Varun Rakesh Bansal vs. State Of Gujarat

Held

The Court allowed the application for regular bail. Regarding the procedural violation, while not explicitly decided, the Court noted that the department had sufficient time to investigate and gather evidence prior to filing the complaint. On the merits of the case, the Court acknowledged the alleged fraudulent ITC claim creating a liability for the government but emphasized the accused's right to defend their case. The Court observed that the department had conducted necessary investigations during the applicant's judicial custody, collected documentary evidence, and filed a complaint. The Court found that further custody of the applicant was not necessary as the department could continue its investigation. The Court also noted that the property attached was valued at Rs. 6,17,21,463/-, the applicant had paid Rs. 50 Lakhs, and Section 138 of the Act provided for compounding of offences. The Court concluded that both sides would have an opportunity to prove their case in trial and that the applicant's further custody was not required. The ratio decidendi is that in cases where significant investigation has been completed, documentary evidence is collected, and the accused has cooperated to some extent (e.g., by making payments), and the trial is likely to be prolonged, granting bail is appropriate, especially when procedural compliances are questioned and compounding of offences is a possibility.

Facts

The applicant, Varun Rakesh Bansal, a former director and authorized representative of Active Metals Pvt. Ltd., sought regular bail. The State Tax Officer, Enforcement Division, Rajkot, arrested him on July 28, 2022, under Section 69(1) read with Section 132(1)(c) of the Gujarat GST Act, 2017, and CGST Act, 2017. The arrest memo alleged that the applicant, as director, was involved in showing fake purchases amounting to Rs. 59.55 crores from 10 fictitious entities, leading to wrongful availment of Input Tax Credit (ITC) of Rs. 10.71 crores. This followed a search on June 20, 2022, and provisional attachment of company assets on July 22, 2022, under Section 83 of the Acts. The applicant had previously paid Rs. 50 Lakhs, and the company's property was attached, valued at Rs. 6,17,21,463/-.

Key Issues

1. Whether the arrest of the applicant was in violation of the mandatory procedure under Section 69 of the CGST Act, 2017, specifically regarding the requirement of authorization by the Commissioner? (Mixed law and fact) 2. Whether the allegations of availing wrongful Input Tax Credit are substantiated by evidence, considering the applicant's contention that documentary evidence including transportation details and RTGS payments were provided, indicating movement of goods and actual transactions? (Mixed law and fact) 3. Whether Section 132(1)(c) of the CGST and GST Act is applicable given that the alleged transactions with the 10 firms occurred before the cancellation of their registrations and were supported by regular bills, purchase numbers, E-way bill details, and transport information? (Mixed law and fact) Petitioner's arguments: Ms. Jani argued that the arrest procedure under Section 69 was not followed as the Commissioner's authorization was not provided. She contended that the ITC claim was not baseless, as documentary evidence of goods movement, including transportation and RTGS payments, was submitted. She also argued that Section 132(1)(c) was inapplicable as transactions predated registration cancellations and were supported by proper documentation. She relied on Arnesh Kumar Vs. State of Bihar & Anr. and P. Chidambaram v. Directorate of Enforcement. Revenue's arguments: Mr. Trivedi argued that the applicant admitted to managing purchase transactions and showing fake purchases, resulting in huge revenue loss. He stated that the company showed fake purchases from 10 fictitious entities, leading to wrongful ITC availment, and that these were paper invoices without actual movement of goods. He further submitted that money was routed through Angandiyas, and the 10 companies had their registrations cancelled due to non-existent addresses or wilful misstatement. He also pointed out discrepancies in dispatch places and lack of vehicle movement in some cases.