Custodial Interrogation Not Mandatory in GST Fake ITC Cases Punishable up to 5 Years: Karnataka HC Grants anticipatory Bail [Read Order]

In a recent ruling by the Karnataka High Court, it has made clear that custodial interrogation is not mandatory in fake Input Tax Credit ( ITC ) cases under Goods and Services Tax ( GST ) which is punishable up to 5 years.

In this matter, the high court has granted anticipatory bail to accused - applicant Akram Pasha. Justice Shivashankar Amarannavar said that the statute itself allows to compound the offences which are punishable below 5 years.

It was observed that merely because allegations relate to economic offences, arrest cannot be treated as a default investigative tool.

An investigation was conducted by the Directorate General of GST Intelligence (DGGI), Bengaluru Zonal Unit, alleging fraudulent availment and passing of fake ITC through bogus invoices without actual supply of goods.

The applicant who is a proprietor of a steel trading concern was accused of availing ineligible ITC running into crores by channelling transactions through non-existent and cancelled entities. According to the department, it has issued multiple summons under Section 70 of the CGST Act, which finally led to the arrest.

The applicant, feared by the same, approached the high court for the anticipatory bail.

The applicant contended that offences come under Sections 132(1)(b) and 132(1)(c) of the CGST Act, for which the maximum punishment prescribed is imprisonment up to five years with fine.

Further, it was submitted that the GST Act does not bar the grant of anticipatory bail and that all transactions, returns, and records were already available on the GST portal.

The petitioner’s counsel also said that GST offences are compoundable under Section 138, and that the object of the statute is tax collection rather than arrest.

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Opposing the bail, the department argued that there was forgery of documents by the petitioner. And he has not paid the GST for transactions worth Rs.100 Crores. Therefore it was submitted that the petitioner is required for the custodial interrogation.

The court observed “Section 138 of the CGST Act further dilutes the heinousness of offences under the Act. The said section makes every offence under the Act compoundable except for certain circumstances which have been specified under different clauses to the proviso of section 138.”

In the matter of P. Chidambaram v. Directorate of Enforcement, the supreme court has ruled that the economic offences are grave in nature however the same does not mean that the bail needs to be denied in every case.

‘As per the scheme of the CGST Act, though the offence is of economic nature yet the punishment prescribed cannot be ignored to determine the heinousness of the offence. To conclude, in my view the offences under the Act are not grave to an extent where the custody of the accused can be held to be sine qua non, said the bench.

The court said that it is possible that the department might get the information as required if the petitioner co-operates with the authorities concerned and the arrest might not be necessary. Therefore, the anticipatory bail was allowed on payment of bond amount Rs. 5 lakhs with other usual bail conditions.

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