GST Update No 171 on grant of bail when interest of revenue safeguarded

Under taxation laws, demand and recovery proceedings take considerable amount of time during which, the taxpayers might flee or adopt some measures to escape to avoid tax collections. To safeguard such practices on the part of taxpayers, powers are given to the authorities under GST Act, to provisionally attach the property of the concerned person during pendency of proceedings. The present update focuses on one of the Judicial Rulings delivered by Gujarat High Court in the case of NIRAJ JAIDEV ARYA V/S STATE OF GUJARAT. The analysis of the decision is subject matter of our present update. The petitioner is the partner of “Utkarsh Ispat LLP”, engaged in business of purchasing mild steel scrap and converting it into steel Billet. The authorities conducted search at the office premises of the LLP on the grounds of fictious purchases of Rs. 172.36 Crores from 24 fictious entities wherein it was alleged that input credit of Rs. 31.02 Crores was availed. The petitioner suffered from chest pain and admitted to Cancer Institute on being diagnosed with cancer. The Counsel of petitioner submitted all the documents related to goods along with their photographs. It was contended that since the petitioner was not at fault, he cannot be held liable. It was submitted that restrictions should be imposed on selling dealer and not on bona fide purchasing dealer failing which result in violation of principle of vicarious liability. Further, the recipient cannot examine each and every transaction of the seller who have illegitimately availed input tax credit. It was also contended that the department had attached immovable property of Rs. 44 crores for alleged tax evasion of Rs.41 Crores, which was more than the quantum of default alleged against the petitioner thereby adequately safeguarding the interest of the revenue. It was alleged that out of 270 firms of applicant, 41 were shell companies and that false documents were generated to claim ineligible input tax credit. The CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??5 statements of goods transporter were recorded to substantiate those goods were not actually transported to the premises of the applicant, while they were tested in laboratories, delivered at the premises and e-way bill was generated thereof. The Public Prosecutor contended that when the inquiry was carried out on the purchases made by the said firm, it was found that the said firm has shown voluminous purchase transaction from the fictious entities and consequently, wrongful availment of ineligible input tax credit. Therefore, a huge cartel working in collusion with ill intention of causing huge loss to the Government Exchequer. It was stated that the appellant has committed grave economic offence to the country which is detrimental to the financial health of the county. Reliance was placed on the decision of the Apex Court in the case of Nimmagadda Prasad v. C.B.I., (2013) 7 SCC 466. The prosecutor submitted that everything was happening under the knowledge of the petitioner and during the search proceedings no cooperation was rendered by him. Therefore, it was submitted that since the petitioner is financially sound, his release may hamper the investigation and therefore, application of release is to be rejected. The court held that the present case is covered under Section 132 of CGST Act, 2017 which states that the said offence is compoundable offence. It was stated that although the offence has resulted in loss of Exchequer still the seriousness of charge is not only the relevant factor which is to be considered while dealing with the bail applications. The other factors are also to be considered. Reliance was placed on the decision of Apex Court in the case of P. Chidambaram v. Directorate of Enforcement, (2020) 13 SCC 791. During arguments, it was pointed that the property attached belonging to the applicant was in excess of the amount alleged evasion of input tax credit. Further, the applicant was also suffering from the cancer. He was granted regular bail subject to certain conditions and the appeal stands allowed. The above decision is a favourable decision for recipients levelled with the charge of wrongful availment of input tax credit on account of fake invoice racket. The above decision imparted is in alignment with the directions issued by CBIC vide Circular no. CBEC20/16/05/20211-GST/359 dated 23.02.2021 to the officers to exercise CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??6 utmost caution and prudence in attachment of property of the taxpayer. It was also directed that the value of property attached provisionally should not be excessive. As it is settled principle of Law that lower authorities are bound by the directions and guidelines issued by higher authorities, the revenue department is bound by the guidelines issued by CBIC. Reliance can be placed on the decision of Apex Court in the case of Dhiraj Chemicals. The guidelines issued by CBIC should be strictly complied with so as to protect revenue leakage on one side and reducing unnecessary harassment of genuine taxpayers, thus creating a winwin situation.

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GST Update No 171 on grant of bail when interest of revenue safeguarded

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