Mehul Kheria vs Commissioner CGST

This case involves an application filed under Section 439 of the Code of Criminal Procedure (Cr.P.C.) by Mehul Kheria, who seeks bail following his arrest on January 10, 2019. Kheria was detained during the investigation of a criminal case registered as Crime No. 43/2018. The case was initiated by the Commissioner of CGST & Central Excise, Indore, due to alleged violations of the Goods and Services Tax Act, 2017 (GST Act).

The petitioner, Mehul Kheria, is accused of committing offenses under Section 132 (1) (a), (b), and (c) of the GST Act. These sections pertain to the serious offenses related to GST, including tax evasion and fraudulent activities.

According to the prosecution’s narrative, the investigation was launched after the Commissioner and Additional Commissioner discovered significant tax evasion and fraud in GST payments across the country. They found evidence that some suppliers were involved in fraudulent practices, such as issuing fake invoices, creating goods-less invoices, and claiming Input Tax Credit (ITC) without actually receiving the goods.

The investigation, which involved data mining and joint operations by officers of CGST and SGST, revealed that a network of fraudulent activities was operating in various states, including Maharashtra, Gujarat, Delhi, and West Bengal. As a result, a coordinated effort was made to tackle the issue.

In the context of this case, Mehul Kheria, who is the proprietor of Meena Traders in Mumbai, has reportedly confessed to his involvement in the fraudulent activities. The nature of his confession and its implications for the case are under scrutiny as part of the ongoing investigation.

The court has heard arguments from the legal counsel representing both parties and reviewed the case diary to make an informed decision regarding the bail application.

In Mumbai, the petitioner encountered Jayesh Bhai, who has since relocated to Ahmedabad. During their interaction, Jayesh Bhai demanded Rs. 2-3 Lakhs from the petitioner and invited him to Mumbai to discuss GST registration. Upon arrival, the petitioner met Jagdish Kanani and they began the process of collecting necessary paperwork for GST registration. After obtaining the GST registration number, the petitioner shared it with Jayesh Bhai via WhatsApp. Subsequently, Jayesh Bhai instructed the petitioner to acquire additional GST registration numbers and offered Rs. 1.00 Lakh for each registration.

The petitioner, along with Jagdish Kanani, proceeded to create numerous fictitious and fraudulent firms. They generated and used fake invoices to fraudulently claim input tax credits, leading to significant financial deceit against the government. An investigation revealed that these bogus firms had received fake invoices totaling Rs. 9,217.14 Lakhs for inward supplies and issued fake invoices worth Rs. 9,799.09 Lakhs for outward supplies. This fraudulent activity resulted in a total GST evasion of Rs. 3,422.02 Lakhs, calculated at 18% of the total supply value of Rs. 19,016.23 Lakhs.

During the investigation, Jagdish Kanani appeared before the CGST & Central Excise Headquarters on January 4, 2019, where his statements were recorded under Section 70 of the GST Act.

During the investigation, the petitioner was confronted with substantial evidence linking him to fraudulent activities. In his statement, he fully disclosed the information he possessed, admitting that he neither physically received nor sold any goods, and had not submitted any GST returns. He also revealed that he has been in contact with the current petitioner, Mehul, since 1994.

The petitioner was formally arrested on January 10, 2019, and subsequently produced before the Judicial Magistrate, First Class. He then applied for regular bail under Section 439 of the Criminal Procedure Code (Cr.P.C.). However, the Additional Sessions Judge found sufficient prima facie evidence to indicate that the petitioner had committed offenses under Sections 132(1)(a), (b), and (c) of the GST Act, as well as under Sections 467, 468, 471, and 120-B of the Indian Penal Code (IPC). Consequently, the bail application was rejected, leading to the current petition for bail under Section 439 of Cr.P.C. before this Court.

In the petition, Shri Vivek Dalal, the petitioner’s counsel, argues that the petitioner has been wrongfully implicated in the case. He asserts that the petitioner is neither a supplier nor a purchaser, nor is he a registered dealer under the GST Act. The petitioner has not provided any services or issued any invoices, and thus should not be accused under Section 132 of the GST Act. The counsel further contends that the petitioner’s statement has already been recorded, and since his custody is not necessary for further investigation, he is willing to cooperate and appear before the authorities as needed.

The petitioner’s counsel, Shri Vivek Dalal, argues that the petitioner’s continued presence is necessary, as the investigation is expected to be lengthy. He contends that the petitioner deserves to be released on bail due to the extended timeline of the investigation. Dalal emphasizes that the petitioner has already cooperated by providing his statement and is willing to continue assisting in the investigation if required.

Conversely, Shri Prasanna Prasad, counsel for the respondent/prosecution, opposes the bail application. He argues that the statement made by the petitioner, along with the statements from other witnesses, is admissible in evidence and can be used against him in trial, citing a precedent from the case of M/s. R.S. Company v. Commissioner of Central Excise (CEA No.24/2012) decided on February 8, 2017. Prasad highlights that the primary accused in the case have yet to be arrested, suggesting that this fact supports the denial of bail for the petitioner.

According to Section 69 of the GST Act, the Commissioner has the authority to arrest individuals if there is reason to believe they have committed offenses specified in Section 132(1)(a), (b), or (c) of the GST Act. These sections define offenses related to the supply of goods or services without proper invoicing, issuing invoices without actual supply, or availing input tax credits based on fraudulent invoices. Offenses under these sections are punishable with imprisonment for up to five years and a fine if the amount involved exceeds Rs. 500 Lakhs.

Given the petitioner’s recorded statement under Section 70 of the GST Act and the fact that the main accused remain at large, the prosecution argues that the petitioner’s bail application should be rejected.

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