Gujarat High Court Grants Bail To Person Alleged Of Creating Fictitious Entity To Pass Ineligible ITC

The single bench of Justice Ilesh J. Vora has directed the release of the applicant on bail, subjected to a deposition of Rs. 2 crore before the office of the Deputy Commissioner of State Tax, Division 8, Enforcement, Surat within a period of 2 months from the applicant's release.

The department has found that the applicant engaged in activities of creating fictitious entities to pass ineligible input tax credit. The search proceedings against HK Metal and Blue Star Trading Company were conducted at their registered places of business. Both firms are sole proprietorships engaged in scrap business in Bhavnagar and are registered in the names of the applicant's father and mother, Kalawala Haji and Mrs. Sabana Aslam.According to the record, the applicant was the authorised representative of both the firms and was managing their bank transactions. During the search proceedings, both the firms were not operative and not in existence at the business place, and a new firm, M/s. Ashiya Enterprise, was founded.

The findings of the investigation revealed that these firms were engaged in the wrongful activity of issuing fake invoices to pass ineligible input tax credit to beneficiaries without any actual movement of goods. The department alleged that the applicant caused a revenue loss to the government exchequer to the tune of Rs.21.59 crores, as by passing the illegal ITC, the beneficiary firms had claimed an unlawful input tax credit. The applicant has violated the provisions of GST, GGST, and IGST and the rules and evaded tax of Rs.21.59 crores. The proprietors of the firms were served summons and they were arrested after due process of law. The applicant has evaded the investigating proceedings since, and lastly, he was apprehended on 17.04.2022. He was produced before the Metropolitan Magistrate Court, Ahmedabad, and was granted custodial interrogation for 4 days. During the pendency of the petition, the complaint, as contemplated under the CGST Act, was filed before the court.

The applicant submitted that during the interrogation of the proprietors of 2 firms who happen to be parents of the applicant, the respondent agency recovered the necessary documentary evidence and it was in the custody of the department. Even after the arrest of the applicant, during the remand period, he was extensively interrogated by the department and the necessary documents have been recovered. Further custody of the applicant is not necessary, as after investigation, a complaint is filed before the court concerned. In the near future, there is no possibility to conclude a trial in a reasonable time, so keeping the applicant behind the bar would not serve any purpose.

The applicant contended that both the firms had filed regular returns for their business transactions and, till date, had not received any show cause notice, raising any dispute with respect to fake invoices etc. It was argued that both firms had filed their returns in GSTR-1 disclosing the sale of goods, which was reflected in GSTR 2A, and thus the question of wrongfully claiming ITC did not arise.

The department contended that the applicant defrauded the State Exchequer to the tune of Rs.21.59 crores. The investigation is still going on and the quantum of tax evasion involved is also likely to increase. Considering the conduct of the applicant, if bail is granted, the applicant may manipulate or attempt to destroy the evidence, which will adversely affect the investigation. The offence committed was a grave economic offence and detrimental to the nation's economy, as economic offences constitute a class apart and need to be viewed with a different approach in the matter of bail. Therefore, the applicant should not be enlarged so as to ensure proper investigation.

The court ordered the applicant to be released on regular bail on executing a personal bond of Rs.10,000 with one surety to the satisfaction of the Trial Court and subjected to various conditions.

Firstly, the court ordered that the applicant should not take undue advantage of liberty or misuse liberty.

Secondly, the applicant shall not act in a manner injurious to the interests of the prosecution and surrender the passport, if any, to the lower court within a week.

Thirdly, the court ordered that the applicant should not leave India without the prior permission of the Sessions Judge concerned.

Fourthly, the court directed the furnishing of the latest address of residence to the investigating officer and also to the court at the time of execution of the bond and shall not change the residence without prior permission of the trial court.

Lastly, the court ordered him to deposit Rs. 2 crore within 2 months of his release before the office. The applicant shall deposit the amount in two instalments, i.e., Rs. 1 crore within one month of his release, and the remaining amount shall be paid in the second month. If the applicant fails to deposit the amount within the stipulated time period, the bail shall be automatically cancelled.

Case Title: Mohmed Hasan Aslam Kaliwala Versus State Of Gujarat

Citation: R/CRIMINAL MISC. APPLICATION NO. 9674 of 2022

Citation: 2022 LiveLaw (Guj) 340

Dated: 29/07/2022

Counsel For Applicant: Senior Advocate ND Nanavaty

Counsel For Respondent: APP Manan Mehta

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