GST Invoice Fraudsters Get Bail After 450 Days — Court Cites Completed Investigation

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Case Name

Mohit Vijay vs. Union of India (Connected with Kapil Vijay @ Kapil Vijayavargiya vs. Union of India)

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

Case No.: S.B. Criminal Miscellaneous Bail Application No. 7605/2019

(Connected with S.B. Criminal Miscellaneous Bail Application No. 7642/2019)

Date of Order: 02nd June 2020

Key Takeaways

1. Investigation Completion = Strong Bail Ground: Once the investigation is complete and documents are seized, keeping an accused in custody loses its primary justification.

2. 450 Days is a Long Time: The court was clearly moved by the fact that the petitioners had already spent 450 days in jail, especially when the maximum sentence for the offence is only 5 years.

3. Compoundable Offence Matters: The CGST Act offences in question are compoundable (meaning they can be settled), which weighed in favour of bail.

4. Vague Witness Tampering Fears Won’t Cut It: The Revenue’s argument that the accused might threaten witnesses was rejected because no actual instance of witness intimidation had been placed on record.

5. COVID-19 Was a Factor: The pandemic situation was cited as an additional reason to consider bail.

6. Bail with Strict Conditions: The court didn’t just let them walk free — it imposed stringent conditions borrowed directly from the Supreme Court’s framework in Sanjay Chandra.

Issue

The Central Legal Question:

Should the two accused persons — charged with a large-scale GST fraud involving fake invoices and ghost companies — be granted bail under Section 439 of the Code of Criminal Procedure (CrPC), given that the investigation is complete, they have been in custody for 450 days, and the maximum punishment is 5 years?

Facts

• Who are the accused? Two men — Mohit Vijay (24 years old) and Kapil Vijay @ Kapil Vijayavargiya (29 years old), both residents of Jaipur, Rajasthan.

• When were they arrested? They were arrested on 1st March 2019 and have been in Central Jail, Jaipur ever since.

• What did they allegedly do? The allegation is that they:
• Issued fraudulent and forged invoices related to 34 companies
• Created ghost companies — fake businesses set up purely to issue bogus invoices
• These fake invoices helped 1,878 customers across 21 states wrongfully claim Input Tax Credit (ITC)
• Out of these customers, 321 were from outside Rajasthan
• How big was the fraud? The Revenue Department had already recovered ₹30 crore from customers who wrongly availed ITC benefits.

• What’s the status of the case? A complaint had already been filed before the Chief Metropolitan Magistrate (Economic Offences), Jaipur. All 87 documents had been seized and placed before the court. The trial had commenced.

• What about the other beneficiaries? The Revenue was investigating more than 1,300 beneficiaries, which they admitted would take a long time. Interestingly, no action had been taken against the 36 companies that actually benefited from the fake ITC.

Arguments

Petitioners’ Side (Accused — Mohit Vijay & Kapil Vijay)

Argued by Mr. Sameer Jain:

1. Investigation is complete — All 87 documents have been seized and placed before the court. No further investigation is needed against these petitioners.

2. Long custody — The petitioners have already been in jail for 450 days, which is a significant portion of the maximum 5-year sentence.

3. Compoundable offence — The offences under the CGST Act are compoundable, meaning they can be settled. The maximum punishment is only 5 years.

4. No action against beneficiaries — While the petitioners are behind bars, the 36 companies that actually benefited from the fake ITC have not been touched.

5. COVID-19 Pandemic — Given the health crisis, the petitioners should be released on bail with appropriate conditions.

6. Relied on precedents — Cited Sanjay Chandra vs. Central Bureau of Investigation (2012 (1) SCC 40) and two orders from the Coordinate Bench at Jodhpur in Gaurav Maheshwari vs. State (S.B. Criminal Misc. IInd Bail Application No. 1825/2020, decided 11.5.2020) and (S.B. Criminal Misc. Bail Application No. 1422/2020, decided 13.5.2020).

Revenue’s Side (Union of India)

Argued by Mr. Siddarth Ranka:

1. Massive economic offence — The accused committed a huge fraud causing enormous loss to the government exchequer through fraudulent and forged invoices.

2. Scale of the fraud — The fraud affected 1,878 customers across 21 states, with 321 customers outside Rajasthan.

3. Ongoing investigation — The department is still investigating more than 1,300 beneficiaries, and releasing the accused could interfere with this process.

4. Witness tampering risk — The accused might influence or threaten material witnesses if released.

5. Relied on precedent — Cited Rajesh Arora vs. State (S.B. Criminal Bail Application No. 3987/2020, decided 26th May 2020), where a coordinate bench refused bail in similar circumstances to an accused who had been in jail since 3rd August 2018.

6. Honest admission — When directly asked by the court, the Revenue’s counsel frankly admitted that there is no specific pending investigation against these two petitioners personally.

Key Legal Precedents

1. Sanjay Chandra vs. Central Bureau of Investigation — 2012 (1) SCC 40

This is the most important precedent cited in the case. The Supreme Court laid down key principles on bail:

“The grant or refusal to grant bail lies within the discretion of the Court. The grant or denial is regulated, to a large extent, by the facts and circumstances of each particular case. But at the same time, right to bail is not to be denied merely because of the sentiments of the community against the accused.”

The Supreme Court also noted that even in cases of huge economic offences, if the investigation is complete and the charge sheet is filed, keeping the accused in custody may not be necessary. The court in the present case directly applied this reasoning — since the complaint was already filed and investigation was complete, the petitioners’ continued custody was not justified.

The bail conditions imposed in the present case were directly borrowed from the conditions set out in Sanjay Chandra.

2. Gaurav Maheshwari vs. State

• S.B. Criminal Misc. IInd Bail Application No. 1825/2020 (decided 11.5.2020)
• S.B. Criminal Misc. Bail Application No. 1422/2020 (decided 13.5.2020)

These were orders from the Coordinate Bench at the Principal Seat at Jodhpur of the same High Court, where bail was granted in similar circumstances. The petitioners’ counsel argued that similar benefit and conditions should be extended to these petitioners.

3. Rajesh Arora vs. State

• S.B. Criminal Bail Application No. 3987/2020 (decided 26th May 2020)

This was cited by the Revenue’s side as a case where the Coordinate Bench refused bail in similar circumstances to an accused who had been in jail since 3rd August 2018. However, the court in the present case did not follow this precedent, instead favouring the Sanjay Chandra framework.

Key Statutory Provisions Referenced:

• Section 439 of the Code of Criminal Procedure (CrPC) — The provision under which the bail applications were filed (Special Powers of High Court regarding bail).

• Section 132(1)(b)©(f)(j) and (i) of the Central Goods and Services Tax Act, 2017 — The offences the petitioners were charged with (relating to fraudulent invoices, fake ITC claims, etc.).

Judgment

The Petitioners (Mohit Vijay and Kapil Vijay) won — Bail was granted!

The Court’s Reasoning:

Justice Sanjeev Prakash Sharma granted bail based on the following logic:

1. Complaint already filed — The case was already before the Chief Metropolitan Magistrate (Economic Offences), Jaipur, and the trial had commenced.

2. No further investigation needed — The Revenue’s own counsel admitted there was no pending investigation specifically against these two petitioners.

3. No recovery pending — No further recovery was required from the petitioners, and their accounts had already been seized.

4. Witness tampering fear unsubstantiated — No witness had come before the court alleging threats from the accused. The fear was speculative.

5. 450 days in custody — This was a significant period, especially given the maximum sentence of 5 years.

6. Compoundable offence — The nature of the offence (compoundable under CGST Act) supported bail.

The Bail Conditions Imposed:

The court ordered bail on a bond of ₹1,00,000 with one surety of the like amount, subject to these conditions:

• a. They shall not directly or indirectly make any inducement, threat or promise to any person acquainted with the facts of the case to dissuade them from disclosing facts to the court or any authority.

• b. They shall remain present before the court on all dates fixed for hearing. If they want to remain absent, they must take prior permission, and in unavoidable circumstances, immediately inform the appropriate court and the Superintendent, CBI.

• c. They will not dispute their identity as the accused in the case.

• d. They shall surrender their passport (if any and if not already surrendered), or swear an affidavit if they don’t hold one.

• e. Liberty is reserved to the CBI to apply for modification/recall of the bail order if the petitioners violate any conditions.

FAQs

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

ITC is a mechanism under GST where businesses can claim credit for the tax they’ve already paid on purchases, reducing their overall tax liability. In this case, the accused allegedly created fake invoices and ghost companies to generate fraudulent ITC claims for 1,878 customers — essentially helping them reduce their tax payments without any real underlying transactions.

Q2: Why were the accused granted bail despite the massive scale of the fraud?

The key reason was that the investigation was already complete, the complaint was filed, and the trial had begun. The court found no justification for keeping them in custody when their presence wasn’t needed for any further investigation. The Supreme Court’s principle in Sanjay Chandra — that bail cannot be denied merely because of community sentiment against the accused — was applied here.

Q3: Does getting bail mean they are innocent?

Absolutely not! The court was very clear that it was not commenting on the merits of the case. Bail simply means they don’t have to stay in jail while the trial is ongoing. They still have to face the trial and prove their innocence.

Q4: What happens if they violate the bail conditions?

The court specifically reserved liberty for the CBI/Revenue to apply for modification or recall of the bail order if the petitioners violate any of the conditions. This means they could be sent back to jail.

Q5: Why wasn’t action taken against the 36 companies that benefited from the fake ITC?

The court noted this disparity — the petitioners were behind bars while the actual beneficiary companies faced no action. The Revenue explained that criminal cases are only registered where the wrongful benefit exceeds ₹5 crore, and otherwise the offence is bailable. They said they were in the process of investigating the others.

Q6: What is a “compoundable offence” and why does it matter for bail?

A compoundable offence is one that can be settled between the parties (here, between the accused and the government) by paying a fine or penalty, without going through a full criminal trial. The fact that the CGST offences here are compoundable suggests the law itself provides for a less severe approach, which the court considered as a factor favouring bail.

Q7: What role did COVID-19 play in this decision?

The COVID-19 pandemic was cited as an additional humanitarian reason to consider bail. With jails being crowded and the health risk being real, the court factored this in alongside the legal grounds.

1. These bail applications have been filed under Section 439 CrPC in connection with Criminal Complaint filed at Chief Metropolitan Magistrate (Economic Offences), Jaipur (Raj.) for offence under Section 132(1)(b)(c)(f)(j) and (I) of the Central Goods and Service Tax Act, 2017.

2. Heard learned counsel for the parties.

3. Learned counsel for the petitioner submits that the co-accused

petitioners were arrested on 1st March, 2019 and a complaint has

been filed in the Court of Chief Metropolitan Magistrate (Economic

Offences), Jaipur for offence under Sections 132(1)(b)(c)(f)(j) and

(i) of the Central Goods and Services Tax Act, 2017. After having

conducted investigation as against the accused petitioners, the

documents have already been seized and have been placed before

the concerned Court. Learned counsel has invited attention of this

Court to the list of documents and description, which are in all 87

in number. Learned counsel submits that the allegation against the

petitioners is of having issued invoices giving benefit to companies

who availed benefit of of ITC (Input Tax Credit). A list of the said

companies have been mentioned in the complaint which are 36 in

number. However, no action has been taken as against the

concerned persons of the said companies. Learned counsel

submits that no further investigation is required to be conducted

as against the accused petitioners and they are in judicial custody

since long. Learned counsel submits that under the CGST Act, the

case is compoundable and maximum punishment which can be

awarded is only five years. The petitioners have already remained

in jail for the last 450 days. Learned counsel also submits that in

the reply filed by the respondents, it has been stated that they are

conducting an investigation against more than 1300 beneficiaries,

which is likely to take long time.

4. Learned counsel further submits that in view of the COVID-

19 Pandemic, the petitioners be released on bail with certain

conditions.

5. Learned counsel relies on the judgment in the case of

Sanjay Chandra Vs. Central Bureau of Investigation reported in

2012 (1) SCC 40 as well as the order passed by the Coordinate

Bench at Principal Seat at Jodhpur in the case of Gaurav

Maheshwari Vs. State(S.B.Criminal Misc.IInd Bail Application

No.1825/2020) decided on 11.5.2020 and Gaurav Maheshwari Vs.

State(S.B.Criminal Misc.Bail Application No.1422/2020) decided on

13.5.2020 submits that the petitioner may be given the similar

benefit and similar conditions may be laid down, which the

petitioners will abide.

6. Per contra, learned counsel appearing for the Revenue

strongly opposes the bail application and submits that the

petitioners have committed a huge economic offence and huge

amount of CGST has been evaded resulting a huge loss of revenue

since fraudulent and forged invoices were issued in relation to 34

companies, petitioners created ghost companies which were

fraudulent and created only for the purpose of issuing such

invoices resulted in giving benefit to as many as 1878 customers

in different 21 states. Learned counsel submits that out of the said

customers, 321 customers are those who are residing outside

Rajasthan.

7. Learned counsel submit that the Revenue Department has

recovered Rs. 30 crore from such customers, who wrongly

availed of the benefit of ITC. Learned counsel submits that as

regards the case being registered against the said beneficiaries

since the provisions is only where the benefit has been wrongfully

obtained from more than 5 crore and otherwise the case is

bailable. The department in the process of conducting further

investigation in regard to others. On being asked by this Court

with regard to any particular investigation, which is pending as

against the accused petitioners, learned counsel frankly states

that there is no such investigation as against the accused

petitioners, who are in judicial custody. However, he says that

they are likely to cause interference in the fruther investigation

and may effect the material witnesses and therefore, prays that

they should not been released on bail.

8. Learned counsel also relies on one another judgment passed

by the Coordinate Bench of this Court in relation of the Rajesh

Arora Vs. State (S.B. Criminal Bail Application No.3987/2020)

decided on 26th May, 2020 where the Court in the similar

circumstances had refused to grant indulgence of bail to the

petitioner, who was in jail since 3rd August, 2018.

9. I have considered the submissions as noticed above and

perused the material available on record as well as the judgments

as noticed above.

10. In Sanjay Chandra Vs. Central Bureau of Investigation

(supra), the Apex Court has observed as under:

“40. The grant or refusal to grant bail lies within the

discretion of the Court. The grant or denial is

regulated, to a large extent, by the facts and

circumstances of each particular case. But at the

same time, right to bail is not to be denied merely

because of the sentiments of the community against

the accused. The primary purposes of bail in a

criminal case are to relieve the accused of

imprisonment, to relieve the State of the burden of

keeping him, pending the trial, and at the same time,

to keep the accused constructively in the custody of

the Court, whether before or after conviction, to

assure that he will submit to the jurisdiction of the

Court and be in attendance thereon whenever his

presence is required.

46. We are conscious of the fact that the accused

are charged with economic offences of huge

magnitude. We are also conscious of the fact that the

offences alleged, if proved, may jeopardize the

economy of the country. At the same time, we cannot

lose sight of the fact that the investigating agency has

already completed investigation and the charge sheet

is already filed before the Special Judge, CBI, New

Delhi. Therefore, their presence in the custody may

not be necessary for further investigation. We are of

the view that the appellants are entitled to the grant

of bail pending trial on stringent conditions in order to

ally the apprehension expressed by CBI.

47. In the view we have taken, it may not be

necessary to refer and discuss other issues canvassed

by the learned counsel for the parties and the case

laws relied on in support of their respective

contentions. We clarify that we have not expressed

any opinion regarding the other legal issues

canvassed by learned counsel for the parties.

48. In the result, we order that the appellants be

released on bail on their executing a bond with two

solvent sureties, each in a sum of `5 lakhs to the

satisfaction of the Special Judge, CBI, New Delhi on

the following conditions :-

a. The appellants shall not directly or indirectly make

any inducement, threat or promise to any person

acquainted with the facts or the case so as to

dissuade him to disclose such facts to the Court or to

any other authority.

b. They shall remain present before the Court on the

dates fixed for hearing of the case. If they want to

remain absent, then they shall take prior permission

of the court and in case of unavoidable circumstances

for remaining absent, they shall immediately give

intimation to the appropriate court and also to the

Superintendent, CBI and request that they may be

permitted to be present through the counsel.

c. They will not dispute their identity as the accused

in the case.

d. They shall surrender their passport, if any (if not

already surrendered), and in case, they are not a

holder of the same, they shall swear to an affidavit. If

they have already surrendered before the Ld. Special

Judge, CBI, that fact should also be supported by an

affidavit.

e. We reserve liberty to the CBI to make an

appropriate application for modification/recalling the

order passed by us, if for any reason, the appellants

violate any of the conditions imposed by this Court.”

11. Coming to the facts of the present case, this Court notices

that the complaint has already been filed with complete details

before the Chief Metropolitan Magistrate (Economic Offences),

Jaipur, who is ceased with the matter and the trial has

commenced. The witnesses are in a huge number and the trial is

likely to take time. No further documents are required to be

produced apart from any other document, which may be required

subsequently. The petitioners cannot be said to be required for

any further investigation and no recovery is required to be

effected against them and their account has also been seized.

12. The recovery, which is required to be made as against the

accused petitioners, is under the provisions of GST Act, which are

not part of the criminal case.

13. The apprehension of learned counsel to the effect that the

petitioners would be in able to effect and threaten the witnesses,

is not made out as there is no such statement placed on record

where a witness has been taken before the concerned Court of

having been threaten.

14. This Court also notices that the offence alleged against the

accused petitioners is compoundable. However, no process for

compounding the offence has been undertaken by either of the

party. However, learned counsel submits that as the petitioners

are behind bars, no proceeding for compounding the offence could

be taken.

15. Keeping in view that the petitioners are already in jail for

450 days and no further investigation or recovery is to be made

for the purpose of the case(supra)and keeping in view the law laid

down by the Apex Court as well as by this Court as noticed above,

I am inclined to release the petitioners on bail with conditions as

laid down by the Apex Court as noted above.

16. Taking into consideration the overall facts and circumstances

of the case, but without commenting on merits of the case, I

deem it just and proper to enlarge the petitioners subject to

submitting a bail bond in the sum of Rs.1,00,000/- along with one

surety of the like amount subject to the following conditions.

“a. The appellants shall not directly or indirectly make

any inducement, threat or promise to any person

acquainted with the facts or the case so as to dissuade

him to disclose such facts to the Court or to any other

authority.

b. They shall remain present before the Court on the

dates fixed for hearing of the case. If they want to

remain absent, then they shall take prior permission

of the court and in case of unavoidable circumstances

for remaining absent, they shall immediately give

intimation to the appropriate court and also to the

Superintendent, CBI and request that they may be

permitted to be present through the counsel.

c. They will not dispute their identity as the accused

in the case.

d. They shall surrender their passport, if any (if not

already surrendered), and in case, they are not a

holder of the same, they shall swear to an affidavit. If

they have already surrendered before the Ld. Special

Judge, CBI, that fact should also be supported by an

affidavit.

e. We reserve liberty to the CBI to make an

appropriate application for modification/recalling the

order passed by us, if for any reason, the appellants

violate any of the conditions imposed by this Court.”

(SANJEEV PRAKASH SHARMA),J