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September 9, 2020

Anticipatory Bail granted on bond for Wrongful Availment of ITC in GST

by shivam jaiswal in GST, GST Circular Notification

Anticipatory Bail granted on bond for Wrongful Availment of ITC in GST

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax.

According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

What is supposed to be an advantage that registered GST holders can benefit from, has also led to many people abusing the law for their own welfare. The law has provided mechanism to mitigate the same.

Wrongful availment of ITC is punishable under Section 132 of the CGST Act, 2017.

Quantum of OffencePunishment
amount of tax evaded or the amount of ITC wrongly availed or utilised or the amount of refund wrongly taken > Rs 5 croreimprisonment which may extend to 5 years + fine
amount of tax evaded or the amount of ITC wrongly availed or utilised or the amount of refund wrongly taken > Rs 2 croreimprisonment which may extend to 3 years + fine
amount of tax evaded or the amount of ITC wrongly availed or utilised or the amount of refund wrongly taken > Rs 1 croreimprisonment which may extend to 1 years + fine

The below mentioned offences shall be cognizable and non-bailable:-

  • supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made there under, with the intention to evade tax
  • issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made there under leading to wrongful availment or utilisation of input tax credit or refund of tax
  • avails input tax credit using such invoice or bill
  • collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due
  • receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made there under

Let us refer to the case of Sri Hanumanthappa Pathrera Lakshmana Vs State of Karnataka (Karnataka High Court) where petition was filed by the petitioner under Section 438 of the Code of Criminal Procedure, 1973 (Cr.P.C.) for granting anticipatory bail.

Facts of the Case:-

  • The respondent had issued notice/summons to the petitioner as per Section 70 of the CGST Act summoning him to appear before the Authorized Officer.
  • Petitioner was the proprietor of M/s. Sri Om Traders, registered dealer under the GST provisions, dealing in both ferrous and non-ferrous scrap.
  • During his regular course of business, he had purchased goods from various registered and unregistered dealers and had issued tax invoices as per law.
  • He had collected the taxes and remitted to the Government as per the CGST and the SGST Act.
  • It was contended that, the respondent had issued summons to appear before an Officer and prior to that, the respondent had conducted inspection of the business premises.
  • The petitioner was ready to appear before the respondent and co-operate with the investigation.

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  • However, the respondent had already collected all the documents and completed their investigation and the petitioner has apprehended his arrest in the hands of the respondent for the offence punishable under Section 132(5) of the CGST Act.
  • In case, if he was arrested and sent to judicial custody, he would be put into hardship and irreparable loss as he was having a old age mother and a daughter and due to COVID-19 lockdown situation, his heath may affect.
  • Even though, he had not committed any offence, there was a likelihood of his arrest for the non-bailable offence. He is ready to abide by any condition imposed by the Court.
  • The offence was not punishable with death or imprisonment for life. He was ready to offer any surety and hence prayed for an anticipatory bail.

Submissions by Respondent

  • Intelligence was developed by the Officers of the respondent that the petitioner was engaged in availment of fake input tax credit (ITC) i.e., availing of credit on the invoices received from the persons without actual supply of goods.
  • Based upon the authorization given by the Competent Authority, summons were issued to the petitioner to appear before the Officer as per Section 70 of the CGST Act.
  • The power conferred on the Officer under Section 70 of the CGST Act was to summon any person to appear and produce document.
  • The inquiry was deemed to be judicial proceedings within the meaning of Section 193 and Section 228 of the Indian Penal Code.
  • In spite of issuing so many notices/summons, the petitioner had failed to appear before the Authority on various dates.
  • The preliminary investigation revealed that ITC was taken by the petitioner from the bogus entities.
  • The petitioner was operating from rented premises and his whereabouts were not known to his neighbours.
  • The respondent was authorized to conduct proceedings in terms of Section 67 of the CGST Act.
  • Neither the petitioner nor his authorized person approached the respondent. The whereabouts of the petitioner were not known.
  • The petitioner was a habitual offender, he could commit same offence and he was deliberately avoiding his appearance for the purpose of enquiry proceedings.
  • His bail petition filed before the City Civil and Sessions Judge came to be dismissed. If the bail was granted to the petitioner, he would destroy the evidentiary material and other documents.
  • Thus, the anticipatory bail was not maintainable and was pre-matured.

Observations of the HC on whether petition under Section 438 of the Cr.P.C. was maintainable

  • The respondent admitted that there was no statutory bar in the CGST Act either expressly or impliedly for entertaining the bail petition under section 438 of the Cr.P.C.
  • As per the provisions of Section 70 of the CGST Act, the Officer had power to summon any person whose attendance was considered as necessary either to give evidence or to produce document or any other thing in any inquiry in the same manner as provided in the case of Civil Court under the provisions of the Code of Civil Procedure, 1908, and every such inquiry shall deemed to be “judicial proceedings” within the meaning of Section 193 and Section 228 of the Indian Penal Code.
  • Section 69 of the CGST Act clearly empowered the Commissioner to authorize any Officer to arrest a person, if the Commissioner has reasons to believe that if a person committed the offence specified in Clause (a) or (b) or (c) or (d) of Section 132(1) and as per Section 132 (4) of the CGST Act.
  • If any offence is committed, other than the offence, Clause (a), (b), (c) or (d) of Section 132(1) shall be non-cognizable and bailable.
  • As per Section 132(5), the offences specified in Clause (a) or (b) or (c) or (d) of Section 132(1) shall be cognizable and non-bailable and punishable up to 5 years and fine.
  • Therefore, if the petitioner was arrested for the offences other than the offence stated under Section 132(4) of the CGST Act which was non-cognizable and bailable, the Deputy Commissioner or Assistant Commissioner had power to release the petitioner on bail.
  • If the Commissioner has reasons to believe that the petitioner was arrested for the offence committed under Section 132(1)(a) or (b) or (c) or (d) which was punishable under Section 132(5) of the CGST Act, which was cognizable and non-bailable offence, the Officer authorized by the Commissioner after informing the grounds of arrest had to produce the assessee before the Magistrate within 24 hours.
  • If the assessee was arrested and produced before the Magistrate, the petitioner/assessee was likely to be remanded to judicial custody.
  • Therefore, when the offences punishable under Clause (a) or (b) or (c) or (d) of Section 132(1) of the CGST Act which falls under Section 132(5) of the CGST Act is a cognizable and non-bailable offence punishable with imprisonment up to 5 years and fine.
  • Once a person apprehends his arrest in the hands of the Commissioner under Section 69 of the CGST Act, the assessee has statutory right to seek anticipatory bail under Section 438 of the Cr.P.C.
  • Section 438 of the Cr.P.C. pertains to direction for grant of bail to person apprehending arrest. Where any person has reason to believe that he may be arrested on accusation of having committed a non-bailable offence, he may apply to the High Court or the Court of Session for a direction under this section that in the event of such arrest he shall be released on bail; and that Court may, after taking into consideration, inter-alia, the following factors, namely:-
  • the nature and gravity of the accusation;
  • the antecedents of the applicant including the fact as to whether he has previously undergone imprisonment on conviction by a Court in respect of any cognizable offence;
  • the possibility of the applicant to flee from justice; and
  • where the accusation has been made with the object of injuring or humiliating the applicant by having him so arrested, either reject the application forthwith or issue an interim order for the grant of anticipatory bail.
  • On bare reading of Section 69(1) of the CGST Act, where the Commissioner has reasons to believe if a person committed the offence under Section 132 of the CGST Act, he may, by order, authorize any officer of central tax to arrest such person.
  • Therefore, the petitioner had reasons to believe that he may be arrested on accusation for having committed non-bailable offence under Section 132(5).
  • Therefore, the petition under Section 438 of the Cr.P.C. was maintainable for the offences committed under the CGST Act and there was no statutory bar for invoking or exercising power under section 438 of the Cr.P.C. for the offence committed under the provisions of the CGST Act.

Observations of the HC

  • On merits of the case, it was alleged by the prosecution that the petitioner had fraudulent involvement of ITC on the basis of invoices without actual supply of goods in contravention of Section 16 of the CGST Act and caused loss to the ex-chequer for Rs.9.05 crore approximately.
  • It was also stated that the preliminary stage of investigation had been completed and they found that the ITC was taken by the petitioner from the bogus entities.
  • Therefore, summons were issued by the authorized officer under Section 70 of the CGST Act which clearly showed that the petitioner had reasons to believe that he was apprehending his arrest in the hands of the respondent in case after his appearance before the authorizing officer as per Section 69 of the CGST Act.
  • Therefore, in case the petitioner was arrested, he is likely to remand to the judicial custody, after his production before the Magistrate and by looking to the present COVID-19 situation, if he was remanded to the judicial custody, he would be put to hardship and definitely, his health would likely to affect.
  • The offences were not punishable with death or imprisonment for life.
  • There is no statutory bar in the CGST Act for granting anticipatory bail by exercising power under Section 438 of the Cr.P.C.

Order passed by the High Court

The Petition was allowed by the HC. The petitioner was ordered to be sent on bail in the event of his arrest under Section 69 of the CGST Act by the respondent-Authorised Officer, after enquiry under Section 70 of the CGST Act, subject to following conditions:

  • Petitioner shall execute a personal bond for Rs.10,00,000 with two sureties to the Authorized Officer
  • Petitioner shall appear before the Authorized Officer within one week, after receipt of this order, for the purpose of enquiry under Section 70 of the CGST Act
  • Petitioner shall not tamper with the prosecution evidence or any document directly or indirectly
  • Petitioner shall co-operate during the course of enquiry and shall not leave the country without prior permission of the Magistrate or the trial Court and he shall surrender his passport, if any, to the concerned Authorized Officer
  • Petitioner shall appear as and when called for the purpose of any further investigation; and
  • Petitioner shall not indulge in any similar offence.

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