Facts of the Case

  • Authorities intercepted 21 containers of “smoking mixture” at Mundra Port which were found to be spurious and unfit for human consumption.
  • Investigation revealed a network of shell entities including M/s Harsha International and M/s Radiant Traders, with no actual business activity.
  • The accused allegedly created a fake supply chain to claim wrongful GST refunds.
  • GST refund of ₹198 crores was obtained, out of which ₹195 crores was routed through multiple entities controlled by the accused.
  • Large amounts of unaccounted cash (~₹99.95 lakh) were recovered from the residence of one accused.
  • Anticipatory bail was granted initially but later cancelled due to violation of bail conditions, including attempt to leave the country.

Issues Involved

  1. Whether anticipatory bail is maintainable in offences under the CGST Act involving serious economic fraud.
  2. Whether the Sessions Court erred in granting anticipatory bail based on allegedly inconclusive evidence.
  3. Whether violation of bail conditions justified cancellation of anticipatory bail.
  4. Applicability of Supreme Court ruling in State of Gujarat v. Choodamani Parmeshwaran Iyer.

Petitioner’s Arguments (DGGI)

  • Anticipatory bail is not applicable in CGST offences as per Supreme Court precedent.
  • The accused masterminded a ₹200+ crore GST fraud using fake invoices and shell firms.
  • The seized goods were spurious, proving fraudulent transactions.
  • The accused were habitual offenders involved in similar frauds.
  • Violation of bail conditions (attempt to flee India) justified cancellation.

Respondent’s Arguments (Accused)

  • The Supreme Court judgment relied upon is distinguishable and not retrospective.
  • Lab report was inconclusive regarding composition of goods.
  • GST on inputs (cigarettes) was actually paid—no fake purchase established.
  • No evidence of sale in grey market or linkage of seized cash with GST fraud.
  • Travel abroad was for personal/family reasons, not to evade law.

Court’s Findings / Judgment

  • The Court held that the accused were involved in a prima facie organized GST fraud involving fake transactions and shell companies.
  • The Sessions Court erred in treating the lab report as inconclusive; it clearly showed goods were not as declared.
  • Economic offences are serious and affect the financial system, requiring stricter scrutiny.
  • Anticipatory bail should be granted sparingly, especially in economic offences.
  • Violation of bail conditions (attempt to leave India and failure to deposit passport) was serious misconduct.
  • The Court set aside the anticipatory bail order and cancelled bail of both accused. 

Important Clarifications by Court

  • Anticipatory bail and regular bail cannot be treated at par, especially in economic offences.
  • Courts can exercise Article 226 powers to grant pre-arrest protection even if CrPC provisions are restricted.
  • Supreme Court ruling in Choodamani Parmeshwaran Iyer is not retrospective.
  • Fraudulent ITC through paper transactions constitutes serious economic offence impacting public revenue.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/ABL19012024CRLMM27912023_154608.pdf 

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