Dharmesh Kirtikumar Shah vs. Union Of INDIA

Facts

The applicant, Dharmesh Kirtikumar Shah, is seeking bail in connection with alleged offences under Sections 132(1)(b) and 132(1)(c) of the Central Goods and Service Tax Act, 2017. The Directorate of GST Intelligence (DGGI) investigated a syndicate involved in issuing fake GST invoices without actual supply of goods. The applicant, a Director of M/s. Dee Cubes Pvt. Ltd and Proprietor of M/s. Gloriana Jewels, allegedly availed ineligible Input Tax Credit (ITC) of Rs. 7,80,80,991/- from non-existing firms and further passed on illicit ITC to others. The total alleged evasion amounts to Rs. 9.33 crores. The applicant was arrested on March 18, 2022, after summons were not complied with and searches were conducted. His earlier bail applications were rejected by the lower courts.

Held

The Court held that the applicant has shown bonafides after his arrest by paying Rs. 2.90 crores (Rs. 2 crores through Electronic Cash Ledger and Rs. 90 lakhs by reversing alleged ITC) out of the total disputed amount of Rs. 9.33 crores. The Court noted that more than 10% of the disputed amount has been deposited. While acknowledging the seriousness of economic offences, the Court found no substantial material on record to substantiate the respondent's apprehension that the investigation qua the applicant is incomplete or that he has a tendency to flee from justice. The Court emphasized that detention for an indefinite period violates Article 21 and that the trial may take considerable time. Therefore, considering the facts and circumstances, including the applicant's clean record and the substantial payments made, the Court was inclined to release the applicant on regular bail. The Court noted that its observations do not amount to an opinion on the merits of the case. The rule was made absolute to the extent of granting bail.

Key Issues

1. Whether the arrest of the applicant was arbitrary and illegal, particularly in light of the alleged non-issuance of a demand notice and the stage of investigation, as argued by the petitioner? 2. Whether the substantial payments made by the applicant's company (Rs. 2 crores through electronic cash ledger and Rs. 40 lakhs by reversing ITC, totaling Rs. 2.90 crores) demonstrate bonafide and warrant the grant of bail, as contended by the petitioner? 3. Whether the applicant's alleged role in a well-organized bogus billing syndicate, involving a substantial amount of tax evasion (Rs. 9.33 crores), constitutes a grave economic offence that necessitates continued custody, as argued by the respondent Union of India? Petitioner's arguments: The applicant contends that no offence was committed, and the arrest was made without reasonable grounds and in disregard of mandatory provisions, as no demand notice was issued. The company has made significant payments towards the disputed ITC, demonstrating bonafide. The offence is compoundable, and substantial investigation is complete, making further custody unnecessary, especially given the applicant's clean record and societal roots. Reliance is placed on Sanjay Chandra Vs. CBI for the principle that bail is a rule. Respondent's arguments: The Union of India argues that the evasion of duty is substantial (Rs. 9.33 crores) and involves a larger conspiracy. The reversal of ITC is not acceptable as it was fraudulently received. The matter is still under investigation with missing links, and the applicant's custody is necessary to prevent him from fleeing and influencing witnesses. Reliance is placed on Y.S. Jaganmohan Reddy Vs. CBI for the gravity of economic offences.