Facts of the Case

The applicant, Kaushal Kumar Sharma, filed the bail application seeking release on bail during the pendency of trial in Case Crime No. 557 of 2021, arising from proceedings of the Directorate General of Goods and Services Tax Intelligence, Zonal Unit, Meerut.

The case was registered under Sections 132(1)(b), 132(1)(c) and 132(1)(i) of the CGST Act, 2017.

According to the allegations in the complaint, the applicant was the proprietor of two firms, namely:

  1. M/s Khushi Communications, and
  2. M/s K.K. Industries, Delhi.

It was alleged that the applicant’s firms obtained fake invoices from non-existent firms, namely:

  • Shri Balaji Traders, and
  • M/s Shbhdeep Trading Company.

The complaint alleged wrongful Input Tax Credit involving approximately ₹10.80 crore. The applicant was further alleged to have fraudulently availed Input Tax Credit without actual supply or possession of goods accompanying the tax invoices and without making proper payment to the suppliers.

Issues Involved

The principal issues before the Court were:

  1. Whether the applicant was entitled to bail in proceedings involving allegations of fraudulent availment of Input Tax Credit through fake invoices issued by non-existent firms.
  2. Whether the allegations under Sections 132(1)(b), 132(1)(c) and 132(1)(i) of the CGST Act, 2017, involving alleged wrongful ITC of approximately ₹10.80 crore, justified continued incarceration of the applicant during the pendency of trial.
  3. Whether the applicant’s contention that there was no documentary or electronic evidence connecting him with the alleged offence was relevant for consideration of the bail prayer.
  4. Whether the applicant’s challenge to his arrest as being in violation of Section 69(1) of the CGST Act, 2017 supported the prayer for bail.
  5. Whether the period of incarceration since 17 June 2022, absence of criminal history, nature of the offence, available evidence and other surrounding circumstances justified grant of bail.

Petitioner’s / Applicant’s Arguments

Learned counsel for the applicant submitted that:

  • The applicant was innocent and had been falsely implicated in the case due to ulterior motive.
  • The proceedings were initiated on allegations that the applicant, being proprietor of M/s Khushi Communications and M/s K.K. Industries, had fraudulently availed Input Tax Credit without actual supply or possession of goods accompanying the tax invoices and without making proper payment to suppliers.
  • The applicant was not involved in the alleged offence of availing Input Tax Credit to the tune of approximately ₹10.88 crore without supply or possession of goods.
  • There was no demand of GST prior to the applicant’s arrest.
  • The applicant’s involvement in the alleged offence was not supported by documentary or electronic evidence.
  • The arrest was alleged to be in violation of Section 69(1) of the CGST Act, 2017, and was contended to be bad in the eye of law.
  • It was further contended that, without criminal proceedings having commenced, the arrest of the applicant was illegal.
  • The applicant had remained in jail since 17 June 2022.
  • If released on bail, the applicant would not misuse the liberty of bail and would cooperate with the trial proceedings.

Respondent’s Arguments

Learned counsel appearing for the informant/complainant opposed the applicant’s bail prayer.

The respondent’s side submitted that:

  • The applicant had willfully not deposited the GST amount.
  • In view of the alleged conduct and nature of the GST offence, the applicant was not entitled to be released on bail.

The Court also noted that the applicant had no criminal history.

Court Order / Findings

The Allahabad High Court considered:

  • the entire facts and circumstances of the case;
  • the submissions advanced by learned counsel for the respective parties;
  • the nature of the alleged offence;
  • the evidence;
  • the complicity attributed to the accused; and
  • the law laid down by the Supreme Court in Satender Kumar Antil vs CBI & Another, SLP (Crl.) No. 5191 of 2021.

Without expressing any opinion on the merits of the case, the Court formed the view that the applicant had made out a case for grant of bail.

Accordingly, the bail application was allowed.

The Court directed that Kaushal Kumar Sharma be released on bail upon furnishing:

  • a personal bond; and
  • two sureties, each in the like amount,

to the satisfaction of the concerned Court.

The Court further directed that the sureties be verified before issuance of the release order.

Conditions Imposed by the Court

The grant of bail was made subject to the following conditions:

  1. The applicant shall not tamper with the prosecution evidence by intimidating or pressurising witnesses during investigation or trial.
  2. The applicant shall sincerely cooperate with the trial and shall not seek adjournments.
  3. The applicant shall not indulge in any criminal activity or commit any crime after being released on bail.

The Court clarified that breach of any of these conditions would constitute a ground for cancellation of bail.

Important Clarification

The High Court granted bail without expressing any opinion on the merits of the case. Therefore, the bail order should not be construed as a final determination regarding the correctness or otherwise of the allegations concerning fake invoices, non-existent firms or wrongful availment of Input Tax Credit.

The order is significant because the Court considered the totality of circumstances, including:

  • the nature of the alleged GST offence;
  • the available evidence;
  • the alleged complicity of the accused;
  • the applicant’s incarceration since 17 June 2022;
  • the absence of criminal history; and
  • the principles laid down by the Supreme Court in Satender Kumar Antil vs CBI & Another.

The Court ultimately concluded that the applicant had made out a case for bail, subject to strict conditions safeguarding the prosecution evidence and ensuring cooperation with the trial.

Sections Involved

  • Section 132(1)(b) of the CGST Act, 2017 – Offence relating to issuance of invoice or bill without supply of goods or services or both in violation of the Act or Rules, leading to wrongful availment or utilisation of Input Tax Credit or refund of tax.
  • Section 132(1)(c) of the CGST Act, 2017 – Offence relating to availment of Input Tax Credit using an invoice or bill referred to in Section 132(1)(b), or fraudulently availing Input Tax Credit without any invoice or bill.
  • Section 132(1)(i) of the CGST Act, 2017 – Offence relating to falsification or substitution of financial records, production of fake accounts or documents, or furnishing false information with intent to evade payment of tax.
  • Section 69(1) of the CGST Act, 2017 – Power of the Commissioner to authorise arrest where there are reasons to believe that a person has committed specified offences punishable under Section 132.

Link to download the order -

https://mytaxexpert.co.in/uploads/1783068820_393compressed.pdf 

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