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Bail application of business-woman rejected by court by ruling that vicarious liability of proprietor is well established in law even if the business is being managed by the manager.

The contention of petitioner (Prop. of Firm) that she cannot be made liable vicariously is not sustainable in view of Section 137(1) of CGST Act, even if the business is being managed by the so-called manager.

Case Brief

The search was conducted at the various premises of the petitioner's firm by the officers of CGST, Noida. During course of search incriminating documents/furnished goods were seized.

In view of search conducted by the officials of GST Department, which establishes that petitioner's firm has violated the provisions of Section 132(1)(a) to (h) of CGST Act, 2017 and therefore, the firm on account of clandestine removal of finished goods without issuance of any invoice, without payment of any applicable duties, have evaded duties amounting ₹ 62,10,28,165/- which is more than ₹ 5,00,00,000/-

Arguments by Petitioner

Learned counsel for the applicant in support of his prayer for bail submits that the applicant is innocent and he has been falsely implicated in the present case. It is further submitted that the alleged offence is punishable with imprisonment of five years. The applicant is the proprietor of the firm while business of the firm is being managed by the Manager and is in effective control of the manager. The applicant cannot be made vicariously liable. Only duty which was payable was about ₹ 3.85 crore.

The applicant had always been cooperating with the investigation and enquiry of the case and never tried to abscond. The principal Commissioner, CGST, Noida had not made any endorsement regarding necessity of the arrest. Out of the alleged seized goods, the admitted duty which was payable by the applicant's firm ₹ 3.53 crores. The rest figures are imaginary and assumptive.

In Sanjay Chandra Vs. CBI (Supra) as relied by the learned counsel for the applicant, the Hon'ble Apex Court laid down guidelines in paras 21, 22, 23 and 24. The relevant considerations in granting bail are gravity of the alleged offence and severity of the punishment prescribed by law. Both parameters are taken to be consideration simultaneously. Constitutionally protected liberty must be respected unless the detention becomes a necessity. Bail is a rule and jail is an exception. It would be unnecessary burden on the State to keep a person in jail, who is yet to be proved guilty.

The balance approach is to grant bail subject to certain conditions rather than to keep the individual under detention for indefinite period.

Arguments by Revenue

Per contra learned counsel appearing on behalf of Union of India opposed the contentions raised on behalf of learned counsel for the applicant and contended that proper investigation and enquiry was made by the officials of the GST Department and after assessment the complaint was filed before the Court of Special Chief Judicial Magistrate, Meerut. All the relevant provisions of CGST Act, 2017 were complied with. The alleged offence is economic offence. Keeping in view the gravity of the offence and also the heavy loss to the Government Exchequer prayed to reject the bail of the applicant.

Under Section 69(1) of CGST Act, 2017, the Commissioner has power to order the arrest, if he has reasons to believe that a person has committed any offence specified in clause-(a), (b), (c), (d), of sub-section (1) of Section 132 of CGST Act, 2017. The offence specified in clause-(a) to (d) of sub-section (1) of Section 132 are cognizable and non-bailable in view of Section 132(5) of CGST Act, 2017.

As the evasion of the duty is more than ₹ 5 crores, therefore, the offence alleged against the applicant is cognizable and nonbailable.

Since in Section 69(1) of CGST Act, 2017 the specific words used is the reasons to believe in context of reasons to be recorded appears in Section 41(1)(3) of Cr.P.C., therefore, it is sufficient if the reasons are found in the file though not disclosed in the order authorizing arrest.

The prosecution can be launched after completion of assessment and also acts contrary to the provisions of sub-section(1) of Section 132 of CGST Act, 2017. The list of offences under Section 132(1) have no correlation to the assessment, issuance of any invoice or bills without supply of goods and service tax or both in violation of provisions of this Act and avails input tax credit without any invoice or bill or made offence under sub-section (b) and (c) of sub-section (1) of Section 132 of the Act, 2017. The prosecution of these offences do not depend upon completion of assessment.

In view of sub-section (1) of Section 138 of CGST Act, 2017 any offence under CGST Act, 2017 is compoundable, both before or after the institution of the prosecution.

In the present case, no effort is made on behalf of the applicant to compound the offence either before the institution of the prosecution or at post prosecution stage.

Held by Court

The submission of learned counsel for the applicant that applicant cannot be made liable vicariously is not sustainable in view of sub-section (1) of Section 137 of CGST Act, 2017.

The Hon'ble Apex Court held in K.K. Ahuja Vs. V.K. Vora and another (2009) 10, SCC 48, the vicariously liability are fulfilled the legal requirement of being a person in law (under Statute Governing Companies) responsible to the company for the conduct of the business of company and also fulfilled the factual requirement of being a person In-charge of business of the company.

Admittedly in the case in hand the applicant is the proprietor of the company and is responsible to the company for conduct of the business of the company, even if the business is being managed by the so-called manager.

In view of the facts and circumstances of the case and the submissions made by learned counsel for both sides and going through the record, without commenting on the merits of the case, I do not find it a fit case for bail.

Accordingly, the bail application of applicant is hereby rejected.

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Published by


on Apr 14, 2021


Supreme Court grants bail to petitioner Chhaya Devi in alleged GST evasion case who is a widow with five daughters and claimed that her business was being looked after by the manager who was in-charge of the business. Bail is subject to deposit of Rs.1 crore and giving affidavit that there would not be any encumbrance on any of the properties.
By: Arindam Sarkar | Dt: Apr 28, 2021

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