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March 7, 2022

Orissa HC: Bail cannot be refused as indirect method of punishing accused before conviction

by Mahesh Mara in GST, Legal Court Judgement

Orissa HC: Bail cannot be refused as indirect method of punishing accused before conviction

Fact and Issue of the case

The present Petitioners, who are in custody since 21.12.2020, have filed the instant bail application under Section 439 of Cr.P.C. corresponding to 2(C)CC Case No.03 of 2020 pending in the court of the Learned J.M.F.C(R), Cuttack for commission of offences under Sections 132(1) (c), 132(1)(b) and 132(1)(i) of the OGST Act, 2017. Prior to the instant application, the Petitioners had approached the learned District and Sessions Judge, Cuttack, vide Bail Application No. 11023 of 2020 which was rejected on 25.01.2021.

Shorn of unnecessary details, the prosecution’s case is that both the Petitioners alongwith other accused, were involved in the creation and operation of 12 fictious/ bogus firms in the name of unconnected persons by misutilizing their identity proof. The same was done behind their back, in order to avail and utilize bogus input tax credit of an amount of Rs. 20.45 crores on the strength of fraudulent purchase invoices without any physical receipt or actual purchase of goods. As such both of them are alleged to be part of a collusion to evade taxes to the tune of approximately Rs. 42.00 crores and therefore are liable for the payment of the same under Section 132 of the OGST Act, 2017.

Per contra, the Ld. Counsel for the Petitioners earnestly submitted that the allegations made against the Petitioners in the prosecution report are bald allegations which are completely false and baseless. It was contended that the Petitioner No. 1 was a mere employee who has dutifully followed the directions and orders of his superiors. Similarly, Petitioner No. 2 was in no way connected to the case as he is a mere paan shop owner and has no nexus to the alleged fraud in any way whatsoever and has been embroiled in the matter merely because he is the brother of Petitioner No. 1. It has bene submitted that the alleged fraud has been perpetrated by someone else and the present Petitioners who are mere pawns, have unduly been made scapegoats despite having no involvement in the alleged fraudulent activities. It is further submitted that the Petitioners have been duly cooperating with the authorities and have on multiple occasions appeared in the OGST offices to assist the authorities with the investigation, but despite their bonafide actions, they were forwarded into custody on 21.12.2020 and have remained in custody ever since. The Petitioners have wives, young children and a widowed mother who are completely dependent on the Petitioners and are on the brink of starvation due to the absence of the only two earning members in the family especially given the pandemic situation. The Ld. Counsel for the Petitioners finally urged that given that there is no risk of the Petitioners fleeing given that they reside locally and that they shall not tamper with evidence, they should be released on bail as even trial has not commenced and they have been in custody for over a year.

Observation of the Court

In Moti Ram v. State of M.P.2 the Hon’ble Supreme Court, while discussing pretrial detention, held: “14. The consequences of pretrial detention are grave. Defendants presumed innocent are subjected to the psychological and physical deprivations of jail life, usually under more onerous conditions than are imposed on convicted defendants. The jailed defendant loses his job if he has one and is prevented from contributing to the preparation of his defence. Equally important, the burden of his detention frequently falls heavily on the innocent members of his family.” Furthermore, the Hon’ble Supreme Court in Sanjay Chandra v. CBI3 , dealing with a case involving an economic offence of formidable magnitude, touching upon the issue of grant of bail, had observed that deprivation of liberty must be considered a punishment unless it is required to ensure that an accused person would stand his trial when called upon. The courts owe more than verbal respect to the principle that punishment begins after conviction and that every man is deemed to be innocent until duly tried and found guilty. It was underlined that the object of bail is jurisprudentially neither punitive nor preventive. Although the Hon’ble Supreme Court sounded a caveat that any imprisonment before conviction does have a substantial punitive content. It was elucidated therein that the seriousness of the charge, is no doubt one of the relevant considerations while examining the application of bail but it was not only the test or the factor and that grant or denial of such privilege is regulated to a large extent by the facts and circumstances of each particular case. It was also held that detention in custody of under-trial prisoners for an indefinite period would amount to violation of Article 21 of the Constitution was highlighted.

It would also be apposite at this juncture to reproduce the Hon’ble Delhi High Court’s succinct elucidation of the legal position in matters pertaining to bail as laid down in Anil Mahajan v. Commissioner of Customs4 and H.B. Chaturvedi v. CBI5, whereinthe Hon’ble High Court after considering the judgments, inter alia, in Gurcharan Singh v. State (Delhi Administration)6 and Gudikanti  Narasimhulu v. Public

This court has also had the prior occasion of dealing with a similar application for grant of bail in a case relating to prosecution under the provisions of the OGST Act, 2017 the case of Pramod Kumar Sahoo v State of Odisha8 wherein this court had the occasion to elaborately deal with the view taken by various other High Courts in such matters.

Bail, as it has been held in a catena of decisions, is not to be withheld as a punishment. Bail cannot be refused as an indirect method of punishing the accused person before he is convicted. Furthermore, it has to be borne in mind that there is as such no justification for classifying offences into different categories such as economic offences and for refusing bail on the ground that the offence involved belongs to a particular category. It cannot, therefore, be said that bail should invariably be refused in cases involving serious economic offences. It is not in the interest of justice that the Petitioners should be in jail for an indefinite period. No doubt, the offence alleged against the Petitioners is a serious one in terms of alleged huge loss to the State exchequer, that, by itself, however, should not deter this Court from enlarging the Petitioners on bail when there is no serious contention of the Respondent that the Petitioners, if released on bail, would interfere with the trial or tamper with evidence.

Having regard to the entire facts and circumstances of the case, especially the fact that both the bread earning sons of a family have been in custody for over a year now I do not find any justification for detaining the Petitioners in custody for any longer. As a side note it observed that more and more such cases are brought to the fore where the mere pawns who have been used as a part of larger conspiracy of tax fraud have been brought under the dragnet by the prosecution. It is perhaps time that the prosecution will do well to follow the trail upstream and bring the “upstream” parties who are the ultimate beneficiaries who are the gainers in these evil machinations.

In view of the above discussion, it is directed that the Petitioners in both the BLAPLs be released on bail by the court in seisin over the matter in the aforesaid case on such terms and conditions as deemed fit and proper by him/ her with the following conditions:

(i) The Petitioners shall co-operate with the trial and shall not seek unnecessary adjournments on frivolous grounds to protract the trial;

(ii) The Petitioners shall not directly or indirectly allure or make any inducement, threat or promise to the prosecution witnesses so as to dissuade them from disclosing truth before the Court;

(iii) In case of their involvement in any other criminal activities or breach of any other aforesaid conditions, the bail granted in this case may also be cancelled.

(iv) The Petitioners shall submit their passports, if any, before the learned trial court and shall not leave India without prior permission of this Court.

(v) Any involvement in similar offences of under the GST Act will entail cancellation of the bail.

With the above directions the instant bail applications are allowed. However, expression of any opinion hereinbefore may not be treated as a view on the merits of the case and that the assessment of the tax liability of the Petitioners shall be carried out strictly in accordance with the applicable provisions of applicable law. The bail applications are, accordingly, disposed of along with any pending applications (if any).


The court has disposed off the petitioner and ruled in favour of the taxpayer

Read the full order from below


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