods and GST have been made correctly. The process is fully computerized, with the ITC amount auto-populated in the Company’s GSTR-2A based on the supplier’s filings. However, despite following the law, the applicant was wrongfully arrested as a Director of the Company when some suppliers’ GST registrations were subsequently canceled. It is important to note that the credits were availed when the suppliers’ GST registrations were valid and the suppliers had filed the statutory returns. The applicant was arrested on 20/07/2024, and although bail applications were filed in various courts, the bail was denied. A criminal complaint was filed against the Company and its Directors, including the applicant, for an alleged offence under sections 132(1)(c), 137(1), and 137(2) of the CGST/SGST Act, 2017, punishable under section 132(1)(i) of the said Act. As the charge-sheet was filed while the bail application was pending in the High Court of Gujarat, the applicant withdrew the bail application. This Court allowed the withdrawal and directed the applicant to file a fresh bail application before the Additional Chief Judicial Magistrate, Ahmedabad. It is further submitted that, considering the nature of the offence, the applicant may be granted successive regular bail with the imposition of suitable conditions.
3.1 Further, to show the bona fide of the applicant, a declaration-cum-undertaking is filed by Mr.Mitesh Ashwinbhai Patel, Director of M/s Nandeshwari Steel Co., wherein stating that he will pay GST amount of 2.00 crores and the same shall be paid in two monthly installments of 1.00 crore each. The first installment would be paid at the end of January, 2025 and second installment would be paid in the month of February i.e. on or before 28.02.2025;
4. Learned APP appearing on behalf of the respondent-State has opposed grant of successive regular bail looking to the nature and gravity of the offence. Therefore, the present application may be dismissed.
5. The learned advocate appearing for respondent No. 2 has vehemently opposed the present application and submitted that the office of the Principal Chief Commissioner, Central GST & CEX, Mumbai Zone, had forwarded references indicating that certain entities, including M/s Nandeshwari Steel Limited (hereinafter referred to as “the company”), Gandhinagar, had fraudulently passed on Input Tax Credit (ITC). Further verification revealed that the company had fraudulently availed ITC of .77 crores, with a taxable value of Rs. 43.15 crores. Based on intelligence from the Principal Chief Commissioner, CGST & CEX, Ahmedabad Zone, an investigation confirmed that the company had fraudulently availed fake ITC of Rs. 9.89 crores from fraudulent invoices issued by non-existent suppliers, whose GST registrations were cancelled.
Subsequently, further investigation revealed that the company had fraudulently availed a total of Rs. 58.50 crores in ITC from 66 such non-existent suppliers, resulting in a taxable value of Rs. 325.04 crores, for the period from 2017-18 to June 2024. The applicant, Shri Dhavalkumar Patel, Director of the company, admitted his involvement during interrogation and was arrested on 20th July 2024 under Section 69 of the CGST Act, 2017, for offences under Section 132(1)(c) of the Act. Despite multiple attempts, the applicant’s bail applications were rejected, with the latest rejection on 23rd October 2024. A show cause notice was issued to the company and its directors, including the applicant, on 4th August 2024, under Section 74(1) of the CGST Act, 2017, for evading GST through fraudulent ITC.
The investigation further revealed that the company procured goods from non-GST registered suppliers and availed fake ITC through fraudulent invoices from non-operational suppliers, causing significant financial loss to the Government. The applicant, as a director, was responsible for the fraudulent activities, and despite several summonses, he and other directors failed to cooperate with the investigation. The prosecution complaint and show cause notice are supported by substantial evidence, confirming the applicant’s role in the fraudulent ITC availed by the company.
The learned advocate for respondent No. 2 has submitted that the applicant is well aware that the suppliers were not genuine and did not supply any goods to the company. The suppliers issued fake invoices, and the company availed fraudulent Input Tax Credit (ITC). The company is the apparent beneficiary of this fraudulent ITC, which was wrongly availed and utilized to evade tax. Therefore, the directors are jointly and severally responsible for this fraud as per the law.
The argument that the company received goods is not acceptable, as the goods received were non-GST paid scrap from local dealers. The company covered these purchases with fake ITC from non-existent suppliers. Hence, the availment of ITC was evidently used to evade tax. The argument regarding huge electricity bills or labor available with the company cannot be considered as proof of the receipt of genuine and corresponding goods. The allegation is not that the company is not manufacturing goods, but that the goods are being manufactured from locally purchased scrap on which no GST has been paid, and these purchases are covered with fake invoices.
Furthermore, fraudulent ITC to the tune of Rs. 51.53 crores has been unearthed out of a total ITC of Rs. 327.53 crores availed by the company to date. The investigation is ongoing, and the company has been found to be a habitual offender in the case of availing fake ITC. Since the applicant is the director of the company and involved in its day-to-day activities, he cannot be considered an innocent person, as he has defrauded the government exchequer by Rs. 51.53 crores.
The other directors are not in the investigation, as they have not appeared before the investigating agency. The learned advocate has also referred to the provisions of Section 137 of the CGST Act, 2017, and requested that the bail application be rejected.
The department has verified that the accused persons have taken undue advantage and siphoned off the Input Tax Credit. No goods have been sold, and forged bills were prepared. Furthermore, no vehicles have passed through toll plazas, and no registration numbers are available. The applicant has actively participated in the alleged crime, and the other directors are on the run. They have duped the Government, causing a loss to the public exchequer. In such cases, the Court should not allow the application in favor of the applicant, and the present application may not be considered.
Hence, the learned advocate has requested that the Court to dismiss the present application. If the discretion is exercised in favor of the applicant, it should be conditional upon the deposit of the entire amount of the alleged forged or scammed ITC.
6. While granting bail, the Court has to consider the involvement of the accused in the alleged offence, the jurisdiction to grant bail has to be exercised on the basis of the well settled principles having regard to the facts and circumstances of each case and the following factors are to be taken into consideration while considering an application for bail:
(i) the nature of accusation and the severity of the punishment and the nature of the materials relied upon by the prosecution;
(ii) reasonable apprehension of tampering with the witnesses and threat to the complainant or the witnesses; (iii) reasonable possibility of securing the presence of the accused at the time of trial or the likelihood of his abscondence; (iv) character behaviour and standing of the accused and the circumstances which are peculiar to the accused; (v) larger interest of the public or the State and similar other considerations are required to be considered.
7. I have heard the learned advocates appearing on behalf of the respective parties and perused the investigation papers. Following aspects have been considered:
(1) Investigation is completed by the department and commencement of trial will take its own time;
(2) The offence is punishable upto 5 years only and based on the documentary evidence;
(3) case is triable by the JMFC;
(4) An undertaking has been filed on behalf of Director of M/s Nandeshwari Steel Co., wherein stating that he will pay GST amount of 2.00 crores and the same shall be paid in two monthly installments of 1.00 crore each. The first installment would be paid at the end of January, 2025 and second installment would be paid in the month of February i.e. on or before 28.02.2025, failing which, non-bailable warrant can be issued against the present applicant to show his bona fide;
(5) Now, nothing required to discover or recover from the accused and there is no possibility of the trial taking place in the near future.
8. This Court has also taken into consideration the law laid down by the Hon’ble Apex Court in the case of Sanjay Chandra Central Bureau of Investigation reported in [2012]1 SCC 40 as well as in the case of Gudikanti Narasimhulu And Ors vs. Public Prosecutor, High Court of Andhra Pradesh reported in (1978)1 SCC 240. Obviously, the conclusion of trial will take time and keeping the accused behind the bars is nothing but amounts to pre-trial conviction and therefore, considering the celebrated principle of bail jurisprudence is that “bail is a rule and jail is exception” as well as the concept of personal liberty guaranteed under Article 21 of the Constitution of India, present application deserves consideration.
9. In the facts and circumstances of the case and considering the nature of the allegations made against the applicant/s in the FIR, without discussing the evidence in detail, prima facie, this Court is of the opinion that this is a fit case to exercise the discretion and enlarge the applicant/s on successive regular bail. Hence, the present application is allowed. The applicant/s is/are ordered to be released on successive regular bail in connection with Arrest Memo CBIC – DIN- 20240764WU0000222BB1 dtd. 20/07/2024 (F.No. GEXCOM/AE/INV/GST/392/2022- DC (C.C. No.146143 of 2024 pending in the Court of Additional Chief Judicial Magistrate, Ahmedabad), executing a personal bond of Rs.25,000/- (Rupees Twenty-five Thousand only) with one surety of the like amount to the satisfaction of the trial Court and subject to the conditions that he shall;
(a) not take undue advantage of liberty or misuse liberty;
(b) not act in a manner injurious to the interest of the prosecution & shall not obstruct or hamper the police investigation and shall not to play mischief with the evidence collected or yet to be collected by the police;
(c) surrender passport, if any, to the Trial Court within a week;
(d) not leave the State of Gujarat without prior permission of the Trial Court concerned;
(e) mark presence before the concerned Police Station once in a month for a period of six months between 11.00 a.m. and 2.00 p.m.;
(f) furnish the UIDAI Number, Contact Number/s, Passport Number (if he is having the passport), E-mail address and present address of his residence to the Investigating Officer and also to the Court at the time of execution of the bond and shall not change the residence without prior permission of Trial Court;
(g) not indulge in any illegal activity or any similar type of offence. If the applicant is found in any illegal activity or any similar type of activity, then, concerned authority/officer of department shall have liberty to file an application for cancellation of bail against the present In case of breach of any conditions, the concerned Trial Court shall have liberty to cancel the bail of the present applicant;
(h) Director of M/s Nandeshwari Steel Co., shall pay 2 crores amount in two monthly installments of 1.00 crore each. The first installment would be paid at the end of January, 2025 and second installment would be paid in the month of February i.e. on or before 02.2025, failing which non-bailable warrant can be issued against the present applicant;
(i) applicant shall not take undue advantage of the impugned order and shall not prolong the trial in any manner and the applicant shall regularly remain present before the Court/concerned Court as and when required;
10. The authorities will release the applicant/s only if he is not required in connection with any other offence for the time If breach of any of the above conditions is committed, the Sessions Judge concerned will be free to issue warrant or take appropriate action in the matter.
11. Bail bond to be executed before the lower Court having jurisdiction to try the case. It will be open for the concerned Court to delete, modify and/or relax any of the above conditions, in accordance with law.
12 At the trial, the trial Court shall not be influenced by the observations of preliminary nature qua the evidence at this stage made by this Court while enlarging the applicant/ on bail.
13. Rule is made absolute to the aforesaid extent. Direct service is permitted.
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