Case tittle | Rakesh Arora VS State of Punjab |
Court | Punjab and Haryana High Court |
Honourable Judge | Justice Avneesh Jhingan |
Citation | 2021 (01) GSTPanacea 222 HC Punjab and Haryana CRM-M-1511 OF 2021 |
Judgment Date | 28-January-2021 |
The case at hand was heard via video conference due to the ongoing COVID-19 situation. The petitioner sought bail under Section 439 of the Criminal Procedure Code (Cr.P.C.) after being arrested for offenses under Section 132 of the Central Goods and Services Tax (CGST) Act, 2017.
Initially, the only respondent named in the petition was the State of Punjab. However, during proceedings on January 18, 2021, Mr. Sourabh Goel, an advocate, appeared and argued that the Union of India was also a necessary party to the case. He requested additional time to file a reply to this effect, which was subsequently filed and recorded on January 22, 2021.
The focus of the petition revolves around the petitioner’s request for bail in connection with alleged violations of the CGST Act. The proceedings involved legal deliberations over the appropriate parties to the case, specifically the inclusion of the Union of India as a necessary respondent in light of the charges under the CGST Act, which is central to the matter.
The matter was heard via video conference due to the ongoing COVID-19 situation. The petitioner approached the Court under Section 439 of the Criminal Procedure Code (Cr.P.C.), seeking bail after being arrested under Section 132 of the Central Goods and Services Tax (GST) Act, 2017.
Initially, the petition named only the State of Punjab as the respondent. However, on January 18, 2021, Mr. Sourabh Goel, representing the Union of India, argued that the Union of India was a necessary party. The reply was filed and accepted on January 22, 2021.
The case revolves around data gathered by Business Intelligence and Fraud Analytics (BIFA) from the Goods and Services Tax Identification Number (GSTIN) system. The GST Department had information that three firms—M/s La Mode Fashions, M/s Decent Fashions, and M/s Murari Enterprises—were involved in fraudulent activities related to Input Tax Credits (ITC). The firms allegedly issued fraudulent bills worth ₹158 crores, involving ₹13.39 crores in tax. They availed fake ITC amounting to ₹21.60 crores and claimed a refund of ₹5.02 crores.
The petitioner seeks relief from the ongoing legal proceedings based on these allegations of tax fraud under the GST Act.
The matter under consideration involves a bail application under Section 439 of the Cr.P.C. The petitioner, arrested under Section 132 of the Central Goods and Services Tax Act, 2017, seeks bail. Due to the COVID-19 situation, the case is being heard via video conference.
Initially, only the State of Punjab was named as a respondent in the petition, but on January 18, 2021, it was suggested that the Union of India be added as a necessary party. After submissions by counsel for the Union, a reply was filed on January 22, 2021.
The facts of the case revolve around an investigation by the Goods and Services Tax Department, utilizing Business Intelligence and Fraud Analytics (BIFA) to gather data from GSTIN. The Department discovered that three firms—M/s La Mode Fashions, M/s Decent Fashions, and M/s Murari Enterprises—were involved in availing and passing fraudulent Input Tax Credits (ITC). These firms had issued invoices worth ₹158 crores, involving ₹13.39 crores of tax, and had availed fake ITC amounting to ₹21.60 crores while claiming refunds of ₹5.02 crores.
The petitioner’s premises in Noida were searched, and his mobile phone along with various documents were seized. Initially, the petitioner denied any connection with individuals named Ankur Garg and Vikas Gupta, and the firms in question. However, during the investigation, it was discovered that an email ID linked to the petitioner was used to send a lease deed related to M/s La Mode Fashions. This email was also associated with the firms’ GSTIN portal. Further investigation revealed that a person named Tarun, running a cyber cafe, had confessed to creating fake identities for the firm’s partners, including fake Aadhaar cards, PAN, and bank accounts. Tarun admitted that he and his employees were paid monthly by the petitioner for their involvement in these fraudulent activities. One of Tarun’s employees had their identity altered to act as a partner in the firms.
Statements from other individuals, including a partner named Ms. Shreya Aggarwal and the landlady of the rented premises, were recorded, corroborating that the petitioner, Dharminder Arora (also known as Raja Bhaiya), was involved in the creation and registration of the bogus firms, either directly or through intermediaries.
Counsel for the petitioner argued that the petitioner has been in custody since December 5, 2020, and no formal complaint has been filed against him. The charges fall under a Magistrate’s trial jurisdiction and carry a maximum sentence of five years’ imprisonment. Therefore, the petitioner seeks bail due to the extended pretrial detention and the lack of formal charges.
The petitioner’s case revolves around an arrest that they argue was unwarranted and not supported by any evidence suggesting they attempted to flee before being taken into custody. The petitioner challenges the legal basis for their arrest, particularly in light of the provisions of Section 132(1) of the Central Goods and Services Tax Act, 2017.
In the reply filed by the respondent, it is highlighted that no offense under clauses (a) to (d) of Section 132(1) of the Act has been made out against the petitioner. The respondent contends that only offenses under these clauses are non-bailable. The petitioner is further defended on the grounds that they have not issued any bill or invoice to fraudulently avail Input Tax Credit (ITC), and that the assessment in their case is still incomplete. The petitioner draws support from the Delhi High Court’s decision in *Anil Jain Versus Directorate of Revenue Intelligence* (2007), where bail was granted in similar circumstances.
The petitioner’s grievance also points to the arrest being in violation of legal precedents. Specifically, the petitioner argues that their case does not fall within the categories justifying arrest as laid out by the Division Bench of the Punjab and Haryana High Court in *Akhil Krishan Maggu Versus Deputy Director of GST Intelligence* (2020). The judgment in this case is invoked to assert that the arrest powers under Section 69 of the Act should be used sparingly, with reasons for arrest being properly recorded.
To strengthen their argument, the petitioner relies on several court judgments, including the Gujarat High Court’s ruling in *Vimal Yashwantgiri Goswami Versus State of Gujarat* (2020), which emphasized the need for caution in exercising arrest powers. Additional references are made to orders passed in *Manoj Cables Limited Versus Union of India* (2020) and other relevant cases, asserting that the petitioner’s arrest was not in line with established legal norms.
In essence, the petitioner contends that the arrest was not justified under the applicable legal provisions and that there is no evidence of any attempt to evade the law. The petitioner argues for relief based on legal precedents that restrict the arbitrary use of arrest powers under the GST law.
The petitioner is contending that there is no evidence suggesting an attempt to flee before being taken into custody. The response from the opposing party emphasizes that no offense under clauses (a) to (d) of Section 132(1) of the Central Goods and Services Tax (CGST) Act has been committed by the petitioner. These clauses describe non-bailable offenses, but it is argued that the petitioner neither issued any invoice nor fraudulently availed Input Tax Credit (ITC), and the tax assessment has yet to be finalized.
The petitioner’s counsel references the Delhi High Court ruling in *Anil Jain v. Directorate of Revenue Intelligence* (2007), where bail was granted in similar circumstances, reinforcing the claim that the arrest is unlawful. The petitioner argues that their arrest contravenes the precedent set by the Division Bench of the court in *Akhil Krishan Maggu v. Deputy Director of GST Intelligence* (2020), where specific categories were outlined for arrest, and the petitioner’s case does not fit within these.
Further arguments assert that the powers to arrest under Section 69 of the CGST Act should be exercised sparingly, with reasons properly recorded. The defense relies on the Gujarat High Court ruling in *Vimal Yashwantgiri Goswami v. State of Gujarat* (2020), supporting this view. The counsel also refers to other cases—*Manoj Cables Ltd. v. Union of India* (2020) and *Tarun Bassi v. State of Punjab* (2020)—in which the vires (legal validity) of Sections 132 and 69 are under challenge, and interim bail has been granted by the court in these matters.
Several other bail orders from similar cases under Section 132 of the Act, such as *Rajinder Bassi v. State of Punjab* (2020) and *Ganga Ram v. State of Punjab* (2020), are also cited to reinforce the argument for bail.
On the contrary, the counsel for the Union of India points out that the petitioner is involved in a substantial scam, exceeding ₹150 crores, discovered through BIFA software analysis. The government refutes the claim that the petitioner is unlikely to flee if granted bail, emphasizing that the petitioner had changed his identity, which only came to light after further investigation. There are concerns that, if released, the petitioner could tamper with evidence or influence witnesses. These concerns are supported by statements indicating that the petitioner used force, detained an individual, and conducted suspicious transactions related to the scam. Additionally, there are allegations that the petitioner impersonated someone else and set up fake firms to claim fraudulent ITC, further complicating the defense’s position.
In this case, the petitioner contends that there is no indication that they attempted to flee before being taken into custody. The respondent, in their reply, asserts that no offense has been made out against the petitioner under clauses (a) to (d) of Section 132(1) of the CGST Act, which outline non-bailable offenses. The petitioner has not issued any bill or invoice to claim Input Tax Credit (ITC), and the assessment is not yet complete. Citing the Delhi High Court’s decision in *Anil Jain v. Directorate of Revenue Intelligence* (2007), where bail was granted under similar circumstances, the petitioner argues for bail.
The petitioner further claims that their arrest contradicts the law set by the Division Bench of the Punjab and Haryana High Court in *Akhil Krishan Maggu v. Deputy Director of GST Intelligence* (2020), as their case does not fall under the categories outlined for arrest. The senior counsel for the petitioner argues that the powers under Section 69 of the CGST Act, which authorize arrest, must be exercised sparingly and with proper reasons recorded. They cite several legal precedents, including the Gujarat High Court’s decision in *Vimal Yashwantgiri Goswami v. State of Gujarat* (2020) and other interim bail orders, to support their claim that bail should be granted, especially as the vires of Sections 132 and 69 are under legal challenge.
The counsel for the Union of India counters these claims, highlighting that the petitioner is allegedly involved in a GST scam exceeding ₹150 crores, uncovered through the BIFA software. They argue that the petitioner changed his identity and would likely tamper with evidence or influence witnesses if granted bail. The petitioner is accused of forcibly detaining an individual, Tarun, to ensure the transfer of ₹68 lakhs to a firm’s account. It is further alleged that the petitioner impersonated another individual to establish bogus firms for claiming fraudulent ITC.
The Telangana High Court’s decision in *P.V. Ramana Reddy v. Union of India* (2019) was referenced to clarify that offenses under Section 132(1) of the CGST Act are not dependent on the completion of assessment proceedings. The respondent opposes the bail request, emphasizing that the investigation is ongoing, with new evidence, including bank records, surfacing. It is alleged that the petitioner was involved in a fraudulent transfer of ₹68 lakhs, later returned in a compromise agreement, and signed as a witness.
The respondent defends the petitioner’s arrest, stating that valid reasons were recorded for it, and new leads, including one involving an individual from Dubai, are still under investigation. Hence, the matter remains unresolved, and bail is opposed based on the risk of interference with the ongoing investigation.
The petitioner contends that there is no evidence suggesting he attempted to flee prior to being taken into custody. The respondent’s reply indicates that the petitioner is not charged under clauses (a) to (d) of Section 132(1) of the Central Goods and Services Tax (CGST) Act, which define non-bailable offenses. Therefore, the argument is made that the petitioner’s case does not meet the criteria for a non-bailable offense. Additionally, it is stated that the petitioner has not issued any bills or invoices to claim Input Tax Credit (ITC), and the tax assessment remains incomplete. The petitioner relies on previous court decisions where bail was granted in similar circumstances, particularly citing the Delhi High Court’s ruling in *Anil Jain vs. Directorate of Revenue Intelligence* and the Division Bench judgment in *Akhil Krishan Maggu vs. Deputy Director of GST Intelligence* to argue that his arrest contradicts established legal principles.
The petitioner’s counsel further argues that the power to arrest under Section 69 of the CGST Act should be exercised sparingly, and reasons for the arrest should be clearly documented, referencing judgments from the Gujarat High Court (*Vimal Yashwantgiri Goswami vs. State of Gujarat*) and interim bail orders in other cases challenging the vires of Sections 69 and 132 of the CGST Act. Multiple instances where courts have granted bail under Section 132 are also cited to support the petitioner’s claim for bail.
In contrast, the counsel for the Union of India argues that the petitioner’s arrest was justified due to his involvement in a scam exceeding ₹150 crores, identified through data collected by the BIFA software. The government argues that the petitioner changed his identity to avoid detection and, if released on bail, might tamper with evidence or influence witnesses. The government also highlights specific incidents, including the petitioner’s alleged involvement in forcibly detaining a person to extort money and his role in fraudulently claiming ITC through bogus firms. Evidence such as statements and emails linking the petitioner to these activities is presented.
The government’s opposition to the bail is further supported by ongoing investigations, which have uncovered additional details, such as the involvement of foreign individuals in directing the petitioner’s activities. Despite the petitioner’s contention that his extended custody without interrogation weakens the case for his continued detention, the court finds that the investigation is incomplete, with key evidence still being collected. Moreover, the court is not persuaded by the petitioner’s claim that he would not flee if released on bail, particularly given his use of a false identity and involvement in creating fake firms.
Ultimately, the court stresses the need to consider the overall circumstances and seriousness of the allegations while deciding the bail application. Given the ongoing investigation, the possibility of the petitioner absconding, and the complexity of the case, the court leans toward denying bail, emphasizing that the petitioner’s release poses significant risks to the integrity of the investigation.
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