Facts of the Case

The applicants, namely Paritosh Kumar Singh alias Diwakar Choudhary, Ravi Kumar Tiwari alias Bablu Mishra, Munna Tiwari and Kaushal Tiwari, filed their second application under Section 439 of the Code of Criminal Procedure, 1973 seeking regular bail. They had been in custody since 25.01.2021 in connection with Crime/DDGI Case No. 124/2020-21 registered by the Directorate of GST Intelligence, Raipur, for alleged offences punishable under Sections 132(1)(b) and 132(1)(c) of the GST Act, 2017.

According to the Department, an investigation initiated on the basis of GST intelligence revealed that M/s Manoj Enterprises, Raipur had allegedly never made purchases from any entity and was a non-existent firm at its registered address. The investigation further alleged that the applicants had formed forged firms in Chhattisgarh, Jharkhand, Madhya Pradesh, West Bengal and Maharashtra, availed illegal input tax credit benefits and thereby caused an approximate loss of ₹258 crore to the Government exchequer during financial years 2018-19, 2019-20 and 2020-21.

The applicants were arrested on 25.01.2021. After part investigation, a complaint case was filed before the Magistrate on 25.03.2021. Their earlier application for bail before the court below was rejected on 13.08.2021, while their first bail application before the High Court was subsequently rejected on merits on 18.01.2022.

Issues Involved

The principal issues before the High Court were whether the applicants should continue to remain in custody pending trial despite having undergone approximately 23 months of detention; whether prolonged incarceration was justified when the maximum sentence under Section 132 of the GST Act could extend to five years; whether completion of investigation concerning the applicants reduced the necessity for continued custodial detention; whether the fact that charges had not yet been framed supported the plea of delay in trial; and whether the applicants could be granted regular bail notwithstanding the serious allegation of causing an approximate ₹258 crore loss to the Government exchequer through fake firms, invoices and illegal input tax credit.

Petitioners’ / Applicants’ Arguments

The applicants contended that the Department had not placed any document along with the complaint connecting them with the alleged offence. According to them, the documents accompanying the complaint were merely procedural documents relating to preparation of panchnamas and lists of documents.

It was argued that there was no evidence showing their involvement in availing the benefit of illegal input tax credit. The applicants further emphasised that they had remained in jail since 25.01.2021 and that charges had still not been framed.

On this basis, the applicants pleaded delay in trial and sought regular bail. In support of their contention, reliance was placed upon the decision of the Supreme Court in Criminal Appeal Nos. 164-165 of 2022 dated 01.02.2022.

Respondent’s / Department’s Arguments

The Directorate General of GST Intelligence opposed the bail application and submitted that the allegations against the applicants were grave. According to the Department, the applicants had created fake firms and caused an approximate loss of ₹258 crore to the Government exchequer during financial years 2018-19, 2019-20 and 2020-21.

The Department argued that the applicants’ first bail application had already been rejected on merits on 18.01.2022 and, therefore, their submission on merits that there was no substantial material against them could not be reconsidered.

It was further submitted that voluminous documents had been filed before the court below showing the applicants’ prima facie involvement in the commission of the alleged offence. The Department asserted that fake invoices had been generated for beneficiaries, many of whom were situated in Maharashtra, and that the DGGI Mumbai Zonal Unit had already initiated investigation against those firms.

The Department also contended that Applicant No. 1, in his statement recorded under Section 70 of the GST Act, 2017, had admitted to availing input tax credits by issuing invoices. During the hearing, however, counsel for the Department stated on instructions that investigation concerning the present applicants was complete.

Court Order / Findings

The High Court noted that the applicants’ first bail application had been rejected on merits on 18.01.2022 and that, at that stage, the investigation was not complete. The Court also took note of the serious allegation that the applicants had caused an approximate loss of ₹258 crore to the Government exchequer.

At the same time, the Court held that it could not overlook the fact that the applicants had remained in custody for about 23 months and could not be indefinitely detained pending trial. The Court specifically observed that the maximum sentence which could be imposed upon the applicants under Section 132 of the GST Act, 2017 was five years.

The Court further noted that charges had not yet been framed and that the Department had stated that investigation, insofar as the present applicants were concerned, was complete. The list of witnesses also reflected that most witnesses belonged to the Department and were government servants.

The High Court considered the principles emerging from the precedent discussed in the order concerning bail in serious economic offences after completion of investigation, as well as the Supreme Court’s decision in Paresh Nathalal Chauhan, where prolonged detention of approximately 25 months in an offence under Section 132 of the GST Act was considered significant because the maximum possible imprisonment was five years.

Considering the Supreme Court decisions and the particular facts of the case—especially that the complaint had been filed, the applicants had been in custody since 25.01.2021, the maximum sentence was up to five years, no minimum sentence was prescribed under Section 132, and investigation concerning the applicants was complete—the High Court, without entering into the merits of the case, granted regular bail.

Accordingly, the second bail application was allowed.

Bail Conditions Imposed by the High Court

The applicants were directed to be released on bail upon furnishing a personal bond of ₹1,00,000 each, together with one local surety in the like amount, to the satisfaction of the concerned trial court, subject to the following conditions:

  • They shall regularly appear before the concerned trial court on every date unless exempted from appearance.
  • They shall not, in any manner, tamper with prosecution witnesses.
  • If they are found involved in a similar offence in future, it shall be open to the State to apply for cancellation of bail.

Important Clarification

The High Court did not adjudicate upon the guilt or innocence of the applicants and expressly proceeded without entering into the merits of the case. The grant of bail was substantially based on the cumulative circumstances of prolonged custody of about 23 months, completion of investigation concerning the applicants, filing of the complaint, non-framing of charges, the maximum sentence of up to five years under Section 132 of the GST Act, and the absence of a prescribed minimum sentence.

The order is significant because it clarifies that even in a serious GST economic offence involving allegations of fake firms, fake invoices, illegal input tax credit and an approximate ₹258 crore loss to the Government exchequer, prolonged pre-trial detention cannot automatically continue indefinitely where investigation is complete and the statutory maximum sentence is limited.

The judgment should not be understood as laying down that allegations of large-scale fake ITC fraud are themselves insufficient for custody. Rather, the Court balanced the seriousness of the economic offence against the duration of incarceration, stage of investigation, progress of trial and maximum statutory punishment.

Sections Involved

Section 132(1)(b) of the CGST/GST Act, 2017: Relates to issuance of invoices or bills 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/GST Act, 2017: Relates to availing input tax credit using invoices or bills referred to in clause (b), or fraudulently availing input tax credit without any invoice or bill.

Section 132 of the CGST/GST Act, 2017: Prescribes punishment for specified GST offences. The High Court specifically considered that the maximum sentence applicable to the applicants could extend up to five years and that no minimum sentence was prescribed.

Section 70 of the GST Act, 2017: Relevant to the Department’s contention regarding the statement of Applicant No. 1 recorded during investigation.

Section 439 of the Code of Criminal Procedure, 1973: Governs the special powers of the High Court and Court of Session regarding grant of regular bail.

Link to download the order -

https://mytaxexpert.co.in/uploads/1783069604_397compressed.pdf 

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