Case Law Details

Case Name : Mahendra Kumar Singhi Vs Commissioner of State Tax (High Court of Madras)
Appeal Number : Criminal Original Petition No. 1318 of 2019
Date of Judgement/Order : 29/03/2019
Related Assessment Year :
Courts : All High Courts (6006) Madras High Court (557)

Mahendra Kumar Singhi Vs Commissioner of State Tax (High Court of Madras)

Section 132 of the Act will apply with all force the moment an invoice or a bill is issued without, movement of goods or Input Tax Credit has been wrongly availed. In the present caser the preliminary investigation reveals that the entities have formed a cartel by doing circular trading between seven Companies whereby nearly 98 per cent of the transactions are among themselves and 2 per cent of the supply have been wade to other entities. In other words, the very same goods are being repeatedly shown as being supplied by way of purchase/sales amongst the entities only with a view to defraud the revenue and to distribute the credit illegally and fraudulently. That apart, there are also prima facie materials to show that the E-way bills generated by the entities are found to be totally false since on verification it was found the so-called movement of goods which is Iron and Steel has been done in vehicles which are two wheelers/three wheelers, vehicles which have already been seized by the finance companies and vehicles where the transporter himself says that no such movement of goods took place. The total turnover shown by the petitioners and the corresponding tax paid by them after adjusting the Input Tax Credit is almost minuscule. It was also brought to the notice of the Court that even though the petitioners were bound to maintain the accounts and records in the principal place of business, all that was kept at Bangalore, in total violation of Section 35 of the Act. The amounts that are reflected in the material produced by the respondent and shown in the interim report are staggering.

It will be relevant to reiterate the earlier order passed by this Court under similar circumstances in Crl. O.P. Nos. 30467, 30470, 30474, 30477, 30481, 30488 30490 of 2018 dated 20.02.2019. The relevant portions of the order is extracted hereunder:

“14. The enactment in question has cone into force very recently with a laudable object of one country one tax. Therefore wherever the department finds that certain provisions in the Act is misused by creating fake invoices and input tax credit is being availed without any movement of goods, the same has to be curbed and nipped in the bud to ensure that it does not grow into another mega scam having a direct impact on the economy of this nation. Since the department has collected some prima facie materials , they want to act fast before it becomes a huge racket, failing which the entire economy of this country would weaken and collapse.

15. If the petitioners are conducting genuine business through the above said companies, they can easily prove during the investigation the actual movement of goods, which will all be borne out by documents. If the department is satisfied regarding the same, the department will leave out the companies belonging to the petitioners and proceed further with the investigation.

16. In the considered view of this Court, in matters of this nature, the department must be given the complete independence to investigate the cases since it involves the national interest. This Court by entertaining an Anticipatory Bail Petition and by imposing certain conditions, should not tie the hands of the department in proceeding further with the investigation since what has been unearthed till now is only the tip of iceberg and there is a long way to go for the department to find out how long this fake invoices have extended their tentacles”.

The above order will squarely apply to the facts of this case also- This Court in the light of the nature and gravity of the accusations put forth by the prosecution and also the fact that the investigation is at a very early stage, is not inclined to entertain these anticipatory bail petitions. It is open to the petitioners, to make complete disclosure by submitting all the relevant documents before the respondent and it is for the respondent to consider the same and satisfy themselves and proceed further in accordance with law.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

The petitioners facing prosecution before the respondents for the alleged offences punishable under Section 132 of the Central Goods and Services Act, 2017, are seeking anticipatory bail before this Court.

2. The petitioners are husband and wife. There are several entities in the nature of Proprietorship Concerns, Partnership Concerns or Private Limited Companies, in which the petitioners are Proprietor, Partner and Directors and the entities are engaged in the supply of Iron and Steel by way of sales/purchases. All the entities are registered under the CGST and TNGST Act.

3. The respondent Department through its Competent Officer,- during the course of inspection conducted u/s 67 of the Tamil Nadu Goods and Services Act,2017 [the Tamil Nadu Goods and Services Act, 2017 – hereinafter referred as “the Act”] , on a comparison of the Output Tax due and the Input Tax Credit availed by the different entities found that huge Input Tax Credit was passed on/distributed amongst the various entities fraudulently. On further verification of the online E-way bills generated by the entities it was found that the so-called movement of goods itself was false. Therefore, the Joint Commissioner (enforcement), Salemrauthorised officials to conduct inspection and search in the business premises of the petitioners and also seized the necessary documents and goods. This exercise was conducted pursuant to the powers given under Section 67 of the Act. The inspection was conducted on 09.01.2019. Parallelly, inspection was also conducted at Bangalore and the premises was sealed.

4. It is the further case of the prosecution that summons were issued to the petitioners for enquiry. In the meantime, the petitioners filed the anticipatory bail petition before this Court and this Court directed the petitioners to appear for interrogation as and when required by the respondent.

5. It is the case of the respondent that the preliminary investigations revealed that outward supply of goods from 02.06.2018 to 09.01.2019, was shown without, movement, of goods on the basis of false and bogus E-way bills. Similarly inward supply from 02.06.2018 to 09.01.2019, was also fraudulently shown without actual movement of goods by bogus E-way bills. The total assessable value for the taxguru.in Outward supply was identified as Rs.2639283519/- and the tax payable was assessed as Rs.475071033/-. Similarly, the Inward supply value was assessed at. Rs.3378861838/- and the tax payable was assessed as Rs.607854399/-.

6. The relevant portion in the interim report filed by the respondent is extracted hereunder:

“The above materials and the preliminary investigation furnish reason to believe that the above entities, through the active involvement of the Petitioners who were in charge and responsible for the conduct, of business of the above entities, had fraudulently availed/distributed credit, in violation of the following clauses under Section 122 read with 132 of the TN Goods and Services Taxes Act, 2017 as under:

(a) The above entities were involved in supplying goods without issuing any invoice or issuing incorrect or false invoice with regard to such supply – Section 122 (i).
(b) The above entities had issued invoices/bills without supply of any goods in violation of the provisions of this Act-Section 122 (ii).
(c) The above entities had taken/utilised input tax credit without actual receipt of goods in contraventions of the provisions of the Act and the Rules made thereunder – Section 122(vii).
(d) The above entities falsified or substituted financial records /produced fake accounts/documents/return with an intention to evade payment of tax due under this Act-Section 122 (x).
(e) The above entities failed to keep maintain/retain books of account and other documents in accordance with the provisions of this Act or the Rules made thereunderr viz. Section 35 of Tamil Nadu Goods and Services Tax Act, 2017 read with Rule 56 of Tamil Nadu Goods and Services Tax Rules, 2017 – Section 122(xvi).
(f) The above entities failed to furnish the information/documents called for by offices in accordance with the provision of this Act or the rules made there under/furnish false information/documents during any proceedings under this Act-Section 122 (xvii).
(g) The above entities supplied/transported/stored any goods which he has reasons to believe are liable to confiscation under this Act-Section 122 (xviii).

11. The above offences are liable for prosecution under the provisions of Section 13(1)(a) (b)& (c) of Tamil Nadu Goods and Services Tax Act, 2017 warranting punishment as provided under Section 132(1) (i) of Tamil Nadu Goods and Services Tax Act, 2017.

12. The preliminary investigation also furnishes reasons to believe the following:-

a. The above groups of entities had forced a cartel whereby 98 per cent of the transactions are among themselves and only 2 per cent of supplies were made to other entities. In other words, the very same goods are being repeatedly shown as being supplied by way of purchase/sales amongst the above entities only with a view to defraud the revenue and to distribute the credit illegally/fraudulently. In other words, these entities were engaged in what is commonly known, as circular sales. The invoices are issued among themselves, without there being involvement of any goods. The same is done only for the purpose of fraudulently availing anddistributing credit illegally without involvement of any goods and also to effect supplies without invoices, though the primary objective is to illegally avail the credit-
b. The above entities had manipulated the records to ensure that the tax actually paid to the Department is negligible, when compared to the total turnover and the balance was adjusted through Input Tax Credit accumulated illegally out of these circular transactions. The above entities have issued invoices among themselves to facilitate distribution/transmission of Input tax credit, without supply of any goods.
c. It is also noticed that there is huge discrepancy between the entries reflected in the bank accounts of the above entities and the monthly returns in respect of the transactions or supplies relating to Jindal Steel, Indian Ispat, Ferrum Alloys (for the year 2018-2019) & Steel Shoppe (for 2017-18 and 2018-19) which would furnish reason to believe that the above entities are acting in gross and brazen violation of Act and Rules”.

7. Mr. B. Kumar, learned Senior counsel appearing on behalf of the petitioners submitted that the petitioners have been carrying on with the business for a very long time and they are not fly by night operators. The learned Senior counsel further submitted that the returns have been regularly filed and by pointing out to the certificate given by the chartered accountant along with all the relevant documents, the learned Senior counsel impressed upon this Court, that from July 2017 to December 2019, the petitioners have complied with the provisions of the GST, by filing returns under Form GSTR-1 for Outward supplies and Form GSTR-3B for Output and Input Tax Credit. The learned senior counsel also brought to the notice of this Court, that invoice has been taken, item-wise and the Input Tax Credit has been correlated with form GSTR-2A and the Input Tax Credit of Rs.2,08,50, 69,000/- in compliance with the provisions of Section 16(2) (c) of the GST Act, and the only discrepancy viz.; excess/short claim of Input Tax Credit works out to a very meagre amount.

8. The learned Senior counsel brought to the notice of this Court the broad scheme of the Act and submitted that for the dealers who regularly filed their returns, the department should not resort to criminal prosecution and arrest without conducting a preliminary enquiry by putting on notice the petitioners. The learned Senior counsel submitted” that Section 59 of the Act provides for self assessment, wherein, returns must be filed for each tax period as specified under Section 39 of the Act, These returns are subjected to scrutiny under Section 61 of the Act in order to find out if there is discrepancy in the returns and to take corrective measures for realisation of short payment. The learned Senior counsel further submitted that Sections 73 and 74 of the Act also provides for demand and recovery for tax not paid or Input Tax Credit wrongly availed or utilised by reason of fraud or willful mis statement or suppression of facts. The learned Senior counsel further submitted that the Act also provides for levying penalty under Section 126 of the Act and a procedure is also prescribed for taxguru.in levy of penalty. The learned Senior counsel also brought to the notice of the Court that the offence is made compoundable under Section 138 of the Act. even after the institution of the prosecution, and therefore, the main purport of the Act is only the collection of the tax and resorting to arrest should not be done in a mechanical manner. The learned Senior counsel further submitted that in order to attract the punishment under Section 132 of the Act, the respondent has to satisfy itself that there has been a tax evasion or an Input Tax Credit wrongly availed or utilised which exceeds Rs.5 crores. In order to determine this, there must be an enquiry and opportunity must be given to the petitioners in order to enable the petitioners to put forward their side of the case, failing which, the entire provision will be in violation of Article 265 of the Constitution of India, which specifically provides that no tax shall be levied or collected except by authority of law. By not providing a proper procedure by a competent officer for initiating prosecution, the entire process will be in violation of the Constitution. Finally, the learned . Senior counsel submitted that Section 69(3) of the Act, specifically states that the Code of Criminal Procedure will apply in cases of arrest and remand. Therefore, since the offence itself is punishable for a term which may extend to five years, the respondent can always resort to the procedure under Section 41 A of the Cr.P.C.

9. The learned Senior counsel submitted that if the respondent apprehends that the petitioners will escape from the clutches of law, the petitioners are willing even to surrender their Passport and provide all materials and co-operate for the enquiry conducted by the respondent.

10. Mr. Mohamed Shaffiq, learned Special Government Pleader (Tax) appearing for the respondent, submitted that filing or non-filing a return will not make any difference where a person avails Input Tax Credit, without supply of goods or services and the same is punishable u/s 132 of the Act. The learned counsel submitted that the fraudulent transactions of the petitioners in fact came to light during preliminary inspection only through the returns filed by them which when checked was found to be a case of fraudulent E-way bills without movement of goods, wherein the petitioners have fraudulently availed Input Tax Credit. The learned counsel further submitted that it is not necessary in every case to follow the procedure of assessment and make a demand and recovery under Section 73 and 74 of the Act or to follow the procedure for levying the penalty under Section 126 of the Act and only thereafter launch prosecution under Section 132 of the Act. The learned counsel submitted that as per the scheme of the Act each of the above operates independently.

11. The learned Special Government Pleader relied upon the judgment of the Rajasthan High Court in Bharat Raj Punj v. Commissioner of Central Goods and Services Tax Department, Jaipur made in W.P.No. 75 of 2019 dated 12.03.2019, and submitted that it is not necessary to determine the case under Section 73 and 74 of the Act, before resorting to Section 132 of the Act and the said provision can be directly invoked wherever an offence has been committed. Para 21 of the said judgment is extracted hereunder: ‘

“21. The contention that the tax is to be first determined under Sections 73 & 74 of the Act does not have any force for the very reason that in an offence committed under Section 132 of the Act de termination of tax is not required and the Department can proceed straight away by issuing: summons or if reasonable grounds are available by arresting the offender”.

12. The learned Special Government Pleader further submitted that the respondent has found that there was a circular trading of seven Companies which involved the relatives of the petitioners and there is a complete mismatch between the total turnover and actual tax paid. The learned counsel further reiterated the stand taken by the respondent in the interim report which has been extracted supra.

13. This Court has carefully considered the submissions made on either side. This Court is in complete agreement with the stand taken by the department that. Section 132 of the Act. can be directly resorted, wherever offence is committed and it is not necessary to follow the procedure of assessment, demand and recovery or penalty proceedings. In the scheme of the Act, Section 132 stands independently and the moment a competent officer on inspection and search, finds any offence committed under Section 132 of the Act, prosecution can be directly launched.

14. Filing of returns by itself does not give any leverage and it is not necessary that persons filing returns should foe treated differently from other persons, who are not filing returns or evading tax. At this juncture, it is relevant to take note of two judgments relied upon by the learned Senior counsel appearing on behalf of the petitioners.

15. The first, judgment relied upon by the learned Senior Counsel for the petitioners is in Makemytrip (India) (P.) Ltd. v. Union of India[2016] 73 taxmann.com 31 (Delhi).The relevant portions o£ the judgment is extracted hereunder;

“93. It appears as that a decision to launch prosecution and a decision to arrest have- to be taken more or less simultaneously. In other words, without a decision to launch prosecution there cannot be a decision taken to arrest a person. The decision to launch prosecution must be informed by the safeguards spelt out in Circular No. 1009/16/2015-CX dated 23rd October, 2015. This circular, apart from raising monetary limit, also talks of Thabitual evaders’. Para 4.2 of this circular states that prosecution can be launched -in the case of a company /assessee habitually evading tax/duty or misusing Cenvat Credit facility. A company/assessee would be treated as habitually evading tax/duty or misusing Cenvat Credit facility if it has been involved in three or more cases of confirmed demand (at the first appellate level or above) of Central Excise duty or Service Tax or misuse of Cenvat Credit involving fraud, suppression of facts etc. in the five years from the date of the decision such that the total duty or tax- evaded or total credit misused is equal to or more than Rs. One Crore. Offence register (335J) maybe used to monitor- and identify assessees who can be considered to be habitually evading duty. ?

94. The circular also acknowledges at para 4.3 that sanction of prosecution has serious repercussions for the assessee and therefore along with the above monetary limits the nature of evidence collected during the investigation should be carefully assessed. The evidences collected should be adequate to establish beyond reasonable doubt that the present company or individual had guilty mind, knowledge of the offence, or had fraudulent intention or in any manner- possessed mensrea (guilty mind)for committing the offence.?

95. There is a detailed procedure set out in para 6 regarding procedure to sanction a prosecution. Paras 6.2, 6.3 and 6.4 of this circular are significant and read as under:

6.2 Prosecution should not be launched, in cases of technical nature, or where the additional claim of duty/tax is based totally on a difference of opinion regarding interpretation of law. Before launching any prosecution, it is necessary that the department should have evidence to prove that the person, company or individual had guilty knowledge of the offence, or had fraudulent intention to commit the offence, or in any manner possessed mens rea (guilty mind) which would indicate his guilt. It follows, therefore, that in the case of public limited companies, prosecution should not be launched indiscriminately against all the Directors of the company but it should be restricted to only against persons who were in charge of day-to-day operations of the factory and have taken active part in committing the duty/tax evasion or had connived at it.

6.3 Prosecution should not be filed merely because a demand has been confirmed in the adjudication proceedings particularly in cases of technical nature or where interpretation of law is involved. One of the important considerations for deciding whether prosecution should be launched is the availability of adequate evidence. The standard of proof required in a criminal prosecution is higher as the case has to be established beyond reasonable doubt. whereas the adjudication proceedings are decided on the basis of preponderance of probability. Therefore, even cases where demand is confirmed in adjudication proceedings evidence collected should be weighed so as to likely meet the test of being beyond reasonable doubt for recommending prosecution. Decision should be taken on case-to-case basis considering various factors,’ such as, nature and gravity of offence, quantum of duty/tax evaded or-Cenvat credit wrongly availed and the nature as well as quality of evidence collected.

6.4 Decision on prosecution should be normally taken immediately on completion of the adjudication proceedings. However, Hon’ble Supreme Court of India in the case of Radheyshyam Kejriwal 2011 (266) ELT 294 (SC) has inter alia, observed the following (i) adjudication proceedings and criminal proceedings can be launched simultaneously; (ii) decision in adjudication proceedings is not necessary before initiating criminal prosecution; (iii) adjudication proceedings and criminal proceedings are independent in nature to each other and (iv) the findings against the person facing prosecution in the adjudication proceedings is not binding on the proceeding for criminal prosecution. Therefore, prosecution may even be launched before the adjudication of the case, especially where offence involved is grave,’ qualitative evidences are available and it is also apprehended that party may delay completion of adjudication proceedings.”.

96. What this circular again underscores is that there should be a comprehensive analysis of the evidence gathered before deciding to go in for prosecution. Importantly, prosecution should not be launched merely because a demand has been confirmed or particularly where the cases are of technical nature or where interpretation of law is involved. It is also not to be launched where additional claim of duty/tax is only based on difference of opinion regarding interpretation of law. Importantly, it has to be normally taken only immediately upon completion of adjudication proceedings”.

97. There is a reason behind this stipulation that prosecution should normally be launched only after the adjudication is complete. The ‘adjudication’ in this contextis the adjudication of the penalty under Section 63 A of the FA. That provision mandates that there must be in the first place a determination that a person is “liable to a Penalty”, which cannot happen till there is in the first place a determination in terms of Section 72 or 73 or 73 A of the FA. Till that point, the entire case proceeds on the basis that there must be an apprehended evasion of tax by the Assessee. This apprehension hinges upon the analysis of the evidence gathered by the investigating agency. It is possible that the officer will take a different view because he has the opportunity of hearing both the sides and to more carefully analyze the evidence that has been gathered. Where prosecution is sough t to be launched even before the adjudication of the penalty it has to be shown that (a) the offence involved is grave (b) qualitative evidence is available and (c) it is apprehended that the Assessee may delay the completion of adjudication proceedings. This underscores the importance of obtaining sanction for prosecution both in cases of MMT and IBIBO. A reference will be made to that shortly.

16. The second judgment relied upon by the learned Senior counsel tor the petitioners is in a Bir.com. Pvt. Ltd. v. Union of India MANU/DE/2740/2016. The relevant portions of the judgment is extracted hereunder:

78. It appears to the Court after carefully considering the affidavits on record that the conduct of the officers of the DGCEI in refusing to receive the documents tendered to them and terming the conduct of eBIZ to be non-cooperative is not justified in the facts and circumstances. At the same time, the Court would reiterate the direction that eBIZ and its officers including Mr. Malhan will continue to co-operate with the DGCEI in carrying the investigations to their logical end.

Summary of Conclusions

79. To summarise the conclusions in this judgment:

(i) The scheme of the provisions of the Finance Act 1994 (FA), does not permit the DGCEI or for that matter the Service Tax Department (ST Department) to by pass the procedure as set out in Section 73A (3) and (4) of the FA before going ahead with the arrest of a person under Sections 90 and 91 of the FA. The power of arrest is to be used with great circumspection and not casually. It is not to be straight away presumed by the DGCEI, without following the procedure under Section 73A (3) and (4) of the FA, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government.
(ii) Where an assessee has been regularly filing service tax returns which have been accepted by the ST Department or which in any event have been examined by it, as in the case of the two Petitioners, without commencement of the process of adjudication of penalty under Section 83 A of the FA, another agency like the DGCEI cannot without an SCN or enquiry straightaway go ahead to make an arrest merely on the suspicion of evasion of service tax or failure to deposit service tax that has been collected. Section 83 A of the FA which provides for adjudication of penalty provision mandates that there must be in the first place a determination that a person is “liable to a penalty”, which cannot happen till there is in the first place a determination in terms of Section 72 or 73 or 73 A of the FA.
(iii) For a Central Excise officer or an officer of the DGCEI duly empowered and authorised in that behalf to be satisfied that a person has committed an offence under Section 89 (1) (d) of the FA, it would require an enquiry to be conducted by giving an opportunity to the person sought to be arrested to explain the materials and circumstances gathered against such person, which according to the officer points to the commission of an offence. Specific to Section 89 (1) (d) of the FA, it has to be determined with some degree of certainty that a person has collected service tax but has failed to pay the amount so collected to the Central Government beyond the period of six months from the date on which such payment is due, and further that the amount exceeds Rs. 50 lakhs (now enhanced to Rs. 1 crore).
(iv) A possible exception could be where a person is shown to be a habitual evader of service tax. Such person would have to be one who has not filed a service tax return for a continuous length of time, who has a history of repeated defaults for which there have been fines, penalties imposed and prosecutions launched etc. That history can be gleaned only from past records of the ST Department. In such instances, it might be possible to justify resorting to the coercive provisions straightaway, but then the notes on file must offer a convincing justification for resorting to that extreme a measure.
(v) The decision to arrest a person must not be taken on whimsical grounds; it must be based on credible material’. The constitutional safeguards laid out in D K. Basu’s case (supra) in the context of the powers of police officers under the Cr PC and of officers of central excise, customs and enforcement directorates, are applicable to the exercise of powers under the FA in equal measure. An officer, whether of the Central Excise Department or another agency like the DGCEI, authorised to exercise powers under the CE Act and/or the FA will have to be conscious of the constitutional limitations on the exercise of such power.
(vi) In the present case, without even an SCN being issued and without there being any determination of the amount of service tax arrears, the resort to the extreme coercive measure of arrest followed by detention of Mr. Malhan was impermissible in law.
(vii) In terms of CBEC’s own procedures, for the launch of prosecution there has to be a determination that a person is a habitual offender. There is no such determination in the present case. The DGCEI cannot possibly come to a conclusion that an Assessee is an habitual offender if there is no discussion by the DGCEI with the ST Department regarding the history of such Assessee. Assuming that for whatever reasons if the DGCEI does not talk to ST Department, certainly it needs to access the service tax record of such Assessee. Without even requisitioning that record, it could not have been possible for the DGCEI to arrive at a reasonable conclusion whether there was a deliberate attempt of evading payment of service tax.
(viii) The search undertaken by the DGCEI of the premises of eBIZ on 19th January, 2016 was illegal. For the exercise of powers of search under Section 82 of the FA, (i) an opinion has to be formed by the Joint Commissioner or Additional Commissioner or other officers notified by the Board that “any documents or books or things” which are useful for or relevant for any proceedings under this Chapter are secreted in any place, and (ii) the note preceding the search of a premises has to specify the above requirement of the law. The search in the present case was in violation of Section 82 of the FA. It is unconstitutional and legally unsustainable.
(ix) The Court is unable to accept that payment by the two Petitioners of alleged service tax arrears was voluntary. Consequently, the amount that was paid by the Petitioners as a result of the search of their premises by the DGCEI, without an adjudication much less an SCN, is required to be returned to them forthwith.
(x) The payment of Rs. 17 crores by eBIZ was not ‘voluntary’ but under coercion and duress and is required to be returned to eBIZ by the DGCEI forthwith and in any event not later than four weeks from today. It is clarified that this will not in any manner affect the bail already granted to Mr. Malhan. Those proceedings will be taken to their logical end.
(xi) The conduct of the officers of the DGCEI in refusing to receive the documents tendered to them and terming the conduct of eBIZ to be non-cooperative is not justified in the facts and circumstances. At the same time, the Court would reiterate the direction that eBIZ and its officers including Mr. Malhan will continue to co-operate with the DGCEI in carrying the investigations to their logical end.

80. The interim directions issued on 28th January, 2016 are made absolute. It is directed that the DGCEI will refund to eBIZ forthwith the sum of Rs. 17 crores deposited by it towards alleged dues of service tax and in any event not later than four weeks from today. Any delay in refund beyond the said period will make the DGCEI liable to pay simple interest at 6 per cent per annum on the said amount from the date on which it becomes due in terms of this order till the date of payment. The refund in terms of this order will not affect the bail granted to Mr. Malhan.

17. This Court has carefully considered the above judgments cited by the learned Senior counsel appearing on behalf of the petitioners. These judgments were rendered under the service tax which also provided for prosecution for offences committed under the Act. A careful reading of the judgment shows that the entire procedure to launch a prosecution wasgoverned by a circular and it was found that this was not complied with. It also contemplated a sanction for prosecution. The Court was also dealing with the scheme of the service Act, wherein the Court found that both the penalty proceedings and prosecution proceedings will have to be preceded by adjudication for the purposes of determining the evasion of service tax. It was so held because the case involved non-payment of service tax collected which according to the Delhi High Court should have involved a process of determination of the tax payable and only thereafter the prosecution should have been launched. Both the above judgments are clearly distinguishable from the facts of the present case end under the scheme of the present Act.

18. Section 132 of the Act will apply with all force the moment an invoice or a bill is issued without, movement of goods or Input Tax Credit has been wrongly availed. In the present caser the preliminary investigation reveals that the entities have formed a cartel by doing circular trading between seven Companies whereby nearly 98 per cent of the transactions are among themselves and 2 per cent of the supply have been wade to other entities. In other words, the very same goods are being repeatedly shown as being supplied by way of purchase/sales amongst the entities only with a view to defraud the revenue and to distribute the credit illegally and fraudulently. That apart, there are also prima facie materials to show that the E-way bills generated by the entities are found to be totally false since on verification it was found the so-called movement of goods which is Iron and Steel has been done in vehicles which are two wheelers/three wheelers, vehicles which have already been seized by the finance companies and vehicles where the transporter himself says that no such movement of goods took place. The total turnover shown by the petitioners and the corresponding tax paid by them after adjusting the Input Tax Credit is almost minuscule. It was also brought to the notice of the Court that even though the petitioners were bound to maintain the accounts and records in the principal place of business, all that was kept at Bangalore, in total violation of Section 35 of the Act. The amounts that are reflected in the material produced by the respondent and shown in the interim report are staggering.

19. It will be relevant to reiterate the earlier order passed by this Court under similar circumstances in Crl.O.P.Nos.30467, 30470, 30474, 30477, 30481, 30488 30490 of 2018 dated 20.02.2019. The relevant portions of the order is extracted hereunder:

“14. The enactment in question has cone into force very recently with a laudable object of one country one tax. Therefore wherever the department finds that certain provisions in the Act is misused by creating fake invoices and input tax credit is being availed without any movement of goods, the same has to be curbed and nipped in the bud to ensure that it does not grow into another mega scam having a direct impact on the economy of this nation. Since the department has collected some prima facie materials , they want to act fast before it becomes a huge racket, failing which the entire economy of this country would weaken and collapse.

15. If the petitioners are conducting genuine business through the above said companies, they can easily prove during the investigation the actual movement of goods, which will all be borne out by documents. If the department is satisfied regarding the same, the department will leave out the companies belonging to the petitioners and proceed further with the investigation.

16. In the considered view of this Court, in matters of this nature, the department must be given the complete independence to investigate the cases since it involves the national interest. This Court by entertaining an Anticipatory Bail Petition and by imposing certain conditions, should not tie the hands of the department in proceeding further with the investigation since what has been unearthed till now is only the tip of iceberg and there is a long way to go for the department to find out how long this fake invoices have extended their tentacles”.

20. The above order will squarely apply to the facts of this case also- This Court in the light of the nature and gravity of the accusations put forth by the prosecution and also the fact that the investigation is at a very early stage, is not inclined to entertain these anticipatory bail petitions. It is open to the petitioners, to make complete disclosure by submitting all the relevant documents before the respondent and it is for the respondent to consider the same and satisfy themselves and proceed further in accordance with law.

Source- Publication on other websites. Further Hon’ble Madras Hiugh Court has not yet uploaded the copy of Judgment on its website.

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