2021 (5) TMI 291 - HC - GST

Court Orders Release on Bail Despite Tax Evasion Allegations

The court found no justification for the petitioner's arrest and continued detention under Sections 132(1)(b) and (c) of the CGST Act. Despite allegations ... Grant of Bail - Validity of section 132(1)(b) and (c) of the Central Goods and Services Tax Act, 2017 - power under Section 69 of the CST Act - arrest for alleged non-payment of GST and alleged illegal availment of ITC - HELD THAT:- The court having regard to factual position that the petitioners therein had responded to the summons and attended the dates, in the circumstances found that there could not have been justification to arrest the petitioner. Apart from that the court also found that there had not been any evidence about petitioner’s tampering with the documents or trying to influence the witnesses, observing that mere allegation is not sufficient. The court also went on to consider section 167 and had considered that under said provision a person cannot be kept in detention beyond a total period of 60 days where investigation relates to offence punishable with imprisonment for a term not less than 10 years and that the Magistrate is authorized to detain beyond 15 days period if satisfied that the grounds are made out. However, he would not be able to authorize detention for a total period exceeding 60 days. In the present matter, petitioner has filed an affidavit dated 28.04.2021 that he has already paid an amount of ₹ 45,00,000/- and that he would deposit ₹ 5,00,00,000/- under protest towards the alleged amount of tax evasion to demonstrate bona fides and that it would be subject to, adjudication of the amounts alleged and rights and remedies of the petitioner. Bail application allowed subject to conditions imposed. Issues Involved:1. Validity of Section 132(1)(b) and (c) of the Central Goods and Services Tax Act, 2017 (CGST Act).2. Legality of the petitioner's arrest under Section 69 of the CGST Act.3. Allegations of tax evasion and illegal availment of Input Tax Credit (ITC).4. Consideration for bail and judicial custody.Issue-Wise Detailed Analysis:1. Validity of Section 132(1)(b) and (c) of the CGST Act:The petitioner challenges the constitutionality of Section 132(1)(b) and (c) of the CGST Act, seeking a declaration that these provisions are unconstitutional. The petitioner argues that the exercise of power under Section 69 of the CGST Act should only occur upon determination of liability, and that his arrest is illegal and contrary to the spirit of Section 69 and relevant judgments of the Supreme Court and High Court.2. Legality of the Petitioner's Arrest Under Section 69 of the CGST Act:The petitioner, Chairman and Managing Director of M/s. Global Space Technologies Limited (GSTL), contends that his arrest on 23.03.2021 was illegal and in violation of Section 69 of the CGST Act. The petitioner had been summoned multiple times and had cooperated with the investigation, except for one date due to medical reasons. Despite this cooperation, he was arrested and remanded to judicial custody. The petitioner argues that there was no material placed on record to support the 'reasons to believe' that he committed the alleged offense, and that the arrest was not justified.3. Allegations of Tax Evasion and Illegal Availment of ITC:The respondents allege that the petitioner evaded taxes by not depositing Rs. 6.3 Crores collected with the government, availed Rs. 2 Crores of ITC without receipt of goods and services, and engaged in transactions with bogus companies. The investigation revealed that GSTL had conducted clandestine supplies without accounting for them and used fictitious vehicle registration numbers in e-way bills. The petitioner was accused of being evasive and providing false information, resulting in a tax evasion of Rs. 9.90 Crores.4. Consideration for Bail and Judicial Custody:The petitioner argues that bail should not be refused unless there is evidence that the petitioner would not secure presence at trial, interfere with witnesses, or pollute the process of justice. The petitioner had cooperated with the investigation, deposited Rs. 45 Lakhs without accepting liability, and there was no formal accusation in the form of an FIR or complaint. The petitioner contends that the arrest was a coercive measure to collect tax not legally due and that his continued detention was illegal. The respondents counter that the petitioner's detention was necessary due to the magnitude of the evasion and the likelihood of further evasion being unearthed. They argue that the petitioner was not cooperating and was providing evasive replies.Judgment:The court considered the factual position, cooperation of the petitioner, and the legal provisions under the CGST Act and Cr.P.C. The court found that there was no justification for the petitioner's arrest and continued detention, especially given the petitioner's cooperation and the primary objective of the CGST Act being revenue collection. The court ordered the release of the petitioner on bail with conditions to ensure cooperation with the investigation and prevent tampering with evidence or influencing witnesses.Order:- Formal notice to be issued to the respondents.- Petitioner to execute a personal bond of Rs. 50,000 before the Jail Superintendent, Taloja Jail.- Petitioner to furnish surety of Rs. 5,00,000 before the Judicial Magistrate First Class, Vashi at C.B.D. Belapur.- Petitioner to furnish one solvent surety of the like amount within six weeks of release.- Petitioner to cooperate with the investigation, not tamper with evidence, or influence witnesses.- Petitioner to deposit his passport with the Judicial Magistrate First Class, Vashi at C.B.D. Belapur.- Parties to act on an authenticated copy of the order.