GST Fraud Accused Denied Bail — ₹33 Crore Fake ITC Scam Rocks Jaipur

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Case Name

Saurabh Chhajer vs. State of Rajasthan & Union of India

Court Name: High Court of Judicature for Rajasthan, Bench at Jaipur

Case No.: S.B. Criminal Miscellaneous II Bail Application No. 16734/2019

Decided on: 22nd January 2020

Before: Hon’ble Mr. Justice Pankaj Bhandari

Key Takeaways

1. Fake Firms Serious Offence: Creating fictitious/fake firms to fraudulently pass on ITC is treated as a cognizable and non-bailable offence under the CGST Act, 2017.

2. Scale of Fraud Matters: The alleged fraud involved ₹33 crore in losses to the government, with only ₹13 crore recovered — the sheer magnitude weighed heavily against granting bail.

3. Second Bail Also Rejected: This was Saurabh Chhajer’s second bail application, and it was dismissed, signaling the court’s serious view of GST fraud cases.

4. 470 Beneficiary Parties: The accused allegedly transferred fraudulent ITC to as many as 470 parties, out of which 55 parties had already reversed those fraudulent entries — indicating the fraud was real and widespread.

5. GST Enforcement is Active: This case shows that the Directorate General of GST Intelligence (DGGI) is actively pursuing large-scale GST fraud cases and courts are taking them seriously.

Issue

Should the accused, Saurabh Chhajer, be granted bail in a case involving alleged creation of fake firms and fraudulent transfer of Input Tax Credit (ITC) worth ₹33 crore under the CGST Act, 2017?

In simpler terms — should someone accused of a massive GST fraud be let out on bail while the trial is ongoing? The court said NO.

Facts

• Who is the accused? Saurabh Chhajer, aged about 34 years, originally from Ajmer, Rajasthan.

• What did he allegedly do? He is accused of creating fake/fictitious firms and using them to fraudulently generate and transfer Input Tax Credit (ITC) — basically, fake tax credits that businesses can use to reduce their GST liability.

• How big was the scam? The alleged fraud caused a loss of ₹33 crore to the government exchequer. Out of this, only ₹13 crore had been recovered at the time of the hearing.

• How many parties were involved? The fraudulent ITC was transferred to as many as 470 beneficiary parties. Out of these, 55 parties had already taken the fraudulent ITC and subsequently reversed those entries — which actually confirms the fraud happened.

• How was he caught? He had been avoiding service of summons and was eventually arrested from Ajmer.

• Where is the case being tried? A complaint (Complaint No. 34/2019) is pending before the Court of Chief Metropolitan Magistrate (Economic Offences), Jaipur Metropolitan.

• What is this application about? This is his second bail application filed under Section 439 of the Code of Criminal Procedure (Cr.P.C.).

Arguments

Arguments by the Petitioner (Saurabh Chhajer’s Lawyer — Mr. Sudhir Jain):

1. No direct evidence that the petitioner himself created the fake firms.

2. The department did not interrogate the persons to whom the alleged ITC was transferred — suggesting the investigation was incomplete.

3. The offence is triable by a First Class Magistrate, implying it’s not as serious as the prosecution makes it out to be.

4. Out of 14 witnesses, statements of only 2 witnesses had been recorded so far — the trial is at a very early stage, so keeping him in jail is harsh.

Arguments by the Respondents (Union of India — Mr. Siddharth Ranka, and State — Mr. Arvind Kumar):

1. The petitioner created fake firms and fraudulently transferred ITC to 470 beneficiary parties.

2. 55 parties had already taken the fraudulent ITC and have now reversed those entries — this is strong evidence of the fraud.

3. The total loss to the exchequer is ₹33 crore, and only ₹13 crore has been recovered so far.

4. The petitioner was evading summons and had to be arrested from Ajmer — showing he is a flight risk.

Key Legal Precedents

The judgment is quite brief and does not explicitly cite any prior case law or legal precedents. However, the key legal provisions referenced are:

Section 132(1)(b),(C), (f), (g), (k), (i) of the Central Goods and Service Tax Act, 2017

These sub-sections deal with various GST offences including issuance of invoices without actual supply, fraudulent ITC claims, and other related offences.

Section 69 of the CGST Act, 2017

This section deals with the power to arrest — it allows GST officers to arrest a person if they have reasons to believe that the person has committed a cognizable and non-bailable offence.

Section 132(1)(i) and (iv) of the CGST Act, 2017

These specify the punishable offences under the Act.

Section 132(5) of the CGST Act, 2017

This section deals with the quantum of punishment for GST offences.

Section 439 of the Code of Criminal Procedure (Cr.P.C.)

This is the provision under which the bail application was filed before the High Court — it gives the High Court special powers to grant bail.

In simple terms: The accused was charged under multiple sections of the CGST Act that deal with fake invoicing, fraudulent ITC claims, and related offences. The arrest was made under Section 69, and the bail was sought under Section 439 Cr.P.C.

Judgment

The State of Rajasthan and Union of India (Respondents) won. The bail application was dismissed.

What Did the Court Decide?

The Hon’ble Justice Pankaj Bhandari dismissed the second bail application of Saurabh Chhajer.

Why Did the Court Refuse Bail?

The court considered the contentions put forth by the Union of India’s counsel and found them convincing. The key reasons (though briefly stated) were:

1. The massive scale of the fraud — ₹33 crore loss to the exchequer.

2. Only ₹13 crore recovered so far — a large amount still outstanding.

3. 470 beneficiary parties were involved, with 55 already having reversed fraudulent ITC entries — strong evidence of the fraud.

4. The petitioner had been evading summons — suggesting he is not cooperative with the investigation.

The court was simply not inclined to grant bail given the seriousness and scale of the alleged offence.

FAQs

Q1: What is Input Tax Credit (ITC) fraud?

ITC fraud involves creating fake invoices or fictitious firms to claim tax credits that a business is not actually entitled to. This reduces the GST payable to the government, causing a direct loss to the exchequer. In this case, the accused allegedly created fake firms to generate and pass on fraudulent ITC to 470 parties.

Q2: Why was this a second bail application? What happened to the first one?

The judgment mentions this is a second bail application under Section 439 Cr.P.C., which means the first bail application was also rejected earlier. The judgment doesn’t go into the details of the first application.

Q3: Can the accused file another bail application?

Yes, technically he can file another bail application if there is a change in circumstances — for example, if more of the recovery is made, or if the trial progresses significantly. However, courts are generally reluctant to grant bail in cases involving large-scale economic offences.

Q4: What is the maximum punishment for these GST offences?

Under Section 132(1)(i) read with Section 132(5) of the CGST Act, 2017, the punishment for offences involving tax evasion above ₹5 crore can be imprisonment up to 5 years along with a fine. Given the ₹33 crore alleged fraud, this falls in the highest bracket.

Q5: Why did the petitioner’s argument about “no interrogation of beneficiaries” not work?

The court found the overall evidence — particularly the 55 parties reversing their fraudulent ITC entries — to be compelling enough. The reversal of entries by those 55 parties was itself strong circumstantial evidence that the fraud had occurred.

Q6: What does this case tell us about how courts treat GST fraud?

This case clearly shows that courts treat large-scale GST fraud very seriously. When the amount involved is significant (₹33 crore here), courts are reluctant to grant bail, especially when the accused was also evading summons. It sends a strong message that GST fraud is not a minor offence.

1. Petitioner has filed this second bail application under Section 439 of Cr. P.C.

2. Complaint No.34/2019 is pending before the Court of Chief Metropolitan Magistrate (Economic Offences) Jaipur Metropolitan, for offence under Sections 132(1), (b), (c), (f), (g), (k), (i) of Central Goods and Service Tax Act, 2017 read with Section 69 of CGST Act punishable under Section 132(1) (i) and (iv) of Central Goods and Service Tax Act, 2017 read with 132(5) of CGST Act.

3. It is contended by counsel for the petitioner that there is no

evidence that fake firms were created by the petitioner.

Department has not cared to interrogate the persons to whom

alleged input tax credit was transferred. It is also contended that

the offence is triable by First Class Magistrate. There are fourteen

witnesses and statement of only two witnesses have been

recorded.

4. Learned counsel appearing for Union of India has vehemently

opposed the bail application. It is contended that petitioner has

created fake firms and has fraudulently transferred input tax to as

many as 470 beneficiary parties. Out of which, fifty five parties

took fraudulent input tax credit and have now reversed those

entries. It is contended that total loss caused to the exchequer is

to the tune of Rs. Thirty three crore, out of which, Rs. Thirteen

crore has been recovered so far. It is also contended that

petitioner avoided service of summons and was arrested from

Ajmer.

5. I have considered the contentions.

6. Considering the contentions put forth by learned counsel

appearing for Union of India, I am not inclined to allow the second

bail application.

7. Accordingly the second bail application is dismissed.

(PANKAJ BHANDARI),J