Bail denied to Petitioner for receiving bogus tax refunds

The Punjab and Haryana High Court has denied bail to Rakesh Arora, who is accused of setting up three fake companies to fraudulently claim Input Tax Credit (ITC) and tax refunds under the CGST Act. The court found that there was concrete evidence of his active involvement in tax evasion, fitting exceptional circumstances for arrest. The bail was refused because the investigation is ongoing, and the petitioner's actions involved claiming refunds for tax that was never actually received by the revenue.

In Rakesh Arora v. State of Punjab [CRM-M- 1511 OF 2021 dated January 28, 2021], the current bail application has been filed by Rakesh Arora ("the Petitioner") having been arrested under Section 132 of the Central Goods and Services Tax Act, 2017 ("CGST Act") who is allegedly involved in creating three bogus firms for availing Input Tax Credit ("ITC") fraudulently.

The Hon'ble High Court of Punjab and Haryana dismissing the bail application observed that the matter is still under investigation and that "there are missing links of the chain which are yet to be joined". Relying on the case of Akhil Krishan Maggu v. Deputy Director, Directorate General of GST Intelligence [CWP NO. 24195 OF 2019 (O&M) dated November 15, 2019], which provided for exceptional circumstances to exercise power of arrest, the Hon'ble High Court in the current matter observed that the case of petitioner is covered under Para 10(vi) of the Judgement. Para 10(vi) provided "power of arrest should be exercised in exceptional circumstances during investigation, which illustratively may be: (vi) when direct documentary or otherwise concrete evidence is available on file/record of active involvement of a person in tax evasion."  which was applied in the current case.

Noted that the bail cannot be granted solely on the ground that vires Section 132 and 69 of the CGST Act which are under challenge as there is always presumption of validity of the provisions. In the current matter, the operation of these provisions have not yet been stayed.

Further noted that the tax deposited on transactions which had no purchases, was utilized by the firm not only for availment of ITC but also for getting of refunds by showing that the sales were made to export units. The refund was received for the tax which the Revenue never received. Thus, the bail application stands rejected.