Fraudulent Claim of ITC, Revenue Interest is Protected by Attachment: Gujarat High Court Grants Bail

The applicant, a designated partner and managing director of "Utkarsh Ispat LLP," which is in the business of purchasing mild steel scrap and, thereafter, converting it into mild steel billet. The department conducted a search and seizure operation at the factory and office premises of the LLP and at the residence of the applicant on the ground that several purchase transactions had been made from fictitious entities.

It was alleged that the applicant had shown fake purchases from 24 fictitious entities to the tune of Rs.172.36 crores and had availed an illegal input tax credit to the tune of Rs.31.02 crores.

Counsel for the applicant submitted that all the relevant documents relating to the goods and vehicles, along with their photographs, were made available to the tax authority. The vehicles loaded with the goods had approached the way-bridge and, after following due process, the goods were unloaded at the factory premises. It was alleged against the applicant that out of the 270 firms with which the applicant was doing business, 41 were shell companies and fabricated documents were generated for the purpose of availing the ineligible Input Tax Credit. However, from amongst the 41 firms, the applicant's firm had received goods in 1,145 different trucks, which had undertaken 4,896 trips in all to deliver the goods.

Counsel for the applicant contended that goods worth Rs.225 crores were received with genuine legal documents, which were also reflected on the government portal, and the applicant's firm had paid Rs.40 crores as GST through the banking channels.

It was further contended on behalf of the applicant that the applicant cannot be held liable for any fraudulent act committed by any of the dealers (sellers) from whom he has purchased the goods.

On the other hand, counsel on behalf of the state conducted a discreet inquiry into all the purchases of "Utkarsh Ispat LLP" and it was found that the said firm had shown voluminous purchase transactions from fictitious entities. Search operations were carried out, which revealed the creation of numerous fictitious firms issuing fake invoices to "Utkarsh Ispat LLP" and, subsequently, a search under section 67(2) of the CGST Act was carried out. From a primary scrutiny of the books of accounts and the evidence collected from the search operations, it was found that "Utkarsh Ispat LLP" had indulged in the activity of showing fake purchase transactions in its books of accounts, leading to the wrongful availment of ineligible Input Tax Credit.

The court noted that the department has already attached immovable property belonging to the applicant in excess of the amount of alleged evasion or fraudulent claim of input tax credit made by him. If that is so, then the interest of the repartment is already protected.

The court observed that the applicant was suffering from prostate cancer and had been undergoing treatment at Nadiad.

The court granted regular bail to the applicant on executing a personal bond of Rs. 2,00,000 with one surety of the like amount to the satisfaction of the trial court and subject to the various conditions.

Firstly, the applicant shall 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.

Thirdly, surrender the passport, if any, to the lower court within a week.

Fourthly, not leave India without prior permission of the concerned trial court;

Lastly, the applicant shall furnish the present address of residence to the investigating agency and also to the court at the time of execution of the bond and shall not change the residence without prior permission of the concerned trial court.

"The authorities shall release the applicant only if he is not required in connection with any other offence for the time being. If breach of any of the conditions is committed, the trial Court concerned will be free to issue a warrant or take appropriate action in the matter. Bail bond to be executed before the lower Court having jurisdiction to try the case," the court ordered.

Case Title: Niraj Jaidev Arya Versus State of Gujarat

Citation: R/Criminal Misc. Application No. 23127 of 2021

Dated: 16/03/2022

Counsel For Applicant: Sr. Advocate Yogesh Lakhani

Counsel For Respondent: Advocate Mitesh Amin

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