Essa Ismail Merchant vs. Union Of INDIA And Ors.

Held

The Court held that there was sufficient material on record to prima facie infer the applicant's involvement in the offense punishable under Section 132(1)(b), 132(1)(c), and 132(1)(l) of the Central Goods & Services Tax Act, 2017. The Court noted that the applicant's firm had issued invoices to M/s Kushal Ltd. for a significant amount with a substantial GST liability, and that the investigation revealed that invoices were generated without actual goods delivery. Furthermore, documents provided by the applicant, including lorry receipts, were found to be doctored, and claims of procurement from other companies were unsubstantiated as those firms were found not to be in existence. Statements from transporters also contradicted the applicant's claims. The wrongful availment and passing of input tax credit amounted to over Rs 69 crores. Consequently, the Court found no case for pre-arrest bail and rejected the application, vacating the ad-interim order of protection.

Facts

The applicant, Mr. Essa Ismail Merchant, Managing Director of Advanced Computers and Mobiles India Private Limited, sought anticipatory bail. The prosecution alleged that the applicant illegally availed and passed on Central Excise and GST benefits. Summons were issued on May 15, 2019, for an inquiry into tax evasion. The applicant claimed to have attended 18 inquiry sessions, cooperated with the investigation, paid appropriate tax on an income of Rs 8 crores shown in ITC returns, and provided all necessary documents. The respondent authorities opposed the bail, stating there was prima facie material indicating the applicant's involvement in fraudulent business transactions and wrongful availment of GST benefits. The investigation revealed that M/s Kushal Ltd. received GST credits based on invoices without actual goods delivery, and the applicant's firm issued invoices to M/s Kushal Ltd. for over Rs 51 crores, with a GST liability of over Rs 8 crores.

Key Issues

1. Whether the applicant is entitled to pre-arrest bail in light of the allegations of illegal availment and passing on of Central Excise and GST benefits, and the material collected by the respondent authorities, particularly concerning alleged fraudulent business transactions and wrongful availment of input tax credit, as per Section 132(1)(b), 132(1)(c), and 132(1)(l) of the Central Goods & Services Tax Act, 2017? Petitioner's Arguments: The applicant argued that he had cooperated with the investigation by attending 18 inquiry sessions, providing all requested accounts and documentary evidence, and had paid appropriate tax on declared income. He contended that custodial interrogation should not be subjected unless intentional tax evasion with criminal intent is found after auditing accounts. Revenue's Arguments: The respondent authorities argued that there was sufficient material on record to prima facie infer the applicant's involvement in the offense, specifically in creating fraudulent business transactions to avail GST benefits. They highlighted that invoices were generated without actual goods delivery, and documents provided by the applicant, such as lorry receipts, were found to be doctored.