Anticipatory Bail Granted to CFO in GST Case

The Bombay Sessions Court has granted the anticipatory bail on the ground that the cancellation of Goods and Service Tax (GST) registration of the supplier is under challenge in appeal.

The bench of Additional Sessions Judge, V. M. Pathade observed that the applicant accused has cooperated in the ongoing investigation as directed by this court and he is ready and willing to cooperate further in the investigation.

The applicant accused is Chief Financial Officer (CFO) of a private limited company. The directors were arrested for alleged offences under section 132(1)(i) of the CGST Act. It was contended by the prosecution that the assessee has received invoices without receipt of inputs and sold the same goods without movement of goods and it was a case of bogus billing. The GST registration of the supplier has been cancelled with retrospective effect. The offence is a non-bailable offence.

The CFO of the company, being the person in charge of the affairs of the company was also sought to be arrested. Hence, anticipatory bail application was filed by the applicant accused.

The applicant contended that as per the remand report the total input credit availed is Rs. 3.23 crores and output tax credit showed is Rs. 3.17 crores. The department however wrongly clubbed both these amounts and inflated the alleged tax evasion to more than Rs. 5 crores so that it can take action under the provisions of M.G.S.T. Act. If the said amounts are considered distinct, the offence in question is bailable. Even if the supplier’s registration is cancelled with retrospective effect, the input tax credit cannot be denied to the purchasing dealer. Further the GST department is bound by its own circular bearing No. 171/22/2022, dated 6th July 2022 which states that in respect of such transaction no tax can be demanded from registered persons and at the best only penalty can be imposed. The present case does not qualify for arrest of the applicant. The allegations made against the applicant lack material substance. The applicant will not misuse the liberty and will not tamper the evidence. He is ready and willing to abide by the conditions that may be imposed by this court while granting him bail.

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The applicant relied on the order passed by the Bombay High Court in Anticipatory Bail Application No. 3635 of 2022 Neha Agrawal and Anr. Vs. The Commissioner of CGST and Central Excise Mumbai Central and Ors. Mr. Pathak and the decision of Supreme Court in the case of the State of Gujarat etc. Vs. Choodamania Parmeshwaran Iyer and Anr. etc. in which it was held that the position of law is that if any person is summoned under Section 69 of the CGST Act, 2017 for the purpose of recording his statement, the provisions of Section 438 of Criminal Procedure Code, 1908 cannot be invoked. We say so as no First Information Report gets registered before the power of arrest under Section 69(1) of the CGST Act, 2017 is invoked and in such circumstances, the person summoned cannot invoke Section 438 of the Code of Criminal Procedure for anticipatory bail. The only way a person summoned can seek protection against the pre-trial arrest is to invoke the jurisdiction of the High Court under Article 226 of the Constitution of India.

The department contended that the applicant has committed offences punishable under sub Section (1) of Section 132 of MGST Act 2017 / CGST Act 2017 as the amount of Input Tax Credit (ITC) wrongly utilized and tax credit passed is Rs. 6.40 crores and as the offences are cognizable and non-bailable, the Joint Commissioner of State Tax, Investigation Mumbai has authorized the officer to arrest the offenders i.e. the Directors. TheDirectors committed the offences by using invoices without supply of goods or services or both in violation of the provisions of the GST Act or the rules made there under leading to wrongful availment or utilisation of ITC and passing on tax credit. The taxpayer has affected inward supplies of net Rs. 64.64 crores without actual movement of goods or services, leading to wrongful availment or utilisation of non genuine ITC at Rs. 3.23 crores and outward supplies of 62.42 crores, leading to wrongful passing and utilisation of tax credit at Rs. 3.17 crores.

The court directed the applicant to be released on bail on his executing PR Bond in the sum of rupees one lac with one or more surety/sureties in the like amount subject to various conditions.

Firstly, the applicant shall cooperate with the investigation and appear before the investigating agency i.e. the respondent department as and when directed.

Secondly, he shall not tamper with the prosecution evidence and give any threat, promise or inducement directly or indirectly to the persons acquainted with the facts of the case.

Thirdly, the applicant shall regularly attend the proceeding before the Jurisdictional Court.

Fourthly, the applicant shall not leave India without prior permission of the Jurisdictional Court and prior intimation to the investigating agency.

Lastly, the applicant shall keep the investigating agency and the Jurisdictional Court updated of any change in his contact details, residential address etc. within 15 days of such change or alteration.