GST Fraud Accused Gets Bail After 10 Months — Act’s Validity Under Challenge

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Case Name

Subhash Chander vs. State of Punjab and Another

Court Name: High Court for the States of Punjab and Haryana at Chandigarh

Case No.: CRM-M-19551-2020 (O&M)

Date of Decision: 7th August, 2020

Key Takeaways

1. Fake ITC Fraud is Serious — The petitioner was accused of fraudulently availing ITC of ₹10.81 crores using fake invoices with no actual supply of goods. This is a significant GST offence.

2. Bail Granted Despite Large Amount — Even though the alleged fraud involved over ₹10 crores, the Court still granted bail. This shows that the amount alone is not the only factor courts consider when deciding bail.

3. Custody Period Matters — The petitioner had already spent about 10 months in custody, and the trial was virtually at a standstill. Courts take this seriously — you can’t keep someone locked up indefinitely when the trial isn’t moving.

4. Proportionality Principle — The maximum sentence for the offence is 5 years. Having already served 10 months with no trial in sight, continued detention seemed disproportionate.

5. Validity of the Law Under Challenge — A crucial factor was that the Punjab Goods and Service Tax Act, 2017 itself was being challenged in CWP No. 8004-2020 before a Division Bench of the same High Court. This added weight to the bail argument.

6. Interim Bail Made Absolute — The interim bail already granted on 20.7.2020 was made permanent (absolute) on the same terms and conditions.

Issue

Should Subhash Chander be granted regular bail in a GST fraud case involving alleged fake ITC claims of ₹10.81 crores, especially when the very law under which he is charged is being challenged in another proceeding?

Facts

• Who is involved? The petitioner is Subhash Chander, and the respondents are the State of Punjab and another party (the complainant).

• What’s the accusation? Subhash Chander is accused of availing Input Tax Credit (ITC) of approximately ₹10.81 crores based on invoices that did not correspond to any actual sale or supply of goods. In simple terms — he allegedly used fake bills to claim tax refunds/credits he wasn’t entitled to.

• Under which law? The complaint was filed under Section 69/132(1)(b)© of the Punjab Goods and Service Tax Act, 2017. The complaint case number is COMA/46/2019, dated 18.10.2019.

• How long was he in custody? By the time this judgment was delivered (August 7, 2020), the petitioner had been in custody for approximately 10 months.

• What about the trial? The trial proceedings were described as being “virtually at a standstill” — meaning no real progress was being made.

• The twist — law being challenged! The petitioner’s counsel pointed out that the Punjab Goods and Service Tax Act, 2017 itself was under challenge in CWP No. 8004-2020, where a Division Bench of the High Court had already issued a notice of motion, with the matter fixed for 23.9.2020. The State counsel did not dispute this fact.

• Interim bail already given: On the previous date of hearing (20.7.2020), the Court had already granted interim bail to the petitioner, noting the challenge to the Act’s validity.

Arguments

Petitioner’s Arguments (Subhash Chander’s Side):

1. The law itself is under challenge — The Punjab GST Act, 2017 (under which he was charged) was being challenged in CWP No. 8004-2020 before a Division Bench, and a notice of motion had already been issued.

2. Long custody period — He had already been in jail for about 10 months, which is a significant period.

3. Maximum sentence is only 5 years — Given that the maximum punishment for the offence is 5 years, keeping him locked up while the trial is stalled makes little sense.

4. Trial is not moving — The trial proceedings were virtually at a standstill, meaning there was no prospect of the trial concluding anytime soon.

State’s Arguments (Prosecution’s Side):

1. Huge scam — The State counsel argued that this was a massive fraud involving more than ₹10 crores, and therefore no case for bail was made out.

Key Legal Precedents

2. The judgment is quite brief and does not cite any specific case law or legal precedents from prior court decisions. The Court’s reasoning was based on:

• Section 69 and Section 132(1)(b)© of the Punjab Goods and Service Tax Act, 2017 — These are the provisions under which the petitioner was charged. Section 69 deals with the power to arrest, and Section 132 deals with punishment for certain offences including fraudulent availment of ITC.

• CWP No. 8004-2020 — This is the writ petition challenging the constitutional validity (vires) of the Punjab GST Act, 2017, which was pending before a Division Bench of the same High Court. While not a precedent per se, it was a key legal development that influenced the bail decision.

Note: No external case law citations were referenced in this particular judgment. The decision was based purely on the facts and circumstances of the case.

Judgment

Petitioner Won — Bail Granted!

• The Court accepted the bail petition and granted regular bail to Subhash Chander.
• The interim bail directions dated 20.7.2020 were made absolute (i.e., permanent) on the same terms and conditions as the interim bail.

Reasoning of the Court:

The Hon’ble Justice Gurvinder Singh Gill considered three key factors:

1. The custody period — The petitioner had already been in jail for about 10 months.

2. The maximum sentence — The offence carries a maximum sentence of 5 years, making prolonged pre-trial detention disproportionate.

3. The validity of the Act is under challenge — Since the very law under which the petitioner was charged was being questioned before a Division Bench, this was a significant factor in favour of bail.

FAQs

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

ITC fraud involves claiming tax credits on fake or bogus invoices where no actual goods or services were supplied. In this case, Subhash Chander allegedly claimed ₹10.81 crores in ITC without any real transactions backing those invoices.

Q2: Why did the Court grant bail despite such a large fraud amount?

The Court looked beyond just the amount. Three factors tipped the scales: (1) the petitioner had already been in custody for 10 months, (2) the maximum sentence is only 5 years, and (3) the law under which he was charged was itself being challenged in another court.

Q3: What does it mean that the “vires of the Act” is under challenge?

“Vires” refers to the legal validity or constitutional soundness of a law. When someone challenges the “vires” of an Act, they’re essentially saying the law itself is unconstitutional or invalid. Here, the Punjab GST Act, 2017 was being challenged in CWP No. 8004-2020 before a Division Bench of the High Court.

Q4: Does getting bail mean Subhash Chander is innocent?

Absolutely not! Bail is not an acquittal. It simply means the petitioner is released from custody while the trial continues. He still has to face the charges in court.

Q5: What are Sections 69 and 132(1)(b)© of the Punjab GST Act, 2017?

• Section 69 gives tax authorities the power to arrest a person for certain GST offences.
• Section 132(1)(b)© deals with punishment for offences including fraudulent availment of ITC without actual supply of goods.

Q6: What happens next in this case?

The petitioner is out on bail, but the trial will continue. Additionally, the outcome of CWP No. 8004-2020 (the challenge to the Punjab GST Act’s validity) could have a significant impact on this case. If the Act is struck down or modified, it could affect the charges against the petitioner.

Q7: Was the State’s argument about the large amount of fraud considered?

Yes, the State did argue that the ₹10 crore+ fraud was too serious for bail to be granted. However, the Court found that the other factors — custody period, maximum sentence, and the challenge to the Act — outweighed this concern.

1. The petitioner has approached this Court seeking grant of regular bail

in respect of a case Complaint case No.COMA/46/2019, dated 18.10.2019, under Section 69/132(1)(b)(c) of the Punjab Goods and Service Tax Act, 2017.

2. Reply by way of affidavit of Anita Sodhi, State Tax Officer, Mobile Wing, Patiala has been filed. The same is taken on record.

3. The allegations, in nutshell, are that the petitioner had availed Input

Tax Credit (ITC) to the tune of about `10.81 crores on the basis of invoices without there being actual sale of goods.

4. Learned counsel for the petitioner has submitted that the vires of the

Act i.e. Punjab Goods and Service Tax Act, 2017 has itself been

challenged in CWP No.8004-2020 wherein notice of motion has been

issued by the Hon’ble Division Bench of this Court and which

presently stands fixed for 23.9.2020.

5. The aforestated position regarding challenge of vires is not disputed

by the learned State counsel.

6. On the last date of hearing while noticing the aforesaid contention of

the petitioner, this Court had ordered for release of the petitioner on

interim bail.

7. Learned counsel for the petitioner has submitted that since petitioner

have undergone custody of a period of about 10 months and that the

maximum sentence provided for the offence in question is 5 years,

therefore, no useful purpose would be served by detaining the

petitioner behind bars as the trial in any case is not likely to be

immediately concluded since proceedings of the trial are virtually at a

stand still.

8. On the other hand learned State counsel has submitted that since it is

a huge scam involving a colossal amount of more than `10 crores,

no case for grant of bail is made out.

9. I have considered rival submissions addressed before this Court.

Keeping in view the aforesaid custody period and also the fact that

the maximum sentence provided for the offence in question is 5 years

and that the vires of the Act is itself under challenge, the petition

merits acceptance and is hereby accepted. The interim directions

dated 20.7.2020 are hereby made absolute on the same terms and

conditions.