Bail Application against the offence of creating fake firms for claiming fraudulent ITC Rejected

Patiala House Court in the case of Commissioner, CGST, Delhi West Vs Amit Kumar Jainhas rejected bail application against the offence of creating fake firms for claiming fraudulent ITC.

The petitioner has filed the petition to grant the bail against the offense committed under GST by creating fake firms and claiming such fraudulent input tax credit. Unconvinced with the petition, High Court stated that, department has not sought custodial interrogation of the accused. However, in view of the allegations of creating fake firms and claiming such fraudulent input tax credit and routing them through various fake firms shows the propensity and wherewithal of accused in committing such crimes. HC satisfied if released on bail at this stage, the accused Amit Kumar Jain most likely will make an attempt to influence the proprietors / partners of the firms involved. The plea that accused has no previous criminal antecedents is humbly rejected as it may also point out that similar crime of accused if any, committed previously remained undetected. The pre trial detention of accused Amit Kumar Jain is necessary at this stage as if released on bail, he will not only try to won over the public witness but may make an attempt to erase the money trail of the alleged crime, hence no ground for bail is made out at this stage. Bail application is accordingly dismissed.

Here is a Copy of the Order

COMPLETE ORDER

Commissioner, CGST, Delhi West Vs Amit Kumar Jain

Patiala House Court

Order Dated 09/09/2020

Proceedings conducted thru physical hearing as well as video conferencing on Cisco Webex.

1. Further arguments heard on the application moved on behalf of accused Amit Kumar Jain seeking bail. Reply is on record.
2. Ld. counsel for accused submits that as per Commissioner (CGST), the allegations against the accused are of Commission Agent as accused Amit Kumar Jain is not registered with GST and therefore, at best though not admitted, the accused could be charged with committing offence of abatement as provided under section 132 (1) (k) & (I) of CGST Act and both offences are bailable. He further argued that Section 127 of Finance Act, 2020 is yet to be come into force whereby Section 132 (1) of CGST Act was amended and starts with the words “whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences….”. He also argued that accused is in JC since 26.08.2020 and neither any custodial interrogation is required nor any further recovery is to be made from the accused. He also submits that accused is ready and willing to join the investigation. Ld. Counsel relied upon the judgment titled as Commission of Customs Vs. M/s. Spice Telecom, Banglore (Civil Appeal No. 1695/2006 and Union Of India & Ors Vs. Ws. Ganesh Das Bhojraj [Civil Appeal No.6071/1999]. He also argued that the amendment if any has to he read prospectively and cannot be read retrospectively against accused.
3. On the other hand Ld. Sr. Standing Counsel strongly opposed the application and argued that accused Amit Kumar Jain @ Amit Jain is the mastermind who is operating various non-existing firms i.e. M/s Dev Singh Corporation, M/s. K. N. Enterprises and M/s. Fusion lmpexs etc. He further submits that when accused was informed by Manish Jain that his statement has been recorded by ST officers, accused Amit Kumar Jain deleted his WhatsApp chat and contact details with the malafide intention to remove / temper with the evidence which was available with his phone. He further submits that statement of accused u/s 17 of CGST Act wherein he admitted that he has passed on fraudulently availed input tax credit to his buyers by ‘issuing goods-less GST invoices to his brother’s firm M/s. Siddhartha Paper Company and M/s Satyam Paper Company and other firms. He further submits that investigation is at initial stage and accused Amit Kumar Jain needs to be kept in judicial custody and influence material witnesses and thereby hamper the ongoing investigation. There is a case of tax fraud of around Rs.5.67 Crones and there is every likelihood that the said amount shall increase as and when investigation processes. As such, granting bail will serious seriously jeopardize the investigation and shall adversely impact the recovery of government dues.
4. Heard, Perused.
5. The object of pre trial detention of an accused is threefold. Firstly, accused could be detained in custody if some recovery of weapon/equipments used in the alleged crime are to be recovered and there is apprehension if released on bail, accused may hamper the investigation’ and recovery thereof. The other consideration is that some co-accused are to be arrested who are absconding if accused is allowed to be released on bail, he may forewarn them. Another object is that accused has previous criminal antecedents and he/she is a habitual offender which increases his chances of committing similar offences which endangers life and property of the public at large.
6. In economic offences the object of keeping an accused in pre trial detention is to ensure that the accused has no opportunity to tamper with the documentary/ electronic evidence which may reveal the commission of any offence. Furthermore, it can be done to track the money trail which might be disturbed by the accused, if released on bail. The accused also be kept in pre trial detention if there is likelihood that he has the opportunity and wherewithal to influence and won over the witnesses of the crime by allurement or threat and commit similar crime again. Furthermore, the object of enactment of CGST Act is simpler tax system, reduction in prices of goods and services due to cascading effect of taxes, more efficient neutralization of taxes and simpler tax regime with development of common national market.
7. The personal liberty is a priceless treasure for a human being. It is founded on the bed rock of constitutional right and accentuated further on human rights principle, The sanctity of liberty is the fulcrum of any civilized society. Deprivation of liberty of person has enormous impact on his mind as well as body. Further article 21 of the Constitution mandates that no person shall be deprived of his life or personal liberty except according to procedure established by law. Further India is a signatory to the International Covenant On Civil And Political Rights, 1966 and, therefore, Article 21 of the Constitution has to be understood in the light of the International Covenant On Civil And Political Rights, 1966. Article 21 in view of its expansive meaning not only protects life and liberty, but also envisages a fair procedure. Liberty of a person should not ordinarily be interfered with unless there exist cogent grounds therefor. The fundamental principle of our system of justice is that a person should not be deprived of his liberty except for a distinct breach of law. The basic rule is to release him on bail unless there are circumstances suggesting the possibility of his fleeing from justice or thwarting the course of justice.
8. Apart from the question of prevention being the object of a refusal of bail, one must not lose sight of the fact that any imprisonment before conviction has a substantial punitive content and it would be improper for any court to refuse bail as mark of disapproval of former conduct whether the accused has been convicted for it or not or to refuse bail to an accused person for the purpose of giving him a taste of imprisonment as a lesson. While considering an application for bail either under Section 437 CrPC, it must be kept in mind that the principle that grant of bail is the rule and committal to jail an exception. Refusal of bail is a restriction on personal liberty of the individual guaranteed by Article 21 of the Constitution. Seriousness of the offence should not to be treated as the only ground for refusal of bail. (Judgment of Sanjay Chandra Vs. Central Bureau of Investigation, AIR 2012 SC830 relied).
9. But, the liberty of an individual is not absolute. The Society by its collective wisdom through process of law can withdraw the liberty that it has sanctioned to an individual when an individual becomes a danger to the societal order. A society expects responsibility and accountability from the member, and it desires that the citizens should obey the law, respecting it as a cherished social norm. Therefore, when an individual behaves in a disharmonious manner ushering in disorderly thing which the society disapproves, the legal consequences are bound to follow.
10. Further discretionary jurisdiction of courts u/s 437 CrPC should be exercised carefully and cautiously by balancing the rights of the accused and interests of the society.
11. It can be noted that interpreting the provisions of bail contained u/ the Hon’ble Supreme Court in its various judgments has laid down various considerations for grant or refusal of bail to an accused in a non-bailable offence like,

(i) Whether there is any prima facie or reasonable ground to believe that the accused had committed the offence

(ii) Nature of accusation and evidence therefor,

(iii) Gravity of the offence and punishment which the conviction will entail,

(iv) Reasonable possibility of securing presence of the accused at trial and danger of his absconding or fleeing if released on bail,

(v) Character and behavior of the accused,

(vi) Means, position and standing of the accused in the Society,

(vii) Likelihood of the offence being repeated

(viii) Reasonable apprehension of the witnesses being tampered with,

(ix) Danger, of course, of justice being thwarted by grant of bail,

(x) Balance between the rights of the accused and the larger interest of the Society/State

(xi) Any other factor relevant and peculiar to the accused.

(xii) while a vague allegation that the accused may tamper with the evidence or witnesses may not be a ground to refuse bail, but if the accused is of such character that his mere presence at large would intimidate the witnesses or if there is material to show that he will use his liberty to subvert justice or tamper with the evidence, then bail will be refused.

12. Furthermore, in the landmark judgment of Gurucharan Singh and others v. State (AIR 1978 SC 179), it was held that there is no hard and fast rule and no inflexible principle governing the exercise of such discretion by the courts. It was further held that there cannot be any inexorable formula in the matter of granting bail. It was further held that facts and circumstances of each case will govern the exercise of judicial discretion in granting or refusing bail. It was further held that such question depends upon a variety of circumstances, cumulative effect of which must enter into the judicial verdict. Such judgment itself mentioned the nature and seriousness of nature, and circumstances in which offences are committed apart from character of evidence as some of the relevant factors in deciding whether to grant bail or not.
13. Allegedly accused Amit Kumar Jain used to generate good-less invoices as per the demand of various beneficiary companies of the market. Beneficiary companies used the amount against the good-less invoices in order to keep their record of financial transaction and to pretend the bogus transaction as real one. The s me amount was rotated to two other companies before finally withdrawing cash from the bank.
14. Ld. counsel for accused has laid stress on the argument that accused is neither proprietor 1 partner in any of the firms nor has received the alleged amount of input tax credit in his account and therefore, he cannot be termed as “beneficiary” of the alleged fraudulent input tax credit. Ld. counsel has also laid stress that allegations against the accused cannot be covered under any sub section of Section 132 (1) as the department has claimed that he facilitated the alleged fraudulent claim of input tax credit and therefore, at best he can be alleged to have committed the offence of abatement as provided under section 132 (1)(1) of CGST Act, 2017 which is a bailable offence as same is punishable upto 06 months or fine or both and therefore, the arrest of accused Amit Kumar Jain is illegal.
15. Section 132(1) of CGST Act starts with the words “whoever commits…”. This implies that the offences enumerated under section 132 (1) from sub section (a) to (k) can be attributed to a person who committed the offences and retained the benefit arising out of such offences and it is not necessary that such person should have been actually registered the GST department. Sub clause (b) deals with the situations where invoices have been generated without actual supply of goods of services which leads to wrongful availment or utilization of input tax credit or refund of tax. Furthermore, sub clause (f) deals with falsification or substitution of financial records by fake documents with the intention to evade the payment of tax dues under the Act.
16. The sub section 5 of Section 132 provides that offences specified in Clause (a), (b), (c) and (d) of sub section (1) are cognizable and non bailable. The accused Amit Kumar Jain is alleged to have not only falsified the financial records by preparing fake invoices but also availed wrongful input tax credit even though no actual supply of goods or services have been made through the firms / companies and he is the ultimate beneficiary of such wrongful availement. The piercing of the veil attempted by the GST department has revealed that all such sham transitions are being done at the behest of accused Amit Kumar Jain. Therefore, the arguments of the Id. Counsel that the offences alleged against the accused are bailable is humbly rejected.
17. Ld. counsel also laid stress on the point that all the documentary based and available on the GST Portal and therefore there is no scope of tampering being committed to such evidence. He also pointed out that accused is in JC sin e 26.08.2020 and department has not sought any custodial interrogation of the accused. The unique modus operand’ of accused for committing the crime at the first instance shows that the accused has taken advantage of the loopholes in the nascent GST regime and alleged to have committed huge loss to the exchequer by claiming fraudulent input tax credit.
18. The CGST Act, 2017 was enacted and came into force on 01.07.2017 and since than it has been seen that multiple cases of fake GST billing are reported. More often than not, such cases have modus operandi as alleged in the present case of creating fake firms and claiming fraudulent input tax credit. As per website of DGGI it has detected that tax fraud of Rs.43990 Crore during FY 2019-20, this only shows the extent of loss caused to the government exchequer the unscrupulous elements. However, it is also noted that the DGGI has been lax in taking action against the fake companies and it apparently concludes their investigation by identifying the controller of such fake companies / firms, even when such fake entities are the major culprits in such fraudulent GST claims. Had DGGI acted upon such fake companies I firms, a message would have gone to such persons engaged in fraudulent GST claims.
19. No doubt that accused is in JIC since 26.08.2020 and department has not sought custodial interrogation of the accused. However, in view of the allegations of creating fake firms and claiming such fraudulent input tax credit and routing them through various fake firms shows the propensity and wherewithal of accused in committing such crimes. I am satisfied if released on bail at this stage, the accused Amit Kumar Jain most likely will make an attempt to influence the proprietors / partners of the firms involved. The plea that accused has no previous criminal antecedents is humbly rejected as it may also point out that similar crime of accused if any, committed previously remained undetected. The pre trial detention of accused Amit Kumar Jain is necessary at this stage as if released on bail, he will not only try to won over the public witness but may make an attempt to erase the money trail of the alleged crime, hence no ground for bail is made out at this stage.
20. Bail application is accordingly dismissed.
21. Before parting, in view of peculiar facts brought before me not only in the present case but other cases investigated by GST Department wherein vide order dated 07.08.2020, this court has ordered for registration of separate FIR towards commission of offences not only under CGST Act but also various cognizable offences under penal provisions of Indian Penal Code (IPC), 1860, copy of which is already sent to the Principal Additional Director General, Delhi Zonal Unit, DGGI for information and appropriate action. It is further directed that the department may take conscious decision as how it want to proceed against not only the beneficiaries of such sham transactions but also against those person who facilitated such transactions by creating fake firms. Copy of this order be sent to the Principal Additional Director General, Delhi Zonal Unit, DGGI.
22. Copy of this order be also sent to all parties through email/Whatsapp.