Facts of the Case

The applicant, Rajesh Kumar Dudani, was carrying on business through Suryanchal Furnitech and M/s Doon Trading Company. He was summoned by the GST authorities under Section 70 of the Central Goods and Services Tax Act, 2017 during an investigation relating to alleged fraudulent Input Tax Credit (ITC) availed through fake invoices.

The investigation originated from scrutiny conducted under Section 61 of the UKGST Act, where authorities observed a significant shift in tax payment patterns. It was alleged that several firms claimed substantial ITC through fake firms spread across different States by issuing invoices without actual movement of goods. Investigation further revealed suspicious transportation records, including vehicles incapable of carrying the alleged quantity of goods and discrepancies based on RFID/Fastag data.

According to the authorities, the applicant was connected with firms allegedly involved in issuing fake invoices and routing funds through multiple accounts. During the investigation, statements recorded under Section 70 allegedly implicated the applicant in supplying fake invoices. The applicant sought anticipatory bail apprehending arrest during the investigation.

Issues Involved

  1. Whether anticipatory bail can be granted in GST investigations involving allegations of fake invoices and fraudulent ITC.
  2. Whether the alleged offence was bailable considering the amount involved under Section 132 of the GST Act.
  3. Whether custodial interrogation of the applicant was necessary.
  4. Whether the applicant had cooperated with the GST investigation.
  5. Whether the gravity of the allegations justified denial of anticipatory bail.

Petitioner's Arguments

The applicant submitted that:

  • Immediately after receiving summons under Section 70, he approached the High Court and thereafter fully cooperated with the investigation.
  • He appeared before the GST authorities pursuant to the Court's interim protection and produced approximately one thousand documents during the investigation.
  • The investigation also related to another entity with which he had no connection.
  • Even if the allegations were accepted, the offence would remain bailable because the alleged tax amount did not exceed the statutory threshold under Section 132.
  • No approval for arrest had been obtained from the Commissioner under Section 69, indicating that the authorities themselves did not consider arrest necessary.
  • Reliance was placed upon judgments including Directorate General of GST Intelligence (DGGI) vs. Lupita Saluja and Tarun Jain vs. Directorate General of GST Intelligence, contending that custodial interrogation was generally unnecessary in such GST investigations.

Respondent's Arguments

The GST Department opposed anticipatory bail and argued that:

  • A systematic fraud had been committed by creating fake firms and generating bogus invoices for fraudulent availment of Input Tax Credit.
  • Investigation revealed extensive money trails connecting various entities and bank accounts.
  • Vehicles shown in e-way bills either lacked the required carrying capacity or were located in entirely different States according to Fastag data, demonstrating absence of actual movement of goods.
  • The applicant operated multiple firms through himself and his wife which were allegedly involved in fake transactions.
  • During questioning, the applicant gave evasive replies and failed to satisfactorily explain transportation discrepancies and financial transactions.
  • The estimated tax liability attributable to the applicant was approximately ₹3.93 crore.
  • Considering the gravity of economic offences affecting public revenue, anticipatory bail ought not to be granted.

Court Order / Findings

The Uttarakhand High Court observed that:

  • Anticipatory bail is maintainable in GST matters; however, no universal rule exists requiring its grant in every case involving summons under Section 70.
  • Every anticipatory bail application must be decided on its own facts and circumstances.
  • Custodial interrogation is only one factor among several considerations governing anticipatory bail.
  • The Court examined the principles laid down by the Supreme Court regarding anticipatory bail and emphasised balancing individual liberty with the need for a fair and effective investigation.
  • The allegations involved fake invoices, fraudulent Input Tax Credit, suspicious transportation records, complex financial transactions and possible economic fraud affecting government revenue.
  • The applicant failed to provide satisfactory explanations to several important questions raised during investigation and his conduct reflected lack of complete cooperation.
  • Considering the seriousness of the allegations, the economic implications and the applicant's conduct during investigation, the Court held that he was not entitled to anticipatory bail.

Accordingly, the anticipatory bail application was dismissed.

Important Clarification

  • Anticipatory bail is legally maintainable in GST offences, but it is not an automatic remedy merely because a person is summoned under Section 70.
  • Courts will examine the gravity of allegations, nature of evidence, conduct of the accused, degree of cooperation, possibility of tampering with evidence and impact on public revenue before granting protection.
  • Allegations involving fake invoices, bogus ITC claims, fabricated transportation records and organised tax fraud are treated as serious economic offences requiring strict judicial scrutiny.

Sections Involved

  • Section 61 – Scrutiny of Returns
  • Section 69 – Power to Arrest
  • Section 70 – Power to Summon Persons to Give Evidence and Produce Documents
  • Section 132 – Punishment for Certain Offences

Link to Download the Order

https://mytaxexpert.co.in/uploads/1785138242_2033compressed.pdf

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