Facts of the Case

The applicant, Hira Gobind Bhatia, Director of Photocom Industries (India) Pvt. Ltd., sought anticipatory bail apprehending arrest after being served summons under Section 70 of the CGST Act. The Anti-Evasion wing of CGST, Belapur, had found that M/s Amarnath Enterprises, a proprietorship of one Priyesh Kumar, availed fraudulent Input Tax Credit of Rs.14.48 crore through fake invoices to fictitious entities without actual supply of goods, passing on fake ITC of Rs.13.31 crore. Priyesh Kumar's statement under Section 70 stated that he had established the firm at the applicant's instance and was paid 2-3% commission per transaction; two other non-existent entities, M/s R.S. Enterprises and M/s Shiv Enterprises, were also allegedly facilitated by the applicant. Bank records showed a mobile number registered to the applicant was linked to Amarnath Enterprises' bank account even before Priyesh Kumar became a director of the applicant's company, and the total fraudulent ITC availed and passed on across the network was alleged at Rs.27.79 crore. The Sessions Judge had earlier rejected pre-arrest bail.

Issues Involved

  1. Whether anticipatory bail should be granted to a person alleged to be the mastermind behind a network of fictitious firms used to generate and pass on fraudulent Input Tax Credit.
  2. Whether refusal to share email credentials and mobile devices with investigators, and non-cooperation, are relevant factors weighing against anticipatory bail in an economic offence.

Petitioner's Arguments

  • The applicant contended he was not associated with M/s Amarnath Enterprises or its transactions and had paid all GST due on his own company's sales and purchases.
  • It was argued that Priyesh Kumar had allegedly availed fraudulent ITC since 2018, before he was inducted as director of the applicant's company in 2019, disproving any link between the applicant and the fraud's inception.
  • The applicant claimed to have cooperated with the investigation since being granted interim bail by the Sessions Court, and that no case for custodial interrogation was made out.

Respondent's Arguments

  • The Special Public Prosecutor argued that the applicant was the main conspirator who established Amarnath Enterprises and facilitated registration of two other fictitious entities, paying commission for fake invoices and receiving proceeds either in cash or across multiple bank accounts.
  • It was submitted that the applicant had not cooperated with the investigation, having refused to share his email ID, password, or hand over his registered mobile phone, necessitating custodial interrogation to unearth the full conspiracy.

Court Order / Findings

  • The Court found that records prima facie indicated the applicant had facilitated the fictitious entities, that his mobile number and email were linked to Amarnath Enterprises' bank account even before Priyesh Kumar's formal induction as director, and that proceeds from the fraud were traced to jewellers on the applicant's instructions — together indicating the applicant's deep involvement in the scheme.
  • The Court held that the applicant's continued non-cooperation — refusing to disclose email credentials and hand over his registered mobile phone — undermined his claim of readiness to cooperate, and that such economic offences, given their far-reaching impact on the financial health of the country, fall in a distinct and grave category warranting thorough investigation.
  • Custodial interrogation was found necessary to unearth the fraud in all its facets, and the discretion under Section 438 Cr.P.C. was declined, resulting in dismissal of the anticipatory bail application.

Important Clarification

In cases of alleged large-scale fraudulent Input Tax Credit generated through a network of fictitious firms, a person's refusal to share email credentials, mobile devices, or other digital evidence with GST investigators, combined with prima facie material linking him to the network's finances, will militate strongly against anticipatory bail, as custodial interrogation is often considered necessary to unearth the full extent of such economic offences.

Sections Involved

  • Section 70, CGST Act, 2017 — power to summon persons to give evidence and produce documents during inquiry.
  • Section 132, CGST Act, 2017 — penal provisions for offences including fraudulent availment of Input Tax Credit, forming the substratum of the investigation.
  • Section 438, Cr.P.C. — the provision for anticipatory bail, which the Court declined to exercise in the applicant's favour.

Decision – In Favour of

The decision is in favour of the Department. Anticipatory bail was rejected, with the Court finding custodial interrogation necessary.

Case Details

Court: High Court of Judicature at Bombay
Case No.: Anticipatory Bail Application No.2206 of 2022
Coram: Justice Anuja Prabhudessai
Date of Order: 06.07.2023

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