Rakesh Arora vs State Of Punjab on 28 January, 2021

1. Outcome

The High Court of Punjab and Haryana dismissed the petitioner's application for regular bail filed under Section 439 of the Cr.P.C.

2. Core Issue

The central issue before the Court was whether to grant regular bail to the petitioner, who was arrested for allegedly masterminding a large-scale bogus Input Tax Credit (ITC) racket, thereby committing offences under Section 132 of the Central Goods and Services Tax (CGST) Act, 2017.

3. Key Facts

• The Allegation: The GST department, using its Business Intelligence and Fraud Analytics (BIFA) tool, uncovered a fraudulent ITC scheme involving three firms: M/s La Mode Fashions, M/s Decent Fashions, and M/s Murari Enterprises.
• Modus Operandi: These firms procured fake invoices from Delhi-based entities without any actual supply of goods. They then issued further invoices to export units to fraudulently avail and pass on ITC.
• Scale of Fraud: The firms had issued bills worth ₹158 crores involving ₹13.39 crores in tax, availed fake ITC of ₹21.60 crores, and claimed fraudulent refunds of ₹5.02 crores.
• Petitioner's Role: The investigation revealed that the petitioner, Rakesh Arora, was the alleged mastermind operating under the alias "Dharminder Arora @ Raja Bhaiya". He orchestrated the creation of these bogus firms, arranged for fake partners by creating fraudulent identities (Aadhaar, PAN cards), and managed the operations through intermediaries.
• Evidence: Evidence against the petitioner includes statements from a Chartered Accountant and a GST Practitioner, hotel records, and electronic evidence recovered from his mobile phone, which linked him to the creation and operation of the firms.
• Arrest: The petitioner was arrested on December 5, 2020, following raids at his premises.

4. Arguments

A. Petitioner's Arguments (Seeking Bail):

• The petitioner had been in custody since December 5, 2020, and no complaint had been filed.
• The alleged offences are punishable with a maximum of five years imprisonment and are triable by a Magistrate.
• The allegations do not fall under the non-bailable clauses (a) to (d) of Section 132(1) of the CGST Act, as the petitioner did not personally issue any invoices.
• The arrest was contrary to the guidelines laid down in the Akhil Krishan Maggu case, as the power of arrest under Section 69 should be used sparingly.
• The constitutional validity of Sections 69 and 132 of the CGST Act is already under challenge, and interim bail has been granted in similar cases.

B. Respondent's Arguments (Opposing Bail):

• The petitioner is the mastermind of a scam exceeding ₹150 crores and is a flight risk, evidenced by his use of an alias.
• If released, he would likely tamper with electronic evidence and influence witnesses, some of whom were his employees or were acting on his instructions.
• The investigation is ongoing, and new facts are still emerging, including international links.
• The petitioner's case squarely falls within the conditions for arrest laid down in Akhil Krishan Maggu, specifically where direct evidence of active involvement in tax evasion is available.
• The commission of an offence under Section 132 is not dependent on the completion of assessment proceedings.

5. Court’s Reasoning

The Court denied bail for the following reasons:

• Flight Risk and Tampering of Evidence: The petitioner's use of an alias and his role as the orchestrator of the entire scheme indicate a high risk of absconding and tampering with evidence, much of which is electronic.
• Influence on Witnesses: As the mastermind, the petitioner is in a strong position to influence the very individuals he engaged for the fraud.
• Gravity of Offence: The Court emphasized the seriousness of economic offences, terming them a "class apart" that are committed with "cool calculation" and cause significant damage to the national economy. Such offences must be viewed with a different approach than other crimes.
• Scope of Section 132: The Court observed that the penal provisions under Section 132(1)(a) to (d) are not limited to the person who physically issues an invoice but can extend to the mastermind behind the scheme.
• Ongoing Investigation: The investigation is at a crucial stage with missing links yet to be established. Releasing the petitioner at this juncture would hamper the investigation.
• Validity of Arrest: The Court found that the arrest was justified under the guidelines laid down in the Akhil Krishan Maggu case, as there was concrete evidence of the petitioner's active involvement. The fact that the vires of the sections are under challenge is not a ground for bail as their operation has not been stayed.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 69: Power to arrest.
  • Section 132: Punishment for certain offences, particularly sub-section (1)(a) to (d) relating to fraudulent ITC.
• Code of Criminal Procedure, 1973 (Cr.P.C.):
  • Section 439: Special powers of High Court or Court of Session regarding bail.

7. Precedents Cited

• Akhil Krishan Maggu vs Deputy Director of GST Intelligence: Cited by both parties and the Court on the circumstances under which the power of arrest should be exercised.
• P.V. Ramana Reddy vs Union of India: Cited by the respondent to argue that GST offences can be prosecuted without completing the assessment.
• State of Gujarat vs Mohanlal Jitamalji Porwal: Relied upon by the Court to emphasize the gravity of economic offences.
• Y.S. Jagan Mohan Reddy vs CBI: Relied upon by the Court for the principle that economic offences require a stricter approach in matters of bail.
• Anil Jain vs Directorate of Revenue Intelligence: Cited by the petitioner but distinguished by the Court on facts.
• Vimal Yashwantgiri Goswami vs State of Gujarat: Cited by the petitioner but held by the Court to be of no assistance to him.