High Court grants bail to ITC scam accused as GST liability was yet to be not determined.
In a recent judgment, Hon’ble High Court of Punjab & Haryana granted bail to ITC scam accused as GST liability was yet to be determined and the assessee was not habitual offender holding that sentence to be awarded was directly linked with the quantum of evasion of tax.
ABCAUS Case Law Citation:
4240 (2024) (08) abcaus.in HC
In the instant case the Petitioner has prayed for bail in a Criminal Complaint filed by State GST (Intelligence Unit) under Section 132 of the CGST Act 2017 pending before the Court of Chief Judicial Magistrate (CJM).
The petitioner, was proprietor engaged in the trading of iron scrap/ferrous scrap. On examination of GST returns of the firm of the Petitioner, it was found that the firm had shown inward supplies of iron scrap/purchases from various suspicious dealers/tax payers of Delhi, had been availing wrongful Input Tax Credit (‘ITC’) and was discharging its GST liability mainly through utilization of credit ledger by discharging less than 1% of its liability through cash ledger.
Therefore, an inquiry was initiated and it was found that no business was in fact being carried out at the given address. Also, all the firms shown as suppliers of the firm of the petitioner were either non-existent or were non-functional or were carrying out no business activity or were involved in fraudulent activities and none of those firms was registered for dealing in the business of iron scrap.
The Petitioner was arrested and a formal complaint was filed against him before the competent Court after completion of necessary investigation/inquiry and formalities. The petitioner moved applications for grant of bail, all of which had been dismissed by the trial Magistrate and then by the Court of Additional Sessions Judge.
The High Court observed that the Madras High Court had observed that when recovery is made subject to ‘determination’ in an assessment, the argument of the department that punishment for the offence alleged can be imposed even prior to such assessment is clearly incorrect and amounts to putting cart before the horse. The only exceptions to the rule of determination are that where the assessee was a habitual offender. It is only in such cases that the authorities might be justified in proceedings to pre-empt the assessment and initiate action against the assessee in terms of section 132, for reasons to be recorded in writing.
The Hon’ble High Court noted that wrong claim of ITC was yet to be determined by the competent authority by making proper assessment/adjudication. As such, it is only after the adjudication/assessment that the liability of the firm of the petitioner with regard to exact amount of evasion of tax is to be determined and, therefore, the question as to the exact liability of the petitioner would be decided only after adjudication of the same under Section 74 of the CGST Acts. Hence, assuming that the petitioner is liable for punishment under Section 132(1)(b) and (c) of the CGST Act was yet to be decided and is pre-mature at this stage.
The Hon’ble High Court further observed that a Division Bench of the Court had observed that the power of arrest should not be exercised at the whims and caprices of any officer or for the sake of recovery or terrorizing any businessman or create an atmosphere of fear, whereas it should be exercised in exceptional circumstances during investigation as under:
(i) a person is involved in evasion of huge amount of tax and is having no permanent place of business,
(ii) a person is not appearing inspite of repeated summons and is involved in huge amount of evasion of tax,
(iii) a person is a habitual offender and he has been prosecuted or convicted on earlier occasion,
(iv) a person is likely to flee from country,
(v) a person is originator of fake invoices i.e. invoices without payment of tax,
(vi) when direct documentary or otherwise concrete evidence is available on file/record of active involvement of a person in tax evasion
The Hon’ble High Court further observed that in a case High Court of judicature for Rajasthan at Jaipur had dismissed the prayer made by the petitioner, who was accused of creating and operating 294 fake firms and evading tax liability of Rs. 1032 crore by observing that the petitioner was not to be held entitled to get bail merely because the offence under Section 132 of the CGST was punishable with imprisonment for 05 years and was triable by the Magistrate. The Hon’ble Supreme Court allowed the Special Leave to Appeal by taking into consideration the fact that he was in custody for a period of 09 months and further that the offence carried maximum punishment for 05 years of imprisonment.
In the instant case, the Hon’ble High Court noted that the petitioner was in custody since last five months. He had no criminal antecedents. He had a permanent abode. As such, there was no likelihood of the petitioner’s fleeing from the country. He was also ready to surrender his passport. The investigation has completed and a complaint under Section 132 of the CGST Act had been filed against him. The trial was likely to take time. Show cause notice issued under Section 74(1) upon him was yet to be adjudicated upon and the exact liability of the petitioner/his firm was yet to be fixed. The sentence to be awarded was directly linked with the
quantum of evasion of tax and the prosecution of the petitioner was also linked with determination of evasion of tax because if there is no evasion of tax, there can be no criminal liability. The Hon’ble High Court stated that the determination of tax liability is subject to the challenge before tribunals and courts and does not fall within the realm of criminal courts.
It was also noted by the Hon’ble High Court that in view of the fact that one another firm had also been issued notice under Section 74(1) jointly with the petitioner on the allegations of being major recipient of the ITC and its liability was also to be adjudicated upon, which obviously may reduce the liability to be imposed upon the petitioner.
The Hon’ble High Court in the circumstances of the case coupled with the fact that maximum period of punishment to be awarded under Section 132 of the CGST Act is 05 years and also in view of the ratio of law as laid down allowed the Petition. The petitioner was directed to be released on regular bail, subject to his executing personal to the satisfaction of the trial Court and further subject to the condition that he will surrender his passport before the trial Court and shall not leave the country during trial without prior permission of the Court.
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