Karnataka High Court

State Of Karnataka vs M Vamsidhar on 28 March, 2022

Bench: V Srishananda

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      IN THE HIGH COURT OF KARNATAKA AT BENGALURU

         DATED THIS THE 28TH DAY OF MARCH 2022

                        BEFORE

          THE HON'BLE MR. JUSTICE V. SRISHANANDA

          CRIMINAL PETITION No.6607/2021

BETWEEN
STATE OF KARNATAKA
BY SR.INTELLIGENCE OFFICER,
DIRECTORATE GENERAL OF GOODS
AND SERVICE TAX INTELLIGENCE,
BENGALURU ZONAL UNIT,
NO.1122, S.P.ENCLAVE,
ADJACENT TO KARNATAKA BANK,
K.H.ROAD, SHANTHINAGAR,
BENGALURU-560 027.
                                            ...PETITIONER
(BY SRI DESHPANDE AMIT ANAND, ADVOCATE)

AND

M VAMSIDHAR
S/O M.RAVINDRA PRASAD,
AGED ABOUT 39 YEARS,
DIRECTOR,
M/S. UNITED GLOBAL CORPORATION LTD.,
NO.399, WHITE GOLD, 1ST FLOOR,
24TH CROSS, BANASHANKARI 2ND STAGE,
BENGALURU-560 070.
                                            ...RESPONDENT
(BY SRI J.K.MITTAL FOR
SRI VIKRAM UNNI RAJAGOPAL, ADVOCATES)

     THIS CRIMINAL PETITION IS FILED UNDER SECTION 439(2)
OF CR.P.C., PRAYING TO QUASH THE ORDER DATED 21.12.2020
PASSED BY THE LEARNED LXI ADDITIONAL CITY CIVIL AND
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SESSIONS    JUDGE   (CCH-62)  BANGALORE    PASSED     IN
CRL.MISC.NO.7673/2020 BY CANCELLING THE ANTICIPATORY
BAIL GRANTED TO THE RESPONDENT BY ALLOWING THIS CRL.P.

      THIS CRIMINAL PETITION COMING ON FOR ORDERS, THIS
DAY, THE COURT MADE THE FOLLOWING:

                           ORDER

Heard Sri Amit Anand Deshpande, learned counsel for

the petitioner and Sri J.K. Mittal, learned counsel for the

accused/respondent and perused the records.

2. The present petition is filed under Section 439(2) of

Cr.PC. with the following prayer:

"The Petitioner, therefore, most respectfully prays that this Hon'ble Court be pleased to:

(i) quash the order dated 21/12/2020, passed by the learned LXI Addl. City Civil and Sessions Judge (CCH-62) Bengaluru, passed in Crl.Misc.No.7673/2020 by canceling the anticipatory bail granted to the respondent by allowing this criminal petition, in the interest of justice."

3. Brief facts of the care are as under:

An action was initiated by the petitioner herein against

the respondent for the violation of the provisions of Section

132(1) of the Central Goods and Service Tax, 2017

[hereinafter referred to as the CGST, for short].

4. The petitioner was called by issuing a notice by the

adjudicating authority under the Act. Fearing his arrest at

the hands of the adjudicating authority, the respondent

approached the learned District Court for grant of bail under

Section 438 Cr.PC., wherein, the learned District Judge after

hearing the parties, considering the rival contention by order

dated 21.12.2020 allowed the request made by the petitioner

and granted anticipatory bail and thereafter petitioner

followed the conditions stipulated in the order dated

21.12.2020. It is submitted at the bar, that the investigation

is now complete and a show cause notice was issued for the

violations under the Act.

5. When the matter stood thus, on 23.08.2021, the

present petition came to be filed seeking cancellation of the

bail. In the petition, following grounds have been raised:

"It is respectfully submitted that at the outset, the aforesaid order dated 21/12/2020 in Crl. Misc. No.

7673/2020 of the Hon'ble Court of the Prl. City Civil and Sessions Judge, Bangalore (CCH 62), granting the Respondent on anticipatory bail, is unjustified, unlawful and not maintainable.

In this regard, it is respectfully submitted that the learned Trial Judge, Bangalore has failed to consider the seriousness of the economic offence committed by the Respondent. Further, it is respectfully submitted that the Trial Judge did not apply the various judicial pronouncements governing disposal of application seeking anticipatory, therefore the impugned order is liable to be quashed.

From the evidence collected so far, that the GST invoices, have been issued by the different fictitious registrations of M/s Inkuat Infrasol Private Limited, M/s SLSNA Buildinfra Private Limited and M/s GUFSL Consinfra Private Limited to the Respondent, without the actual supply of services, to the tune of Rs 21,19,12,003/- (Rupees Twenty One Crore Nineteen Lakh Twelve Thousand and Three only) (IGST Rs. 8,03,50,44/-; CGST Rs. 6,57,80,980/-; SGST - Rs. 6,57,80,980/- & Cess NIL), as reflected in the GSTR- 2A of the Respondent, to enable the Respondent to avail fraudulent Input Tax Credit (ITC) on the strength of such fake invoices. It is observed that the Respondent in his statement dated 12/11/2020 has inter alia admitted that they have received only

invoices of inward supply and have not received any services from the aforesaid M/s Inkuat Infrasol Private Limited, M/s SLSNA Buildinfra Private Limited and M/s GUFSL Consinfra Private Limited (answer to question 5 of statement dated 12/11/2020). Further, it is observed that the Respondent in his statement dated 12/11/2020 has admitted the fact of irregular availment of credit from the aforesaid fictitious entities and have paid an amount of Rs.

8,26,90,627/- (Rupees Eight Crore Twenty Six Lakh Ninety Thousand Six Hundred and Twenty Seven only), through DRC-03 all dated 12/11/2020, as part defrayment of fraudulent ITC availed by them from January 2019 to October 2020, (answer to question 18 of statement dated 12/11/2020). Based on the statements recorded and documentary evidence examined, prima facie is made out in passing of fake ITC by the purported, non-existent, non-functional registrations of M/s Inkuat Infrasol Private Limited, M/s SLSNA Buildinfra Private Limited and M/s GUFSL Consinfra Private Limited, which were merely a tool to enable the Respondent to avail ITC fraudulently through their entity, M/s United Global Corporation Ltd., to defraud the revenue, thereby resulting in loss of Rs 21,19,12,003/- (Rupees Twenty One Crore Nineteen Lakh Twelve Thousand and Three only) to the Government exchequer. Or else, M/s United Global Corporation Ltd. would have paid 21,19,12,003/- (Rupees Twenty One Crore Nineteen

Lakh Twelve Thousand and Three only) in cash to the Government as GST liability.

It is humbly submitted that the aforesaid act of the Respondent in availing fraudulent ITC on the strength of such fake invoices, contravenes the provisions of Section 16(2) of CGST Act, 2017, in as much as, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, he is in possession of a tax invoice or such other tax paying documents as may be prescribed and he has received the goods or services or both.

It is humbly submitted that as already stated in the facts of the case, when Sri Kamlesh Mishra in his statement dated 05/11/2020 had admitted the fact of creation of the bogus firms, M/s Inkuat Infrasol Private Limited, M/s SLSNA Buildinfra Private Limited and M/s GUFSL Consinfra Private Limited and issue of fake invoices thereof by the said entities to the company of the Respondent and the admittance by the Respondent in his statement dated 12/11/2020 of the availment of ITC on the strength of invoices issued by M/s Inkuat Infrasol Private Limited, M/s SLSNA Buildinfra Private Limited and M/s GUFSL Consinfra Private Limited, an offence under Section 132(1)(c) of the CGST Act, 2017 had been committed, which is punishable with imprisonment

for a term which may extend to five years and with fine in terms of clause (i) of sub-section of Section 132 of the CGST Act, 2017.

It is humbly submitted that in terms of Section 132(5) of the CGST Act, 2017, the offences specified in Section 132(1)(c) of the CGST Act, 2017and punishable under clause (i) of that sub-section of Section 132 of the CGST Act, 2017, shall be cognizable and non-bailable. It is humbly submitted that as a corollary, in terms of Section 132(5) of the CGST Act, 2017, the aforesaid act of the Respondent appears to be cognizable and non-bailable.

It is humbly submitted that issue of fake invoicing is a serious menace that threatens the very foundation of the country's economy. Multiple entities are created as layers to facilitate the transfer of irregular credit to the beneficiary units. The beneficiary units avail and utilize the illegal credit for payment of GST, thus compensating for the cash payment of GST, which is detrimental to the collection of taxes due. Both the Central and State Governments are at huge loss due to the prevalence of such transactions involving bogus invoices without actual supply of goods/services.

The learned Trial Judge has seriously erred in granting anticipatory bail to the respondent who is

involved in commission of huge economic offence and therefore there is a need for custodial interrogation of the respondent and the offences are grave and serious and as such the anticipatory bail could not have been granted. Seriousness of the offence is one of the circumstances for rejection of application seeking anticipatory bail.

It is humbly submitted that the Trial Judge has failed to look into the seriousness of the offence and thereby granted the anticipatory bail to the respondent in violation of the binding judgments rendered by the Hon'ble Supreme Court and various other High Court. Further the Hon'ble Sessions Court has not considered the decision relied upon by the department during hearing, related to Section 438 of CrPC, wherein the apex court has held that the anticipatory bail is to be granted on the satisfaction of the court in exceptional circumstances; bail is not to be granted as a rule, and hence the accused is not entitled to anticipatory bail in economic offences has held by the Hon'ble Supreme Court in the case of Directorate of Enforcement Vs Ashok Kumar Jain, AIR 1998 SC631.

In the instant case, it is humbly submitted that a huge amount of fraudulent availment of ITC is involved and the Respondent is involved in gross violation of provisions of the GST Act, which is liable

for punishment under Section 132(5) of the CGST Act, 2017, for a term which may extend to five years and with fine. Further, Section 70 of the CGST Act, 2017 has to be mandatorily complied with.

It is respectfully submitted that the learned Trial Court has not fully considered the various aspects that need to be considered, while granting bail in cases such as the instant case, where crores of GST due to the exchequer have been siphoned off by the Respondent by engaging in an extensive and deep- rooted conspiracy along with several other co conspirators. It is further submitted that the activity, the Respondent is engaged in, along with other co- conspirators, has been identified across the country by the investigating agencies of the Department after the introduction of GST. It is submitted that since the GST law is at a nascent stage, such illegal activities have to be nipped in the bud, failing which there is a risk that the entire GST system itself would collapse. The learned Trial Court, has, however, failed to consider any of the above aspects and passed the impugned order. Accordingly, it is respectfully submitted that the said order is perverse and is passed on entirely irrelevant considerations and is liable to be set aside by this Hon'ble Court.

It is humbly submitted that incontrovertibly, economic offences have serious repercussions on the development of the country as a whole.

In the above regard, it is submitted that the Hon'ble Apex Court in the case of State of Gujarat Vs Mohanlal Jitamalji Porwal and Anr., in its Order dated 26/03/1987 in Criminal Appeal No. 74/1978 had observed as follows

5. ...............The entire Community is aggrieved if the economic offenders who ruin the economy of the State are not brought to books. A murder may be committed in the heat of moment upon passions being aroused. An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community. A disregard for the interest of the Community can be manifested only at the cost of forfeiting the trust and faith of the Community in the system to administer justice in an even handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National Interest.

It is humbly submitted that in the case of Y.S. Jagan Mohan Reddy Vs CBI, the Hon'ble Supreme Court in its Order dated 09/05/2013 in Criminal Appeal No. 730/2013 (arising out of SLP (Crl.) No. 3404/2013) had observed as follows.

15) Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offence having deep rooted conspiracies and involving huge loss of public funds needs to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country.

16) While granting bail, the court has to keep in mind the nature of accusations, the nature of evidence in support thereof, the severity of the punishment which conviction will entail, the character of the accused, circumstances which are peculiar to the accused, reasonable possibility of securing the presence of the accused at the trial, reasonable apprehension of the witnesses being tampered with, the larger interests of the public/State and other similar considerations.

It is humbly submitted that in the case of Nimmagadda Prasad Vs CBI, the Hon'ble Supreme Court in its Order dated 09/05/2013 in Criminal Appeal No. 728 of 2013 (Arising out of SLP (Crl.) No. 9706 of 2012) had observed as follows.

27.While granting bail, the court has to keep in mind the nature of accusations, the nature of evidence in support thereof, the severity of the punishment which conviction will entail, the

character of the accused, circumstances which are peculiar to the accused, reasonable possibility of securing the presence of the accused at the trial, reasonable apprehension of the witnesses being tampered with, the larger interests of the public/State and other similar considerations. It has also to be kept in mind that for the purpose of granting bail, the Legislature has used the words "reasonable grounds for believing" instead of "the evidence" which means the Court dealing with the grant of bail can only satisfy it as to whether there is a genuine case against the accused and that the prosecution will be able to produce prima facie evidence in support of the charge. It is not expected, at this stage, to have the evidence establishing the guilt of the accused beyond reasonable doubt.

28.Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offence having deep rooted conspiracies and involving huge loss of public funds needs to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and there by posing serious threat to the financial health of the country.

In view of the above proposition of law by the Hon'ble Supreme Court the impugned order cannot

be sustained and the anticipatory bail granted is liable to be cancelled.

In view of the Judgment rendered in P.V. Ramana Reddy Vs. State of Telangana by the Hon'ble Supreme Court respondent is not entitled to any relief seeking anticipatory bail.

It is submitted that in a similar matter, against the Hon'ble Karnataka High Court's Order dated 11/06/2020 in Criminal Petition No. 2419/2020, in the case of Hanumanthappa Pathera Lakshmana Vs Senior Intelligence Officer, DGGSTI, Bengaluru, the Hon'ble Supreme Court had admitted the appeal of Department in Special Leave to Appeal(Crl.) Nos. 5536/2020 and the matter is pending consideration.

It is humbly submitted that what was originally a fake invoice would remain null and void forever and it would not acquire legal validity at any time by whatever process of sanctification subsequently done on it. Availing ITC on a fake invoice is antithesis to legality and law cannot afford to validate the ITC availed on the strength of a fake invoice. It is submitted that in view of the reliance placed on the above judicial pronouncements, the impugned order is liable to be set aside and the same is bad in law.

The impugned order has resulted in stifling the prosecution case and it has resulted in miscarriage of

justice and the respondent herein after taking anticipatory bail has not at all appearing before the Trial Court and since then has been absconding. These important aspects of the Accused running from away from justice if granted the anticipatory bail have not been considered at all in the impugned order. In the impugned order there is no detailed discussion with regard to impact of grant of anticipatory in such serious offences. Therefore the impugned order is liable to be set aside.

The Petitioner reserves liberty to urge such other grounds or to produce such other documents at the time of hearing."

6. Re-iterating the above grounds Sri A A Deshpande

sought for allowing the petition. In support of his

arguments, he relied on the following judgments:

1. 2022ALLMR(Cri) 739 Centrum Financial Services Ltd Vs.NCT

2. 2018 Cri LJ 416 (SC) Rohit Tandon VS Enforcement Directorate

3. AIR 2017 SC 5398 Anil Kumar Yadav Vs State (NCT) of Delhi

4. 2019(4) KCCR 3913

7. Per contra, Sri Mittal, learned counsel for the

respondent opposes the petition. Sri Mittal, learned counsel

re-iterating the facts stated in the statement of objections

contended that the grant of anticipatory bail is at the

discretion of the learned District Judge and the conditions

imposed by the learned District Judge has been implicitly

obeyed by the petitioner and as rightly submitted by the

learned counsel for the petitioner, the investigation is

completed and there is a total co-operation from the

respondent for the investigation as well and show cause

notice came to be issued, and it has been suitably replied by

the respondent.

8. Be it what it may. In view of the rival contention of

the parties, this court perused the materials on record

meticulously.

9. In the case on hand, no doubt in paragraph 11 of

the order dated 21.12.2020 passed in Crl. Misc.

No.7673/2020, the learned District Judge has observed as

under:

11. In P.V.Ramana Reddy V/s. Union of India case, the Telangana High Court has held that in article 226 of the constitution of India the pre-arrest bail is maintainable. But on the merit both was dismissed as huge amount of tax evasion was involved in that case. The Hon'ble High Court has specifically held that when there is no specific bar for entertaining anticipatory bail petition under Section 438 of Cr.P.C., and when there is no such provision under Section 70 of CGST Act under Section 70 of CGST Act the officer has power to summon any person if necessary either to give evidence or to produce document or any other enquiry and said enquiry shall be considered as judicial proceedings. Under Section 132 of the act the authorized person can arrest the person and he can produce him before the Magistrate within 24 hours. Sub Section 69(1) of the CGST Act empowers that whether a person is arrested under Sub Section (1) for any offence stated in 132 shall be admitted to bail. It has been specifically held that Section is cognizable and non bailable and punishable up to five years and fine and when a person apprehends the arrest in the hands of the respondent under Section 69(1) of CGST Act and assessee has got a statutory right to seek anticipatory bail under Section 438 of Cr.P.C. Hon'ble High Court has specifically held that the petition under Section 438 of Cr.P.C., is maintainable under the Act. Further it is specifically held that while disposing of bail application the amount involved in evading the tax

and other relevant provisions will have to be kept in mind and if it is established that there is apprehension of arrest then Section 438 can be involved and bail can be granted by imposing condition."

10. On bare perusal of the said paragraph, it is seen

that the learned District Judge has placed his reliance on the

order passed by this court and decided to grant

anticipatory bail. Time and again the superior courts of the

country have cautioned that whenever a particular judge

dealing with a particular petition, following the dictum of

already decided case, it is expected of that court which

follows the dictum to spell atleast in few sentences as to how

the order relied upon by the court in either granting the

prayer or rejecting the prayer are applicable to the facts of

the case. Unfortunately the said discussion is absent in the

order passed by the learned District Judge in

Crl.Misc.7673/2020.

11. Sri Deshpande, learned counsel for the petitioner

took serious objections for the same and stated that the

learned Judge has not even considered the merits of the

matter inasmuch as the offence alleged against the

respondent is an economic offence and in such

circumstances the learned Judge while granting the prayer or

rejecting the prayer must discuss about the nature of offence

and the possibility and the consequences that would arise

either granting or rejecting the prayer. Such a discussion is

not forthcoming in the order and the order came to be

passed in a very casual manner which has resulted in

scuttling the fair investigation process and therefore, sought

for cancellation of bail.

12. On perusal of the impugned order, there is some

force in the arguments put forth on behalf of the petitioner.

Nevertheless, the order came to be passed on 21.12.2020

after completing sufficient portion of the investigation. On

23.08.2021, this petition is filed seeking cancellation of bail.

Bail grounds referred to supra does not indicate a situation

where this court can go to the extreme situation of

cancellation of bail as per the decision relied on by the

learned counsel for the petitioner in the case of

Chandrakanth Chandulal Bhansali Vs. Shrikant

Shrikrishna Joshi reported in LAWS(BOMB)-1992-8-52,

wherein, the Hon'ble Bombay High Court in para 11 has held

as under:

"(11) A distinction is required to be made xxxxxxxxxxxxxxxxx

(a) Whether the prosecution and the complainant were heard and whether they had a fair opportunity of pointing out to the Court the grounds, if any, why bail ought not to be granted. b) At what stage of the investigation was the order passed and whether the passing of such an order could have the object of interfering with impeding or frustrating the investigation? c) Whether the considerations on which the bail order was passed were germane or whether the Court was either misled or had overlooked the basic or fundamental aspects of the case while passing the order."

13. Three conditions are enumerated for cancellation

of bail. On perusal of the grounds urged in the petition, this

court is of the considered opinion that none of the above

conditions are fulfilled by the petitioner in seeking

cancellation of bail. However, an observation needs to be

made while dealing with the matters of economic

offences, the court which intends to grant the bail must

discuss in detail the effects of that particular case. In the

light of various pronouncements made by Hon'ble Apex

Court, various other High courts and this court, will have the

benefit of the reasons enumerated in the order so as to re-

appreciate the same either for cancellation or confirmation of