Union Of INDIA vs. Gautam Garg S/O Shri Rajesh Garg

Held

The High Court held that the Additional Sessions Judge erred in granting bail to Gautam Garg. The Court found that the lower court's analysis suffered from perversity by focusing on whether Gautam Garg was a manager of the three companies, which is not a prerequisite for prosecution under Section 132 of the CGST Act. The amended Section 132, with the inclusion of "causes to commit," clearly aims to apprehend individuals who facilitate companies in generating fake invoices or illegally availing input tax credit. The Court noted that the lower court ignored incriminating material, including documents and electronic evidence, and failed to appreciate that Gautam Garg wrongly availed ITC amounting to Rs. 8.59 crores by generating fake invoices, causing wrongful gain to the companies and loss to the government. The Court reiterated that economic offences are class apart and require a different approach in bail matters, which the lower court failed to consider. Furthermore, the Court held that statements recorded under Section 70 of the CGST Act are admissible in evidence as the authority recording the statement is not a police officer, thus not hit by Section 25 of the Evidence Act. The bail granted to Gautam Garg was cancelled, and he was directed to surrender before the trial court by December 13, 2024.

Facts

The Union of India, through the Principal Additional Director General of GST Intelligence, filed an application for cancellation of bail granted to Gautam Garg. The bail was granted by the Additional Sessions Judge No.2, Jaipur Metropolitan-II, on November 3, 2023, under Sections 132(1)(c) and (f) of the CGST Act. The petitioner argued that the lower court erred in granting bail, citing observations that Gautam Garg's statement was not recorded under normal circumstances, there was no evidence of him being a manager in certain firms, no electronic evidence was found at his residence, and the department could not produce reasons for his arrest. The petitioner contended that Gautam Garg, in his statement under Section 70 of the CGST Act, admitted to collecting fake bills from non-existent firms for three companies, M/s Gurbax Rai Cotton Industries, M/s Gurbax Rai and Sons, and M/s Gurbax Rai Praveen Kumar, without supplying goods. Rs. 4.00 lacs cash, pre-signed chequebooks, weighbridge receipts, and WhatsApp group evidence of GST evasion were recovered from his residence. The total GST evasion was stated to be Rs. 8.59 crores.

Key Issues

1. Whether the learned Additional Sessions Judge erred in granting bail to the respondent, Gautam Garg, by misinterpreting the provisions of Section 132 of the CGST Act and overlooking the evidence presented by the petitioner? Petitioner's arguments: The petitioner contended that the lower court wrongly observed that there was no evidence of Gautam Garg issuing or receiving good-less invoices. They argued that the amended Section 132 of the CGST Act, which includes "causes to commit," makes individuals who enable companies by generating fake invoices or aiding in illegal input tax credit (ITC) availment liable. The petitioner asserted that Gautam Garg's statement under Section 70 of the CGST Act is admissible evidence. They relied on the Telangana High Court judgment in P. V. Ramana Reddy Vs. Union of India, upheld by the Supreme Court, which stated that reasons to believe recorded in the file are sufficient for arrest under Section 69(1) of the CGST Act, and that economic offences require a different approach in bail matters. The petitioner also argued that the lower court misconstrued Section 19 of PMLA with Section 69 of CGST Act and that the legality of arrest should not be the primary focus during bail consideration. Respondent's arguments: The respondent argued that the memo of arrest lacked grounds for arrest and relied on an Allahabad High Court judgment. They also argued that only individuals engaged in the company's management are accountable for prosecution and that the statement recorded under Section 70 of the CGST Act cannot be used for bringing out a prima facie opinion for indulgence in crime.