ITC availment without actual receipt of goods – HC allowed bail to accused

Vaibhav Ghanshyambhai Pragada Vs State of Gujarat (Gujarat High Court)

1. Both these applications arises out of the one and same proceedings, they were heard together and therefore, same have been decided by this common order.

2. The applicants have filed present applications under Section 439 of Cr.P.C., seeking regular bail in connection with the offences registered under Sections 132(1)(b) and 132(1)(c) of the Central Goods and Service Tax, 2017 (hereinafter referred to as ‘CGST Act’ for short, in File No. : DGGI/INV/GST/ 1093/2022.

3. Heard learned Senior Counsel Mr. Manish Bhatt, assisted by Mr. A.N. Mehta, learned advocate for and on behalf of the applicants, Mr. Utkarsh Sharma, learned Standing Counsel appearing for the respondent no. 2 and Mr. Manan Mehta, learned APP for the respondent State.

4. Mr. Manish Bhatt, learned Senior Counsel for the applicants urged the following contentions :

(i) It was submitted that pursuant to the summons issued under Section 70 of the Act, statements of both the applicants were recorded under duress and made to confess that, their firms had availed input tax credit on the basis of the invoices received without actual receipt of the goods from 7 registered entities and further transferred / passed, by issuing invoices without actually delivery of goods and thereafter, both the applicants were arrested on 28.04.2022 under Section 69 of the Act. It is in this context. It was submitted that no offence is made out against the applicants and their arrest is in contravention of mandatory provisions and rules made thereunder, as power under Section 69 should be used sparingly and reasons must be recorded for the arrest. In the facts of present case, no cogent reasons being assigned by the competent authority for the arrest of the applicants and therefore, the action on the part of the authority is in complete violation of Article 21 of the Constitution of India;

(ii) It was submitted that during the search, the authority seized cash amount to the tune of Rs.2,19,95,000/-, which is more than 10% of the alleged amount;

(iii) Referring to Section 107(6) of the Act, it was contended that the provision provides for deemed stay against the coercive recovery of dues on pre-deposit of 10% of the disputed tax liability. Here in the present case, as stated in (ii) ground, more than 10% has been seized by the authority and on instructions, he urged that it may be treated as deposit;

(iv) It was submitted that complaint before the Court has already been filed during the proceedings. The investigation has been exhaustively undertaken by the authority and during the search and seizure, necessary documents as well as electronic evidence including laptops, mobile, pen drive, have been seized and same is with the department;

(v) The maximum punishment is upto 5 years. The applicants are in custody since 28.04.2022 and they having deep roots in the society and they are not habitual offenders.;

(vi) Considering the pendency of the cases, there is no chances to conclude the trial in reasonable time and therefore, keeping behind the bar applicants, for indefinite period would certainly violate the fundamental right of freedom as guaranteed under Article 21 of the Constitution of India;

5. In the aforesaid contentions, learned Senior counsel submitted that discretion may kindly be exercised in favour of the applicants by enlarging them on bail imposing suitable conditions.

6. Learned Standing counsel Mr. Utkarsh Sharma and Mr. Manan Mehta, learned APP, relying on the contentions raised in the affidavit, raised the following issues :

(i) Alleged offence is economic offence and keeping in view the gravity of offence and also, the heavy loss to the government exchequer, no case is made out for exercising discretion in favour of the applicants;

(ii) While arresting the applicants, sufficient reasons were being assigned by the authority concerned, as the applicants have committed commercial fraud resulting in evasion of huge amount of tax and therefore, if they are released on bail, the investigation would be hampered;

(iii) The co-accused is still at run and there is all chances to increase the fraud amount and the present applicants being a originator of fake invoices, their custody is necessary for effective investigation.

7. In the aforesaid contentions, the learned Standing Counsel and APP submitted that no case is made out for exercising powers to release the applicants on bail and therefore, applications may be rejected.

8. In order to appreciate the rival submissions, the following facts of the case are required to be recorded.

9. The respondent no. 2 received input that many firms engaged in trading of Technical Grade Urea are involved in dubious transactions and after analysis of GSTR-2A, 3B, it was reveal that the firms were involved in bogus invoice transactions to claim ineligible input tax credit. On 26/27.04.2022, search was carried out at the premises of M/s. Nirmala Corporation, which is Proprietorship concern of applicant Raj Suchak. The firm is engaged into the trading of technical grade urea and acetic acid. During the search proceedings, the officers have recovered cash amount of Rs.2,38,00,000/- and out of the amount, the unaccounted cash found to the extent of Rs.2,19,95,000/- and same was seized. That it was further found during the investigation that the applicant Raj Suchak, supplied fake invoices to 7 different business entities which are found non­existing / bogus firms. In this incident, the tax consultant applicant VG Pragada was also involved in supplying bogus invoices of the 7 firms through RV Vaghasia on commission basis. In nutshell, during the search proceedings it was revealed that the applicants are involved in fraudulently available and passing on in-eligible fake input tax credit amounting Rs.16.53 crores and thereby committed an offence under Section 132(1)(b) and 132(1)(c) of the Act.

The applicants after compliance of mandatory provisions have been arrested on 28.04.2022 and upon their production before the Court, their arrest have been authorized by Judicial Magistrate, Rajkot. Their Regular Bail Applications were rejected by the courts below and being aggrieved with the orders, present applications have been preferred.

10. Having considered the facts and circumstances of the present case, this is a case where the applicants were need to be enlarged on bail for the following reasons :

(i) There is no straight jacket formula for consideration of bail to an accused, as it all depends upon the facts and circumstances of each case. In the case of Union of India Vs. K.A. Najeeb, 2021 (3) SCC 713, it was held that under trials cannot indefinitely be detained pending trial. In the facts of present case, investigation is virtually over and amount as referred having been disclosed during the search proceedings. Therefore the contentions raised by the respondent authority that investigation is underway is not tenable. Admittedly, complaint is filed before the competent court. In such circumstances, when trial would take considerable time and the respondent authority failed to make out a case that further custody of the applicant is necessary, the detention for further period is unwarranted;

(ii) The authority has already seized more than 10% amount and on instructions, learned senior counsel stated that the seized amount be treated as deposit, without prejudice to the rights and contentions of the applicants;

(iii) The applicant VG Pragada is not the Proprietor of any firm, related to the applicant Raj Suchak, as being a tax consultant, on commission basis, he acted for and on behalf of Raj Suchak;

(iv) Maximum punishment is upto 5 years and the offence is compoundable;

(v) The applicants do not have any criminal record.

(vi) The contention about economic offence raised, has been dealt with by the Apex Court in case of P. Chidambaram Vs. Director of Enforcement,(2020) 13 SCC 791, wherein the Apex Court, observed that even if the allegation of grave economic offence, it is not a rule that bail should be denied in every case, since there is no such bar created in the relevant enactment passed by the legislature nor does the bail jurisprudence provide so. Therefore, irrespective of nature and gravity of charge, whether bail is granted or not, the consideration will have to be on case to case basis on the facts involved therein and securing the presence of the accused to stand trial. In the facts of present case and reasons as discussed, (i) to (v), the applications deserve consideration.

11. For the foregoing reasons, the applications are allowed. The applicants are ordered to be released on regular bail in connection with the File No. : DGGI/INV/GST/1093/2022, on executing personal bond of Rs.10,000/- (Rupees Ten thousands only) each, with one surety each of the like amount to the satisfaction of the learned Trial Court and subject to the conditions that they shall:

12. The authorities shall release the applicants if they are not required in connection with the any other offence. If breach of any above condition is committed, the Sessions Judge concerned shall take appropriate action or issue warrant against the applicants. The bail bond to be executed before the learned trial Court having jurisdiction to try the case. It will be open for the sessions judge concerned to delete, modify and/or relax any of the above conditions, in accordance with law. Nothing stated hereinabove, shall tantamount to the expression of any opinion on the merits of this case. Rule is made absolute to the aforesaid extent. Direct service permitted.