Neha Agrawal Proprietor Of Shreenathji Enterprises And Anr. vs. The Commissioner Of CGST And C.Ex. And Ors.

Held

The Court held that the case stands on a different footing due to a significant development: the quashing of the order cancelling the registration of M/s. Sunshine Traders. The Court noted that the cancellation order was retrospective from November 26, 2020, and the show cause notice was issued after the summons to the applicants. The Division Bench had quashed the cancellation due to lapses in following principles of natural justice. The Court found it difficult to accept the revenue's submission that the applicants cannot draw mileage from this order, as the alleged availment of ITC cannot be said to be from an entity whose registration was already cancelled. Since a major component of the alleged wrongful ITC is attributed to M/s. Sunshine Traders, the restoration of its registration bears upon the revenue's case. Furthermore, the applicants had cooperated with the investigation, their statements were recorded, and relevant documents collected. Given that the applicants have been protected since December 2022 and the sustainability of the allegation regarding a major component of ITC is debatable, the Court found custodial interrogation unwarranted. The applicants also have roots in society, making the possibility of fleeing remote. Consequently, the interim bail was made absolute.

Facts

The applicants, Neha Agrawal and her husband, are facing potential arrest in connection with alleged offences under Sections 132(1)(b) and (c) read with clause (i) of the CGST Act, 2017. The allegations stem from the wrongful availment of input tax credit (ITC) amounting to Rs. 9,08,24,743/-. Specifically, the applicants are accused of availing ITC using invoices without actual supply of goods, particularly from M/s. Sunshine Traders, a supplier whose registration was cancelled. The applicants had previously approached the High Court for anticipatory bail, and an interim order was granted directing the authorities to provide 72 hours' notice before arrest. The applicants appeared before the investigating officer, and their statements were recorded. They have also paid Rs. 88 Lakhs partly in cash and partly in reverse credit.

Key Issues

1. Whether the cancellation of the registration of M/s. Sunshine Traders, a major supplier from whom the applicants allegedly availed ITC, impacts the case against the applicants, particularly in light of the High Court's subsequent quashing of that cancellation order? (Section 132 of the CGST Act, 2017). Petitioner's arguments: The applicants argued that the cancellation of M/s. Sunshine Traders' registration was quashed by this Court, meaning a significant portion of the alleged wrongful ITC (Rs. 7.74 Crores) cannot be pressed against them. They contended that the wrongful availment of ITC would fall below the Rs. 5 Crores threshold, making the offence bailable under Section 132(4) of the CGST Act. They also highlighted their full cooperation with the investigation and the substantial payment made. Revenue's arguments: The revenue argued that the applicants have not made full and true disclosure and that custodial interrogation is indispensable for unearthing the fraud, given the huge quantum of wrongly availed ITC. They relied on previous High Court orders rejecting anticipatory bail in similar economic offence cases, citing Dev Adania, Suresh Hukmat Rai Jadhwani, and Hira Govind Bhatia.