Varun Rakesh Bansal VS State of Gujarat

Active Metals Pvt. Ltd., until October 2019, was a company operating in the domain of manufacturing and possibly trading of metals or related products. The company’s activities and operations during this period encompassed various aspects of the industry, including production, sales, and possibly procurement.

However, the trajectory of the company took a significant turn when, on November 15, 2021, a resolution was passed to appoint an authorized representative to delve into the matters concerning Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) related affairs of the company. This decision hinted at potential issues or concerns surrounding the company’s tax compliance or related matters.

Subsequently, on June 20, 2022, a search operation was conducted at both the company’s premises and the residential addresses of its directors. This operation, conducted under section 67(2) of the CGST and GST Act, indicates an official investigation into possible irregularities or discrepancies in the company’s tax filings or financial records.

Following the search operation, on July 22, 2022, an order was issued under section 83 of the Act for the provisional attachment of the company’s assets, including plant, machinery, vehicles, and stock. The grounds for this provisional attachment were purportedly linked to allegations of the company availing input tax credit through purportedly fake purchases from entities suspected of being bogus or dubious.

The search operation spanned from July 20 to July 28, 2022, suggesting an extensive and thorough examination of the company’s records and premises. On July 28, 2022, the situation escalated further when the applicant, presumably an individual associated with Active Metals Pvt. Ltd., was arrested. This arrest was effectuated by the issuance of an arrest memorandum by the State Tax Officer, Enforcement, underscoring the seriousness of the allegations and the subsequent legal actions taken against those involved.

Active Metals Pvt. Ltd., a company operating until October 2019, saw significant developments post a resolution passed on November 15, 2021. Following this resolution, the company appointed an authorized representative to address CGST/SGST matters.

Subsequently, on June 20, 2022, a search was conducted at the company’s premises and the residential locations of its directors under section 67(2) of the CGST and GST Act. This search led to a letter and order issued on July 22, 2022, under section 83 of the Act, provisionally attaching the company’s plant, machinery, vehicles, and stock. The grounds for this attachment were allegations of the company availing input tax credit through fake purchases from suspicious entities.

The search operation continued from July 20, 2022, to July 28, 2022, culminating in the arrest of the applicant on July 28, 2022, by the State Tax Officer, Enforcement Division, Rajkot. The arrest was made under section 132(1)(c) of the CGST and GST Act, accusing the applicant of availing input tax credit amounting to Rs. 10.71 crores for fictitious transactions totaling Rs. 59.55 crores.

In response, Ms. Megha Jani, alongside Mr. Dilip T. Mamtora and Mr. Meet D. Pansuria, learned advocates for the applicant, contested the allegations. They argued that the accusations revolve around the insertion of fake invoices into the department’s data, which purportedly included transportation details indicating goods supplied to the accused purchasers. Ms. Jani highlighted that the department’s case relies heavily on documentary evidence, much of which was either provided by the applicant or seized by the department.

Additionally, Ms. Jani raised concerns about the arrest procedure, alleging that the mandatory steps outlined in section 69 of the CGST Act, 2017, were not followed during the applicant’s arrest. Section 69 outlines procedural safeguards concerning the arrest of individuals under GST laws.

These developments underscore a complex legal battle between Active Metals Pvt. Ltd., its representatives, and the tax authorities, highlighting allegations of fraudulent activities related to input tax credit and fake invoices. The case hinges on the interpretation of documentary evidence and adherence to procedural norms outlined in GST laws.

Active Metals Pvt. Ltd. was a company with a history dating back to its establishment until October 2019. On November 15, 2021, the company appointed an authorized representative to handle its Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) matters. However, the company faced significant legal challenges following a search conducted under section 67(2) of the CGST and GST Act on June 20, 2022, at its premises and directors’ residences.

Subsequently, on July 22, 2022, a letter accompanied by an order was issued under section 83 of the Act, provisionally attaching the company’s assets, including plant, machinery, vehicles, and stock. This action was taken due to alleged fraudulent activities, specifically the availing of input tax credit through fake purchases from suspicious entities.

The search operation lasted from July 20 to July 28, 2022, culminating in the arrest of the applicant on July 28, 2022, by the State Tax Officer, Enforcement Division, Rajkot. The arrest was made under section 132(1)(c) of the CGST and GST Act, alleging that the company availed input tax credit amounting to Rs.10.71 crores for fictitious transactions totaling Rs.59.55 crores.

Legal representatives, Ms. Megha Jani, Mr. Dilip T. Mamtora, and Mr. Meet D. Pansuria, argued on behalf of the applicant, challenging the allegations. They contended that the accusations of entering fake invoices into the department’s data lacked merit. According to them, the invoices in question contained transportation details indicating the delivery of goods to the purported purchasers. They claimed that the case against the applicant relied solely on documentary evidence, much of which was either provided by the applicant or seized by the department.

Ms. Jani highlighted procedural irregularities in the arrest, citing the failure to follow the mandatory procedure outlined in section 69 of the CGST Act, 2017. She argued that the Commissioner’s authorization for the arrest, as required by the Act, was not provided to the applicant, thus rendering the arrest invalid.

Furthermore, Ms. Jani refuted the allegations of wrongful input tax credit, asserting that the evidence, including purchase invoices and transportation details, demonstrated legitimate transactions. She contended that the goods were purchased from entities mentioned in the arrest memorandum, with payments duly made through legitimate channels.

In summary, Active Metals Pvt. Ltd. underwent legal scrutiny due to alleged fraudulent activities related to input tax credit. Despite the company’s legal representatives’ arguments challenging the accusations and procedural irregularities, the case remained contentious, with significant implications for the company’s financial and legal standing.

Active Metals Pvt. Ltd., up until October 2019, operated as a presumably legitimate company. However, on November 15, 2021, they were appointed an authorized representative to address CGST/SGST matters. Subsequently, on June 20, 2022, a search was conducted at the company and directors’ residences under Section 67(2) of the CGST and GST Act. Following this, on July 22, 2022, a provisional attachment order was issued under Section 83 of the Act, targeting the company’s assets like plant, machinery, vehicles, and stock. This action was taken due to alleged fake purchases from suspicious entities, resulting in the wrongful availing of input tax credit.

The search extended from July 20 to 28, 2022, and on July 28, 2022, the company’s representative was arrested under Section 132(1)(c) of the CGST and GST Act. The arrest was based on accusations of availing input tax credit worth Rs. 10.71 crores for fictitious transactions amounting to Rs. 59.55 crores.

Representatives of the accused, including Ms. Megha Jani, Mr. Dilip T. Mamtora, and Mr. Meet D. Pansuria, argued that the allegations centered on the inclusion of fake invoices in the department’s data. However, they asserted that these invoices contained transportation details, suggesting genuine transactions. They claimed that the arrest violated the mandatory procedure outlined in Section 69 of the CGST Act, as proper authorization from the Commissioner was not provided.

Furthermore, they argued that the accusations of wrongful input tax credit were unfounded, as evidenced by documents provided by the accused, including transportation details. They emphasized that payments were made via RTGS to entities mentioned in the arrest memorandum. Additionally, they contended that transactions with ten firms, whose registrations were later canceled, occurred before the cancellations and thus should not be subject to Section 132(1)(c).

Ms. Jani specifically highlighted 138 transactions supported by various documents indicating the movement of goods. These documents included details such as purchase numbers, E-way bill numbers, and transport company information, suggesting legitimate transactions.

Overall, the defense argued that the allegations lacked substantial evidence and that the arrest and attachment of assets were conducted without proper adherence to legal procedures. They maintained that the transactions were genuine and backed by documentation, challenging the validity of the charges brought against Active Metals Pvt. Ltd.

Active Metals Pvt. Ltd., up until October 2019, operated as a company in good standing. However, significant changes occurred post a resolution on November 15, 2021, when an authorized representative was appointed to address CGST/SGST matters. Trouble ensued as a search was conducted on June 20, 2022, under section 67(2) of the CGST and GST Act at the company and directors’ residential premises. Subsequently, on July 22, 2022, an order was issued under section 83 of the Act, provisionally attaching the company’s assets like plant, machinery, vehicles, and stock. This action stemmed from allegations that the company availed input tax credit through fake purchases from dubious entities.

During the search period from July 20 to July 28, 2022, the applicant was arrested by the State Tax Officer, Enforcement Division, Rajkot, on July 28, 2022. The arrest was based on accusations of availing Rs. 10.71 crores in input tax credit for fictitious transactions totaling Rs. 59.55 crores.

Ms. Megha Jani, along with legal advocates, represented the applicant. Their defense centered on procedural irregularities and lack of substantial evidence. Ms. Jani argued that the department’s case relied solely on documentary evidence, much of which had been provided or seized from the applicant.

She contended that the arrest didn’t follow the mandated procedure outlined in section 69 of the CGST Act, 2017. Furthermore, she refuted the allegations of wrongful input tax credit, presenting evidence of genuine transactions, including transportation details and payments made through RTGS.

Ms. Jani highlighted discrepancies in the department’s claims, pointing out that transactions with firms whose registrations were canceled preceded the cancellations and thus couldn’t be considered fraudulent. Additionally, she emphasized the authenticity of 138 transactions, supported by detailed documentation.

Regarding the provisional attachment of assets, Ms. Jani stated that the company had already made a substantial payment and questioned the validity of the complaint filed against the applicant. She also raised concerns about the absence of transporters as witnesses and questioned why they weren’t implicated if their involvement was suspected.

Overall, Ms. Jani’s defense sought to discredit the allegations against Active Metals Pvt. Ltd., citing procedural lapses, inconsistencies in evidence, and lack of substantial grounds for the charges leveled against the company.

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