It Seems A Countrywide Cartel Specializing In Defrauding The GST System Is Operating To Bring The Economy To Its Knees: Orissa HC [Read Order]

Justice S. K. Panigrahi was hearing a bail plea of one Amit Beriwal, who was accused of committing GST fraud by way of making fake and fraudulent transactions (through fake firms) that had caused huge loss to the tune of Rs 122.67 crore to the State exchequer.

Background of the case

As per the complaint and the prosecution's report, a large number of fraudulent business transactions were made using several fictitious/dummy firms including 'M/s G.S Unitrade', 'M/s G.S. Steels and Alloys Co.', 'M/sB.B Associates', 'M/s Om Shri Ganesh Traders'.

The petitioner therein, Amit Beriwal/Ronak Beriwal along with Subhash Chandra Swain and Basanta Kumar are the proprietors of 'M/s GS Unitrade', 'M/s G.S. Steels & Alloys Co', 'M/s B. B. Associates' and 'M/s Omm Shree Ganesh Traders' respectively.

The above persons, individually and in collusion with each other, have been stated to have created several and non-existent entities to avail bogus Input Tax Credit (ITC), for the purpose of defrauding the Revenue.

As alleged by the prosecution authorities, they were predominantly engaged in passing bogus input tax credit, secured on the strength of fake and fabricated invoices, without the supply of any physical goods to such other existing and non-existing firms, thereby enabling the recipients to avail and utilize the same while discharging tax liabilities.

It was alleged that these fake and fraudulent transactions have, among others, caused huge loss to the State exchequer at least to the tune of Rs.122.67 crores.

The court in its order also noted that, "the manner in which the Accused, in collusion with other accused, have been operating would suggest that there are certain inherent flaws in the GST system, which is prone to such abuse. Furthermore, the fraudsters are taking advantage of the inadequacy of electronic trails of all transactions by employing ingenious methods."

Further, the investigation conducted by officers of DGGI, Bhubaneswar, also revealed that the purported suppliers were also non-existent/non-functional and were being used as a tool to defraud the Revenue.

The search and inspection conducted by the State Authorities revealed that no business was actually being conducted at the declared place of business; multiple entities were shown to be functioning from the same premises; there were no transport documents or lorry receipts to show the actual supply of goods; there were no warehouses to stock the purported goods, and no equipment to measure or weigh such goods were available in the premises.

In addition to the above, the Department also uncovered as many as 21 fictitious firms fraudulently floated and operated by the petitioner. Interestingly, these fictitious firms were created in the name of many daily labourers, private tutors, housewives etc., with the help of their identity documents like PAN, Aadhaar Card, Mobile phone, Voter Card, etc..

The Observation of the Court

The Court acknowledged the fact that the present case indicates the increasing trend of GST fraud by creating many fake firms. The Court stood satisfied that the records produced before the Court made out a prima facie case against the accused of having indulged in fraud of enormous magnitude.

Significantly, the court in its order observed,

"The courts cannot lose sight of the adverse impact such activities would have in the economy. It appears that a large number of cases have now emerged in different parts of the country, where such persons, with vested interests, have created a host of unscrupulous and bogus entities. These fake entities are then used for the purpose of indulging in issuances of false and fabricated invoices, without actual movement or supply of goods and services and without payment of any GST to the public exchequer, but for the purpose of claiming ITC, by defrauding the Revenue."

The bench also made an observation that the enormity of such devious activities touch the raw nerve of the economic system and strike at the root of the proper and effective the functioning of the GST regime, which has been set up with the laudable object of "One Nation, One Tax, One Market", by subsuming various earlier indirect levies such as Central Excise Duty, Service Tax, VAT etc.; expecting that goods and services would be cheaper and beneficial to the common man.

Further, the court observed,

"This court is well aware of the complications thrown in by the new GST regime and the problems posed in its implementation. It seems a countrywide cartel specializing in defrauding the GST system is operating to bring the economy to its knees. These complications created by the unscrupulous fraudsters, one would fear, could lead to the arrest of innocent businessmen and traders."

However, the Court didn't fail to note that a reading of the GST code would make it abundantly clear that it is rooted with several checks and balances to ensure that the initiation of prosecution or an arrest is to be made only after following due and elaborate process.

The court also appreciated the efforts put forth by the Governments to enhance the ease of doing business, to reduce the burden on the taxpayers, to make the procedures simpler with the use of new technologies.

The bench said,

"The Government officials have also been making all efforts to ensure efficient collection of tax, so that the burden on the genuine taxpayers can be reduced. All these efforts cannot be permitted to be sabotaged by such criminals who prey on the public exchequer. The textbook notion of tax collection needs to be overhauled by conjuring with emerging technologies so as to get rid of practical hiccups."

Considering the submissions made and taking into account a holistic view of the facts and circumstances in the instant case, the court observed that it "was not inclined to release the accused Petitioner on bail at this stage".

It may be noted that recently the same bench of Orissa High Court (Justice S. K. Panigrahi) had observed that "the offence of Money Laundering is nothing but an act of financial terrorism that poses a serious threat not only to the financial system of the country but also to the integrity and the sovereignty of a nation".

Case Details:

Case Title: Amit Beriwal v. State of Orissa

Case No.: BLAPL No. 2217/2020

Quorum: Justice S. K. Panigrahi

Appearance: Advocates S. Mohanty, A. K. Mohanty, H. K. Singh, R. P. Kar, A. N. Ray, N. Paikray, B. P. Mohanty, S. K. Rout (For the Petitioner); Advocate Sunil Mishra Addl. Standing Counsel (For the State)

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