Rajasthan High Court Cancels Bail in ₹8.59 Crore GST Fraud Case

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Case Name

Union of India, Through Pr. Additional Director General Of GST Intelligence Jaipur Zonal Unit vs. Lovkesh Kumar S/o Shri Guruvax Rai (High Court of Rajasthan)

S.B Criminal Bail Cancellation Application No. 110 of 2024

Date: 10th February 2025

Key Takeaways

• Economic offences like GST fraud are treated seriously: The court emphasized that such offences require a stricter approach when considering bail.
• Section 132 of the CGST Act is distinct from Section 122: Section 132 deals with criminal prosecution and punishment, while Section 122 only provides for penalties.
• Bail can be cancelled if the trial court ignores material evidence or misapplies the law: The High Court found that the trial court failed to consider key evidence and the seriousness of the offence.
• Depositing part of the evaded tax does not absolve criminal liability: Payment of some amount during investigation does not negate prosecution under Section 132.
• The court clarified the grounds and process for bail cancellation: Including misuse of bail, risk to public safety, or if bail was granted on unsustainable grounds.

Issue

Did the trial court err in granting bail to Lovkesh Kumar, accused of fraudulently availing Input Tax Credit under the CGST Act, despite substantial evidence and the gravity of the offence?

Facts

• Parties: The Union of India (through GST Intelligence, Jaipur) is the petitioner. Lovkesh Kumar is the respondent.
• Allegations: Lovkesh Kumar, as proprietor of M/s Gurbax Rai Cotton Industries and M/s Gurbax Rai & Sons, allegedly availed fake ITC worth ₹8.59 crores using invoices from non-existent firms, mainly based in Sirsa, Haryana.
• Investigation: Searches at Lovkesh Kumar’s premises revealed fake ITC claims, WhatsApp group evidence, and statements admitting to the fraudulent activities.
• Trial Court’s Decision: The trial court granted bail, reasoning that the deposited amount reduced the liability below the threshold for a non-bailable offence and that Lovkesh Kumar was not the proprietor of one of the implicated firms.
• Union of India’s Appeal: The government challenged the bail, arguing the trial court ignored crucial evidence and misapplied the law.

Arguments

Petitioner (Union of India)

• The trial court erred by considering the deposited amount to reduce the offence’s gravity.
• Substantial evidence (statements, WhatsApp chats, documents) shows Lovkesh Kumar’s direct involvement.
• Section 132 of the CGST Act is for criminal prosecution, not just penalties.
• The trial court ignored the seriousness of economic offences and relevant legal precedents.
• The respondent’s bail was wrongly influenced by the bail status of a co-accused, whose bail was later cancelled.

Respondent (Lovkesh Kumar)

• Argued he was not the proprietor of M/s Gurbax Rai Praveen Kumar.
• Claimed to have deposited ₹3.66 crores during the enquiry.
• Asserted that the case falls under Section 122 (penalty) and not Section 132 (criminal prosecution).
• Challenged the legality of his arrest and the reliance on uncorroborated statements.
• Pointed out that the co-accused had received interim relief from the Supreme Court.

Key Legal Precedents & Statutory References

• Section 132 of the CGST Act, 2017: Deals with punishment for certain offences, including fraudulent availment of ITC. Offences above ₹5 crores are cognizable and non-bailable.
• Section 122 of the CGST Act, 2017: Provides for penalties for certain offences, but does not cover criminal prosecution.
• Y.S. Jagmohan Reddy Vs. CBI 2013 (7) SCC 439: Bail considerations must include the nature of accusations, evidence, severity of punishment, and character of the accused.
• Union of India Vs. Ashish Agarwal, (2023) 1 SCC 617
• Issardas Daulat Ram Vs. Union of India, 1961 SCC OnLine SC 363
• Peeyush Kumar Jain Vs. Union of India, 2022 SCC OnLine All 592
• Satender Kumar Antil Vs. CBI, (2022) 10 SCC 51
• Section 70 of the CGST Act: Statements made to GST authorities are admissible and not hit by Section 25 of the Evidence Act.

Judgement

• Bail Cancelled: The High Court found that the trial court failed to consider the gravity of the offence, the evidence against Lovkesh Kumar, and the correct application of Section 132 of the CGST Act.
• Key Reasoning:
• The offence involved fraudulent availment of ITC worth ₹8.59 crores, making it a non-bailable offence under Section 132.
• The trial court wrongly treated the case as bailable by considering the deposited amount.
• The evidence (statements, WhatsApp chats, documents) directly implicated Lovkesh Kumar.
• The trial court’s reasoning that only proprietors or managers can be prosecuted was incorrect; anyone who commits or causes the offence is liable.
• The court emphasized the need for a stricter approach in economic offences.
• Order: The bail granted to Lovkesh Kumar was cancelled. He was ordered to surrender before the trial court by 07.03.2024, and the trial court was directed to ensure his presence.

FAQs

Q1: Why was Lovkesh Kumar’s bail cancelled?

A: The High Court found that the trial court ignored key evidence and the seriousness of the alleged GST fraud, which involved a large sum and clear evidence of fraudulent activity. The law treats such economic offences as non-bailable when the amount exceeds ₹5 crores.

Q2: Does depositing part of the evaded tax protect an accused from prosecution under Section 132?

A: No. Payment of some amount during investigation does not absolve criminal liability under Section 132 of the CGST Act.

Q3: What is the difference between Section 122 and Section 132 of the CGST Act?

A: Section 122 deals with penalties for certain offences, while Section 132 deals with criminal prosecution and punishment for more serious offences like fraudulent availment of ITC.

Q4: Can someone be prosecuted under Section 132 even if they are not the proprietor or manager?

A: Yes. The law covers anyone who commits, causes to commit, or benefits from the offence, not just proprietors or managers.

Q5: What happens next for Lovkesh Kumar?

A: He must surrender before the trial court by the specified date, and the trial court will ensure his presence for further proceedings.