HC rejects Bail in Bogus Tax Refund Case

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In an out-of-the-ordinary case, the High Court of Punjab & Haryana has rejected bail in a case where the refund was received for tax never received by the revenue authority. The Union of India’s stand in the matter was that a scam of more than Rs 150 crore came to light as a result of information collected by a software.

Bills procured without purchase

The Union of India’s stand in the matter was that a scam of more than Rs150 crore came to light after information was collected by a software
Justice Avneesh Jhingan asserted bills were being procured from Delhi-based firms which had no purchases

The tax evaded for these transactions was utilised for not only availing input tax credits, but for getting refunds by showing sales to export units

Justice Avneesh Jhingan asserted bills were being procured from Delhi-based firms which had no purchases. The tax not deposited for these transactions was utilised for not only availing input tax credits, but for getting refunds by showing sales to export units. “In other words, the refund was received for the tax which was actually never received by the revenue,” Justice Jhingan asserted.

The matter was brought to the HC’s notice when Rakesh Arora filed a plea against the State of Punjab for grant of bail after being arrested under the provisions of the Central Goods & Services Tax Act, 2017.

Justice Jhingan observed only State of Punjab was arrayed as a respondent. But senior panel counsel for Union of India Sourabh Goel appeared. He submitted that the Union of India was a necessary party. Among other things, he contended that the petitioner had changed his identity. He could be identified & arrested when certain documents were found during investigation. Justice Jhingan further observed the facts emanating were that “business intelligence & fraud analytics” was used for taking data from GSTIN. The Goods & Services Tax Department had information that three firms were engaged in availing & passing bogus input tax credits. The firms issued bills worth Rs 158 crore, involving Rs 13.39 crore of tax & availed fake input tax credit of Rs 21.60 crore, & claimed a refund of Rs 5.02 crore.

Justice Jhingan added the veil created for establishing firms was required to be pierced. The fact that the petitioner remained behind a smokescreen by withholding his identity & true identities of partners of the firms couldn’t be ignored. To state such a person, if granted bail, would not flee or abscond was a risky proposition to be accepted.

Justice Jhingan further added the GST was introduced with the object of ‘one nation, one tax’. “There is a chain of sellers & purchasers who are inter-connected, as the purchaser gets the credit of the tax paid or suffered by the seller. The chain can be within the state or Pan-India. One non-genuine or bogus link in the chain has an impact on all,” he said. 

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