HC grants bail as arrest order only stated assessee was master mind of fake GST ITC racket

High Court grants bail as order of arrest only stated assessee as master mind of the fake GST ITC racket and required to be arrested immediately. Arrest was not made for non cooperation and no remand was sought

In a recent judgment, High Court has granted bail to the assessee charged as master mind of the fake GST ITC racket as order of arrest only stated him master mind required to be arrested immediately.

ABCAUS Case Law Citation:
ABCAUS 3918 (2024) (03) HC

Important Case Laws relied upon by parties:
Ashish Kakkar vs. Union of India and another
Bijender Vs State Of Haryana 
Y.S. Jagan Mohan Reddy vs. Central Bureau of Investigation (2013) 7 SCC 439
Arnesh Kumar Vs. State of Bihar, MANU/SC/0559/2014 : (2014) 8 SCC 273
P.V. Ramana Reddy and Ors. vs. Union of India and Ors., MANU/TL/0064/2019
Nimmagadda Prasad vs. C.B.I. (2013) 7 SCC 466
Devchand Kalyan Tandel vs. State of Gujarat and another (1996) 6 SCC 255
Paras Jain & Rohan Jain vs. Union of India
Radheyshyam Kejriwal vs. State of West Bengal, 2011 (266) E.L.T. 294 (S.C.)
Ravindra Nath Sharma & Ravubder Sharma vs. Union of India

In the instant case a bail application was moved by the accused assessee/applicant in a crime case under Section 132 of Central Goods and Services Tax Act, 2017 (the Act) in which it was alleged that the applicant opened many bogus firms and companies in order to claim input tax illegally. It was alleged that the fake input tax credit illegally taken by applicant was Rs. 90 crores and the number of fake firms floated for fake ITC were about 271.

It was submitted that the applicant had been falsely implicated in this case and without any sufficient reasons and basis and without assessing any tax liability the applicant had been arrested and detained in prison for two months.

Drawing the attention of the Hon’ble High Court on Sections 69, 73, 74, 79 and section 62 of the Act, it was submitted that at first the department is required to assess the tax liability to be paid by an assesse and it is only thereafter any proceeding under Section 69 of the Central Goods and Services Tax Act with regard to the arrest of the accused person or assesse may be undertaken. It was submitted that till date no tax liability was shown to have been assessed by the department and without there being any sufficient or cogent reasons he has been placed behind the bars.

Further, it was submitted that no grounds have been shown in this arrest-memo which may justify the arrest of the applicant and a vague language has been used in the arrest memo in order to show that the provisions of the Act have been violated without specifying the alleged act or omission of the applicant.

It was also submitted that no incriminating article has been recovered from the premises of applicant and statement of some persons are shown to have been recorded by the department under duress with regard to the formation of some shell companies by the applicant in order to evade tax liability.

It was submitted that applicant is languishing in jail for more than two months and while producing the applicant before the Magistrate after his illegal arrest, the department had requested for judicial remand and no custody remand was requested, which prima facie reflect that further detention of the applicant is not required by the investigating agency and despite the investigation is complete, the complaint was not being filed deliberately to deny the facility of bail to the applicant. The alleged offences against the applicant are punishable with maximum imprisonment of five years and as the investigation has almost completed, the detention of the applicant was not required anymore.

It was further submitted that the applicant had cooperated in the investigation and has appeared before the investigating officer as and when his presence was required. However, at the very first occasion available to him, he had retracted his statement shown to have been recorded before the investigating officer. Applicant undertook that he will cooperate with the investigation as well as with the trial.

In support of his contentions, the applicant relied on the law laid down by the Division Bench of the Hon’ble High Court.

On the contrary, the Department submitted that the instant case was not a case of under payment of tax liability or evasion of tax but a case of fraud where without supplying any goods the input tax has been received and misappropriated.

Attention of the Court was drawn towards the statement of the applicant recorded under Section 70 of the Goods and Services Tax Act in order to show that the applicant had admitted his involvement in the crime.

It was submitted that the statement of the applicant was recorded while he was confined in prison which shows the applicant was not at all cooperating with the investigation. It was further submitted that statement of many persons have been recorded, which reveals that applicant has opened various shell companies in order to receive input tax illegally and none of these persons whose statements have been recorded has retracted his statement.

The applicant rebutted the submissions of the Department and submitted that in contradiction to Section 69 of the Central Goods and Services Act, the custody remand of the applicant had not been sought at the time of remand of accused by the department and also that the cooperation in the investigation doesn’t mean that applicant should confess his guilt as proposed by the department and it should be taken as enough cooperation if the applicant had appeared before the investigating officer in response to the summons issued to him and the applicant in this case has remained present before the investigating officer as and when he was summoned and ultimately arrested illegally. It was again reiterated that the offences was punishable with upto 05 years’ of imprisonment and keeping in view the fact that still no assessment of tax has been calculated and no formal complaint or F.I.R. has been lodged, applicant is entitled for bail.

The Hon’ble High Court noted that applicant had appeared before the investigating officer where after his statements were recorded on three occasions. After which the applicant was arrested and produced before the Magistrate and no custody remand was requested and the applicant was remanded to judicial custody. As per counter affidavit filed by the Department the custody remand of the applicant was not sought as the same was not required. It is also evident that thereafter permission was taken by the department for further interrogation of the applicant in jail and the applicant was further interrogated in jail. It was alleged by the department that applicant has not cooperated and when his statement was recorded in Jail and stated that he will not tender his statement without consulting his counsel.

In the light of the decision of the Hon’ble Supreme Court the Hon’ble High Court concluded that the behavior of the applicant can not be considered as instances of non-cooperation justifying dismissal of his appeal for pre-arrest bail. An accused, while joining investigation as a condition for remaining enlarged on bail, is not expected to make self-incriminating statements under the threat that the State shall seek withdrawal of such interim protection.

The Hon’ble High Court observed that Section 69 of the CGST Act provides that the Commissioner may authorize arrest of a person only if he has reasons to believe that such a person has committed any offence under the clauses mentioned therein. The Commissioner to authorize any officer to arrest a person, thus the expression ‘reasons to belief’ postulates belief and the existence of reasons for that belief. The belief must be held in good faith and it cannot be merely a assumption and the same must be based on reasons. It is open for a court to examine whether the reasons for the formation of such belief have a rational connection with the arrest. There must be a direct connection or nexus or live link between the material coming to the notice of the officer and the formation of his belief.

The Hon’ble High Court further observed that the Supreme Court having referred to section 41 Cr.P.C. held that a person accused of an offence punishable with imprisonment for a term which may be less than seven years or which may extend to seven years, with or without fine, cannot be arrested by a police officer only on his satisfaction that such person has committed the offence punishable as aforesaid. A police officer before arrest in such cases has to be further satisfied that such arrest is necessary to prevent such person from committing any further offence or for proper investigation of the case or to prevent the accused from causing the evidence of the offence to disappear or tampering with such evidence in any manner or to prevent such person from making any inducement, threat or promise to a witness so as to dissuade him from disclosing such facts to the court or to the police officer or unless such accused person is arrested, his presence in the court whenever required cannot be ensured.

The Hon’ble High Court further observed that though Section 69(1) which confers powers upon the Commissioner to order the arrest of a person does not contain the safeguards that are incorporated in Section 41 and 41A of Code of Criminal Procedure, we think Section 70(1) of the CGST Act takes care of the contingency. It was further observed that the moment the Commissioner has reasons to believe that a person has committed a cognizable and non-bailable offence warranting his arrest, then we think that the safeguards before arresting a person, as provided in Sections 41 and 41A of Code of Criminal Procedure, may have to be kept in mind.

The Hon’ble High Court noted that what had weighed with the Principal Additional Director General was only and only the gravity of the offence as it had been stated that applicant was the master mind of the racket and was required to be arrested immediately. Thus, the arrest of the applicant had not been done for his non cooperation in the investigation or for further investigation. Nowhere it was stated that the applicant while at liberty may hinder the smooth progress of investigation and in the order it had also not been mentioned as to why the applicant is being arrested, which was required to be stated.

The Hon’ble High Court observed that in view of the fact that applicant had appeared before the department on three occasions and his statements was recorded on these days and he was arrested next day and produced before the magistrate and no custody remand was sought by the department and it was after many days the department has taken the permission from the Court concerned for interrogation of the applicant in jail and also that applicant had retracted his confessional statements and in the orders of arrest no reason has been mentioned as to why after recording of the statements of the applicant for many days his arrest was required and also keeping view that applicant was in jail in this case for more than two months and investigation appeared to have reached an advanced stage and nothing had been shown which may justify the further detention of the applicant in prison and also that the alleged offence is punishable with up to 5 years maximum punishment and still no formal accusation in the form of FIR or complaint had been filed by the department. In such circumstances continuing the detention of the petitioner may not at all be justified and it appears justified.

The Hon’ble High Court further opined that in order to strike a fine balance between the need for further detention of the applicant when even custodial interrogation has not been claimed at all by the Department and considering the right of an accused to personal liberty, applicant may be released on bail, however subject to certain conditions.

As a result, the bail application moved by the applicant was allowed with direction to let the accused/applicant be released on bail on his furnishing a personal bond with two sureties subject to conditions specified in the order.

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