Bail Granted to accused arrested for availing ineligible ITC of Rs. 9 Crore

The Hon'ble Bombay High Court in Sunil Kumar Jha and Akshay Chhabra v. Union of India &Ors. [Writ Petition (ST) No. 5484 of 2021 & Writ Petition (ST) No. 5486 of 2021, decided on March 11, 2021] granted bail to the accused arrested under Section 69 of the Central Goods and Services Tax Act, 2017 ('CGST Act') for committing offence of availing ineligible Input Tax Credit ('ITC') of INR 9,04,89,054 and issued notice to the revenue department. Held that the arrest made without any formal accusation and continued detention for alleged fake ITC availment, would not be justified when accused is cooperating in investigation.

Facts

Akshay Chhabra ('the Petitioner No. 2') is the Chairman cum Managing Director and Sunil Kumar Jha ('the Petitioner No. 1') is the Chief Financial Officer of One Point One Solutions Ltd. ('the Petitioner Company') that is engaged in the business of providing business process outsourcing ('BPO') services to various clients covering a range of services from customer support to consultancy services, to healthcare and retailing etc.

On various occasions a search and seizure operations were conducted by the officers of the Revenue Department ('Respondents') at office premises of the Petitioner Company as well as in the residential premises of the Petitioner No. 2. Subsequently, the bank account of the Petitioner Company was attached, and various documents were seized during the operation.

It is alleged by the Petitioners that the employees of the Petitioner Company including female staff were not allowed to go home during the search operation. It is stated that Petitioners brought to the notice of Respondent the harassment meted out to the employees notwithstanding full cooperation rendered by the Petitioner Company and by the Petitioners to the respondentsOn February 16, 2021, both the Petitioners were arrested under Section 69 of the CGST Act and were produced before the Court of Judicial Magistrate First Class, Vashi at Belapur that allowed remand application filed by Respondents and sent the Petitioners to judicial custody for 14 days. Though a bail application was made on behalf of the Petitioners, the same was ultimately rejected by order dated March 03, 2021.

The Petitioner Company and some of its officials including directors have filed a writ petition before the Hon'ble Bombay High Court being Writ Petition (ST) No. 4557/2021 wherein the Court vide order dated February 25, 2021 had issued notice and directed that no coercive action shall be taken against the officials who had moved this Court though they would cooperate with the investigation. It was further recorded that the allegations against the Petitioners is that they have committed the offence of availing ineligible ITC to the extent of INR 9,04,89,054.00 by using fake invoices i.e. without actual supply of goods or services. It was also noted that out of the alleged availing of ineligible ITC of slightly more than INR 9 crores and the Petitioner Company had deposited more than INR 4.80 crores which is more than 50% of the alleged dues.

Aggrieved by the arrest and continued detention of the Petitioners, these writ petitions have been filed.

Issue

Whether the continued detention of the Petitioners is legal, valid and justified?

Held

The Hon'ble Bombay High Court in Writ Petition (ST) No. 5484 of 2021 & Writ Petition (ST) No. 5486 of 2021, decided on March 11, 2021 held as under:

• Observed that, there is no significant discrepancy in the statement of the Petitioners as recorded by the Respondents. Further, any instance of the Petitioners tampering with documents or trying to influence any witness being brought on record is not found. Merely saying or apprehending that in future they may tamper with evidence or induce any witness as observed by the learned Magistrate cannot be a justification to deny bail.
• Noted that the maximum sentence that can be imposed upon conviction for committing an offence under Section 132(1)(b) and Section 132(1)(c) of the CGST Act is imprisonment for five years and with fine. Analysed Section 167(2)(a)(ii) of the Code of Criminal Procedure, 1973 ('Cr.P.C.') and stated that it makes clear that a person cannot be kept in detention beyond a total period of 60 days where investigation relates to an offence punishable for imprisonment for a term of not less than 10 years and the same is not completed.
• Stated that, in the present case, prayer made by the Respondents is for remand of the Petitioners to judicial custody for 60 days though in the penultimate paragraph, it was overwritten to 14 days but without initials. This only indicates the manner in which the Respondents have proceeded in the matter whereby the process of detention itself is sought to be converted into a penalty.
• Further noted that, Petitioner Company has made a payment of INR 4,80,58,988 till date and have made a statement that the Petitioner Company would be bound to pay whatever amount is found due and payable upon investigation and adjudication subject to their right of appeal.
• Relied on its order in Daulat Samirmal Mehta v. UOI and Ors. [Writ Petition No. 471 of 2021, decided on February 15, 2021] to hold that both the Petitioners are in detention since February 16, 2021 without any formal accusation therefore, continued detention of the Petitioners would not at all be justified.
• Issued the following directions:

1. Issued notice to the Respondents;
2. Petitioners shall execute a personal bond each for an amount of INR 50,000/- before the Jail Superintendent;
3. Directed the Jail Superintendent to ensure that this order is complied with forthwith;
4. Upon release, Petitioners to furnish surety of INR 5,00,000 each in Remand Application before the Judicial Magistrate on March 12, 2021;
5. Petitioners to furnish one solvent surety each of the like amount before the said authority within six weeks of their release;
6. Petitioners shall cooperate in the investigation and shall not make any attempt to interfere with the ongoing investigation;
7. Petitioners shall not tamper with any evidence or try to influence or intimidate any witness;
8. Petitioners shall deposit their passports before the Judicial Magistrate.

Our Comments

To know more, kindlywatch 'Fake Invoice & Fake Credit: Cautions and Implications' by CA Bimal Jain- https://youtu.be/W5uHGH2Jn38

Relevant Provisions

Section 69 of the CGST Act

'Power to arrest-

69. (1) Where the Commissioner has reasons to believe that a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section, he may, by order, authorise any officer of central tax to arrest such person.

(2) Where a person is arrested under sub-section (1) for an offence specified under sub-section (5) of section 132, the officer authorised to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty-four hours.

(3) Subject to the provisions of the Code of Criminal Procedure, 1973 (2 of 1974),––

(a) where a person is arrested under sub-section (1) for any offence specified under sub-section (4) of section 132, he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate;

(b) in the case of a non-cognizable and bailable offence, the Deputy Commissioner or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station.'

Section 132(1)(b) and (c) of the CGST Act

'Punishment for certain offences.

132. (1) Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences, namely:-

………………..

(b) 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 thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;

(c) avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;

………………..

shall be punishable––

(i) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine;

(ii) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine;

(iii) in the case of any other offence where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to one year and with fine;

(iv) in cases where he commits or abets the commission of an offence specified in clause (f) or clause (g) or clause (j), he shall be punishable with imprisonment for a term which may extend to six months or with fine or with both.'