Case Analysis: Bharat Raj Punj and Ors. Vs. Commissioner of Central Goods and Service Tax Department, Jaipur and Ors.(2019)

Case Name: Bharat Raj Punj and Ors. Vs. Respondent: Commissioner of Central Goods and Service Tax Department, Jaipur and Ors.
Case Number: S.B. Criminal Writ No. 76/2019
Court: High court of Rajasthan (Jaipur bench)
Bench: Justice Pankaj Bhandari
Author of Judgment: Justice Pankaj Bhandari
Decided on: 12th March 2019
Relevant Acts/ Section: Section 69, 70, 73, 74, 132 of Central Goods and Service Tax Act
Keywords: Input Tax Credit,
Equivalent citation: (2019) 73 GST 135 (Rajasthan)
Case analysis by: Shubhankar Das

INTRODUCTION

The article deals with analysis of a recent case of Bharat Raj Punj vs Commissioner of GST with respect to fraudulent availing of Input tax credit on fake invoices by the company. There was a raid conducted by the GST Department at the premises of M/s Leel Electricals Ltd at Bhiwadi, senior officials as well as the managing director Mr. Bharat Raj Punj was issued summons. The statements of the senior officials were recorded and it was found that the company has not performed any business or trade since almost 2 years. By issuing fake sale purchase, they were availing Input tax credit of 40.5 crores and later on it was also found that other sister concerns/ related companies of M/s Leel Electricals were doing the same thing and a total of Rs 328 Crores Input tax credit was fraudulently availed by them.

The senior officials were arrested and due to apprehension of arrest the managing director Mr. Punj did not showed attendance when he was summoned by the authorities under Section 70 of the CGST Act and later he filed this writ petition claiming that the authorities have not followed procedures before arresting the officials.

Brief explanation of the Legal Provisions related to the case

• Section 70 [1] of The Act – it simply states that any proper officer has power to summon any person to give evidence or to produce any documents or any other thing in any inquiry in the same manner as any civil court has under the civil procedure code.
• Section 69 [2]of The Act – if a commissioner of GST Department believes that a person has committed any offence under Section 132 (1) (a), (b), (c) or (d) which is punishable under Section 132(1) (i) & (ii), then it is the discretion of the commissioner that he can order the arrest of such person.
• Section 132(1) [3]– (b) it states that if anyone issues any bill or invoice without supply of goods in violation of the provision of the Act and further leading to wrongful availment of Input tax credit. (c) Avails the Input tax credit using the invoice or bill referred to in clause b or fraudulently avails input tax credit without issuing any invoice or bill. Then for these offences the offender shall be punishable under Section 132(1)(i) which states that if the amount of tax evaded or ITC fraudulently availed exceeds Rs 500 Lakh then with imprisonment for a term that may exceed to 5 years plus fine.
• Section 73 [4] deals with determination of tax when input tax credit is wrongly availed for any reason other than fraud or wilful misstatement or suppression of facts and it states in such cases officer shall serve a notice requiring such person to show cause as to why he should not pay the amount along with interest and penalty, also the proper officer shall issue the notice at least 3 months prior to the time limit specified under sub Section 10 for issuance of order.
• Section 74 [5]deals with determination of tax when input tax credit is wrongly availed by reason of fraud or any wilful misstatement or suppression of facts. Again the proper officer shall serve a notice requiring such person to show cause why he should not pay the amount along with interest and penalty, also the proper officer shall issue the notice at least 6 month prior to the time limit specified under sub Section 10 for issuing any order.

FACTS

Petitioner 1 is the managing director of petitioner 2 i.e. M/s Leel electrical Ltd and central goods and service tax department conducted a raid on the company premises at Bhiwadi, Rajasthan on 17th January 2019 which continued till 19th January 2019. Senior officials and CFO were asked to remain present at the premises during the raid and summons under Section 70 of The Act was served upon them. Thereafter, the CGST department found that the company has issued fake invoice and availed input tax credit on the same fraudulently. The senior officials and CFO were arrested after recording their statements. As per the case of the Department, the Company had fraudulently availed input tax credit of Rs. 40.53 crores by issuance of fictitious sale invoices and sister concerns of company and Petitioner-Company had fraudulently availed input tax credit of Rs. 328 crores.

ISSUES

• Whether the issuing of summon by CGST department under Section 70 of The Act was valid?
• Whether the CGST have right to issue summon or arrest the petitioner?

CONTENTIONS

PETITIONER’S SIDE

• Petitioner was residing in USA and recently after the death of his father in November 2017 he came to India and only on 30th august 2018 he was appointed as the managing director of the company. The petitioner has apprehension that if he appears in pursuance of notice issued by the department under Section 70 of The Act then he would be arrested.
• Petitioner is a law abiding citizen and he has deposited GST upto 7.15 crore from 18 January to 2nd February and any coercive action against him would cause serious hurt to his reputation.
• The petitioner has referred to the case of Make My Trip Pvt Ltd vs UOI 2016[6], where the Delhi high court held that Section 70 of the Act does not gives permission to the department to by pass any procedure and go ahead with arrest. The decision to arrest has to be made on credible material and not on any whimsical grounds.
• The apex court in UOI vs Make My Trip Pvt Ltd [7]reaffirmed the Delhi high court judgement held that, it is mandatory to follow procedures laid down under Section 73 A(3) and (4) of Finance Act, 1994 before arresting a person under Section 90 and 91 of the Act.
• The petitioner also referred to Meghraj Moolchand Burad vs Directorate General of GST (intelligence) where the supreme court had granted protection to the petitioner from arrest and permitted the petitioner to appear before the director general of GST. Similarly in the case of Rakesh Kumar Chaubey vs UOI, the Uttrakhand High court permitted the petitioner to appear before the concerned authority and tender all support to investigation and restrained the authority from arresting the petitioner.
• The tax was not determined in accordance of Section 73 and 74 of the Act and until the same is done, department does not have any right to either summon or arrest the petitioner under Section 69 of the Act.

RESPONDENT’S SIDE

• A detail reply was submitted by the department, the details pertaining to petitioner 2 and its sister concerns fraudulently availing Input tax credit was already given by the department. It revealed that as much as 328 crores of ITC was claimed on fake invoices by the sister concerns and 40 crores 53 lakh was alone claimed by petitioner 2 whose managing director is petitioner 1.
• Section 70 of the Act gives power to the officer of the GST Department to issue summon to any person whose attendance is necessary for any evidence or for producing any document. Since notice is already served to the petitioner hence, he is legally bound to comply with the same.
• If commissioner finds any reasonable ground to believe that offence has been committed under Section 132(1) then, power to arrest under Section 69 can be exercised by the department. In this case, in this case it was clear that officials have committed offence under Section 131(1) (b), (c), (d) and hence they were arrested and even their bail application was rejected by the court.
• Even though Mr. Bharat Raj Punj was living in USA and was made MD of the company on 2018, still he was a director of the company since 2012 and annually received Rs 60 lakh as managerial remuneration for the same. Hence, any argument to waive off his responsibility in this case cannot be accepted because of the crime committed by him and his company.
• The judgement cited by the petitioner in its argument is irrelevant in this case as the facts of Make My Trip vs UOI[8] is totally different than that of the present case. In the cited case, GST was actually collected by the hotel owner but not deposited and instead passed on to the hotel. There was no effort by the department to find out or collect evidence from the hotels to find out whether the GST was deposited or not.
• In the present case, there is clear evidence that reveals that the company and its sister concerns availed ITC fraudulently for an amount of Rs 328 crores.
• Till now almost 6 times summons were issued to the petitioner no. 1 and he failed to appear before the authorities at every instance.
• Finally it is stated that determination of tax is not an essential criteria before issuing summon or arrest when Input tax credit itself has been availed fraudulently over fake sales and fake invoices. Hence, Section 73 and 74 is not applicable and in cases of offences committed under Section 132 no determination of tax is necessary.

JUDGEMENT

• The court stated that it is cleared by the contentions and case that the petitioner 2 and its sister concerns did availed ITC of Rs 328 crores on fake sales and fake invoices
• It is also established that the petitioner 2 itself has availed Rs 40 crores 53 lakhs and petitioner 1 is the managing director of petitioner 2 (company) and this fact is neither addressed not even contravened by the petitioner in any of his contentions. Hence, department of CGST has rights to take any action it deems fit provided that it is permissible under law.
• The writ was confined to technicalities only. The argument that petitioner 1 was residing abroad and not involved in day to day affairs of company is bogus because the petitioner was an appointed director of the company since 2012 and even received remuneration as much as 60 Lakhs per annum. Hence, it is unacceptable that he was not involved in day to day affairs of the company.
• Determination of tax under Section 73 and 74 of the Act is not required when an offence is committed under Section 132 and the department can issue summon and if reasonable ground are available they can even arrest the offender.
• The judgement referred by the petitioner, Make My Trip vs UOI[9] does not have any applicability in the present case because the cited case was of “collection of tax and its non deposition with the government where as in the present case, false Input tax credit is claimed on fake invoices without even conducting any trading activities.”
• The Meghraj Moolchand Burad vs DC of GST case was pertaining to Anticipatory bail and the facts are irrelevant in this case since petitioner in the present case has not even disputed factum of fraudulent availing of input tax credit on basis of fake invoices.
• Petition was dismissed with a cost of Rs 1 Lakh.

CONCLUSION

The case revolves around the issue of whether or not the determination of tax amount under Section 73 or 74 of the Act is an important factor before issuing summons to anyone or before arresting a person. It was held by the court that, when a case is tried for the offences under Section 132 of the Act such as wrongful availing of the input tax credit, fraudulent availing of input tax credit without actual supply of goods or without actual issuance of invoice or with a fake issue of invoice or any other offence given under 132(1) (a), (b), (c) or (d) which are punishable under 132(1) (i), (ii) or (iii), then the determination of tax amount as given under Section 73 and 74 is not a requirement. The department can proceed straight away to issue summons under Section 70 or if there are any reasonable grounds available, they can straightaway proceed to arrest the offender under Section 69 of the Act.

References:
1. Central Goods and Services Tax Act, 2017, No. 12, Act of Parliament, 2017(India)
2. Supra 1
3. Supra 1
4. Supra 1
5. Supra 1
6. 2016) 288 CTR (DEL) 521
Makemytrip (India) Pvt. Ltd. and Ors v. Union of India and Ors
7. [2019]63GSTR153(SC)
8. Supra 6
9. Supra 7

About the author –
This case analysis is submitted by SHUBHANKAR DAS, 5th Year B.A.LL.B (Hons.) student at Institute of Law, NIRMA University.