The Hon’ble Bombay High Court, in Daulat Samirmal Mehta v. UOI and Ors. [Writ Petition No. 471 of 2021, decided on February 15, 2021] granted bail to the accused arrested for committing offence of fraudulently availing, utilizing and passing on ineligible Input Tax Credit (ITC) amounting to INR 314.25 crores, on strength of bogus invoices without actual receipt of goods or services as mentioned in respective invoices, and held that, at the pre-trial stage of the case, continuing the detention may not at all be justified.
Daulat Samirmal Mehta (“the Petitioner”) is the Director of two companies namely Twinstar Industries Limited and Originet Technologies Limited.
In the year 2018, the Principal Additional Director General (“Respondent”) initiated an investigation on the basis of intelligence inputs regarding alleged fraudulent availment and utilization of ITC by one M/s. Al Fara’s Infraprojects Private Limited (“AFIPL”) on the basis of bogus invoices without actual receipt of goods or services. During the course of the investigation, summons were also issued to the Petitioner under Section 70 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) and the Petitioner’s statements were recorded by investigating officer.
After recording of the last statement on January 21, 2021, the Petitioner was arrested by the Respondent, thereafter the Petitioner was produced before the Additional Chief Metropolitan Magistrate, Mumbai along with remand application. By the said remand application, the arresting authority sought for judicial custody of the Petitioner for a period of 14 days seeking liberty to interrogate the Petitioner in jail custody.
It has been alleged that the Petitioner as the director of the companies has created a cartel in active collaboration with the officials of AFIPL wherein they have indulged in circular transactions of goods without actual supply of the same and has committed offence under Section 132(1)(c) CGST Act for fraudulently availing and utilizing ITC amounting to INR 122.59 crores approximately and under Section 132(1)(b) of the CGST Act for fraudulently issuing bogus invoices and passing on ineligible ITC to various companies amounting to INR 191.66 crores approximately to the recipient companies.
This petition filed challenges constitutional validity of section 132(1)(b) CGST Act and seeks a declaration that the power under Section 69 of the CGST Act can only be exercised upon determination of the liability.
Whether bail can be granted, where even formal accusation in the form of a first information or a complaint has not been made against the Petitioner?
The Hon’ble Bombay High Court, in Writ Petition No .471 of 2021, decided on February 15, 2021 held as under:
Section 69 of the CGST Act:
“Power to arrest-
69.(1) Where the Commissioner has reasons to believe that a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section, he may, by order, authorise any officer of central tax to arrest such person.
(2) Where a person is arrested under sub-section (1) for an offence specified under sub-section (5) of section 132, the officer authorised to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty-four hours.
(3) Subject to the provisions of the Code of Criminal Procedure, 1973 (2 of 1974),––
(a) where a person is arrested under sub-section (1) for any offence specified under sub-section (4) of section 132, he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate;
(b) in the case of a non-cognizable and bailable offence, the Deputy Commissioner or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station.”
Section 132(1) (b) and (c) of the CGST Act:
“Punishment for certain offences-
132. (1) Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences, namely:-
(b) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;
(a) avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;
shall be punishable––
(i) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine;
(ii) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine;
(iii) in the case of any other offence where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to one year and with fine;
(iv) in cases where he commits or abets the commission of an offence specified in clause (f) or clause (g) or clause (j), he shall be punishable with imprisonment for a term which may extend to six months or with fine or with both.”
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