Facts of the Case

  • Allegation of ITC Fraud: The applicant, Mursaleen Tyagi, was alleged to have been actively engaged in fraudulently claiming and utilizing Input Tax Credit (ITC). This was done on the strength of fake invoices and bills received from multiple non-existing firms without any actual physical receipt or concomitant supply of goods.
  • Quantum of Evasion: The total quantum of fraudulent ITC availed by the applicant was calculated to be to the tune of ₹12.55 crores for the short period spanning from April, 2019 to April, 2020.
  • Summon and Arrest: The Senior Intelligence Officer, Directorate General of GST Intelligence (DGGI), Zonal Unit, Meerut, issued summons to the applicant for recording statements under Section 70 of the CGST Act, 2017. Subsequently, the Special Chief Judicial Magistrate took cognizance and authorized the Investigating Officer to arrest the applicant under Section 132(1)(C) of the CGST Act, 2017 on September 3, 2021.
  • Conditional Bail by Sessions Court: The applicant moved a bail application before the learned Sessions Judge, Meerut (Bail Application No. 5687/2021). On September 24, 2021, the Sessions Court granted bail subject to three conditions, the third condition requiring the applicant to provide an undertaking to deposit 10% of ₹7.07 crores within two months, failing which an arrest warrant would be issued on the 61st day.
  • High Court Relief Prayer: The applicant approached the Hon'ble Allahabad High Court via a Criminal Miscellaneous Bail Application, specifically praying to set aside or delete "Condition No. 3" requiring the 10% cash deposit, while attempting to retain the operational liberty of the bail.

Issues Involved

  1. Whether a Criminal Court exercising jurisdiction to grant bail under the CGST Act, 2017 can legally impose onerous financial pre-conditions like depositing a portion of the alleged tax evasion/disputed dues.
  2. Whether an applicant can seek deletion of a bail condition under Section 439 of the Cr.P.C. if the lower court records that such a financial condition was voluntarily offered by the applicant's own counsel during bail arguments to secure judicial favor.
  3. Whether the strict restrictions established by the Supreme Court against courts acting as "recovery agents" apply when the condition is born out of the applicant's explicit consent or submission before the trial court.

Petitioner’s (Applicant's) Arguments

  • Plea of Innocence: The learned counsel for the applicant argued that the applicant is entirely innocent, has been falsely implicated due to ulterior motives, and intentionally dragged into the criminal proceedings.
  • Absence of Statutory Provision for Recovery: The counsel vehemently contended that there is no valid statutory provision under criminal or tax laws that allows for forcing a deposit of disputed tax amounts before the completion of a proper investigation and trial.
  • Denial of Consent: The applicant asserted that the impugned order dated September 24, 2021, wrongly recorded that the applicant was ready to deposit 10% of the amount, stating that at no stage did the applicant or his counsel make such a concession or statement.
  • Reliance on Milestone Precedents: The applicant placed heavy reliance on several Hon'ble Supreme Court rulings to show that bail cannot be subject to onerous executionary terms:
    • Manoj Kumar Sood and Another Vs. State of Jharkhand (SLP Crl. No. 1274 of 2021): Extensively cited to establish that criminal proceedings are not meant for the realization of disputed dues. A criminal court exercising bail jurisdiction is not expected to act as a recovery agent to realize dues without a full trial.
    • Shyam Singh Vs. State through CBI (2006 9 SCC 169): To argue that directing repayment of alleged amounts at the stage of bail is entirely onerous and legally unwarranted.
    • Anil Mahajan Vs. Bhor Industries Ltd. (2005 100 SCC 228): To prove that bail cannot be made subject to terms that effectively amount to execution at the inception of a case.
    • Dilip Singh Vs. State of Madhya Pradesh (2021 2 SCC 779) & Parvez Noordin Lokhandwalla Vs. State of Maharashtra (2020 10 SCC 77): To highlight that the term "any condition... otherwise in the interest of justice" under Section 437(3)/439 Cr.P.C. must solely facilitate the administration of justice, secure the presence of the accused, and ensure liberty is not misused—not for enforcing monetary recovery.

Respondent’s (State & Informant's) Arguments

  • Gravity of GST Fraud: The learned AGA and counsel for the informant vehemently opposed the applicant’s prayer, underlining the massive economic offense involving the fraudulent extraction of ITC worth ₹12.55 crores through a network of shell or non-existing entities.
  • Estoppel by Conduct: The respondents argued that during the original bail hearings before the learned Sessions Judge, the applicant's own counsel had strategically made an explicit prayer stating that the applicant was fully prepared to deposit 10% of the liability (amounting to ₹7.07 crores) to show bona fides.
  • Bait-and-Switch Tactics: It was strongly argued that the Sessions Judge granted bail only after benignly accepting the applicant's own open offer. Therefore, after securing release from custody, the applicant cannot be permitted to perform a complete about-face, withdraw from his own judicial submission, and escape the condition.
  • Reliance on Precedent: The informant's counsel relied on the Hon'ble Supreme Court's ruling in Chhaya Devi Vs. Union of India and Another (SLP Crl. No. 3313 of 2021), where the Apex Court had released an applicant on bail precisely on the condition that the disputed amount would be deposited.

Court's Order and Findings

  • Verification of Lower Court Records: The Hon'ble Allahabad High Court, perused the material on record and found it explicitly evident from the Sessions Court's order that the applicant's counsel had indeed agreed to and prayed for the 10% deposit condition to secure the bail.
  • Rejection of the "Recovery Agent" Defense under Estoppel: The High Court observed that because the condition was originally invited by the applicant himself as a concession to get bail, the applicant cannot later turn around and claim that he is not in a position to deposit the amount or that the court acted beyond its power.
  • Distinguishing Apex Court Precedents: The Court held that the milestone judgments cited by the applicant (like Manoj Kumar Sood) lay down the correct law regarding courts acting as recovery agents, but they do not apply to cases where a condition is engineered and invited upon the prayer of the applicant themselves.
  • Final Decision: Looking at the immense seriousness, economic gravity, and complicity of the accused in the multi-crore GST scam, the High Court held that it was not a fit case to interfere with or delete the lower court's bail conditions. Consequently, since the applicant backed away from the original commitment, the entire bail application was rejected at that stage.

Important Clarification Established

Key Legal Takeaway: While it remains an absolute rule of law that Criminal Courts cannot act as "recovery agents" or turn bail hearings into civil recovery proceedings by imposing harsh, coercive financial conditions, an exception arises under the principle of judicial estoppel. If an accused or their legal counsel voluntarily offers a financial deposit as a statement of bona fides to tilt the court's discretion toward granting bail, the accused cannot subsequently approach a higher court to scrub out that financial condition while keeping the bail active. A conditional bail granted on an applicant’s explicit prayer must be complied with in its entirety.

Section Involved

  • Section 132(1)(C) of the Central Goods and Services Tax (CGST) Act, 2017: Punishable under Clause (i) of Section 132(1) of the CGST Act, 2017, which relates to availing Input Tax Credit (ITC) without actual receipt of goods or services, leading to tax evasion.
  • Section 70 of the Central Goods and Services Tax (CGST) Act, 2017: Power to summon persons to give evidence and produce documents.
  • Section 437(3) and Section 439(1)(a) of the Code of Criminal Procedure (Cr.P.C.): Statutory provisions dealing with discretionary judicial powers to impose conditions during the grant of bail.

Link to download the order - https://mytaxexpert.co.in/uploads/1783143208_492compressed.pdf

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