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High Court released custody of partners of firm alleged to have been involved in supply of Pan Masala during complete ban in lockdown and without payment of GST. 

The case of the prosecution in brief is that the officials of the department received intelligence input that one Pakistani national Sanjay Matta is indulged in clandestine clearance of mouth freshener, commonly known as "Pan Masala", without payment of GST. 

During this search 10 vehicles, unaccounted Pan Masala, its packing material and some raw material was seized. The Pan Masala was found to be of 'Vimal' brand manufactured by M/s Vishnu Essence. The petitioners are partners of the firm M/s Vishnu Essence. They were called and interrogated. They confessed in their statements recorded under Section 70 of the GST Act that their firm had supplied Vimal brand Pan Masala worth ₹ 320 crores clandestinely and has evaded payment of the GST to the tune of ₹ 225 crores. 

Arguments by Petitioners

Refuting all the allegations made by the prosecution, it is submitted by the petitioners that the firm M/s Vishnu Essence is duly registered with the GST and the firm is honestly doing its business. It is paying GST to the tune of Rs. 7-8 crores per month on an average on the sales. Their product contains 85% betel nut (Supari) and 15% Sugandh, Kattha, Elaichi (perfume, catechu, cardamom) etc. Supari is purchased from the undertakings/ companies of the government or from the societies run by the government; therefore, clandestine purchase is not possible. Rest of the raw material is purchased from the open market but only from the traders duly registered under the GST through invoices. Therefore, there has never been any scope to evade the tax.

It is asserted that the petitioners have never confessed anything before the officials. Their statements were recorded under threat and pressure. They retracted them immediately after coming out of the fear.

It is further averred that the petitioners were doing their business honestly and were paying GST to the tune of ₹ 7 crore per month regularly, but due to unprecedented circumstances of spread of COVID-19 pandemic and complete lockdown pursuant thereto; there was some delay in paper work and submission of the invoices etc. Taking advantage of this beyond control peculiar circumstance, the officials of the department abused their authority, presumed the tax evasion and assessed the amount only on the basis of their conjecture and surmises as there was no production during the period of lockdown. Nil electricity consumption establishes the fact of closure of the factory during this period. Therefore, the allegation of evasion of tax is false and frivolous from it's very foundation.

It is asserted that the petitioners have no connection with Pakistani national Sanjay Matta or alleged main accused Kishore Wadhwani.

It is also stated that the petitioners are in custody since 11.06.2020 and are in jail since 13.06.2020. Their custodial interrogation is not required. The nature of evidence is documentary and all documents are in custody of the Department. Hence, there is no fruitful purpose to keep them in custody. The petitioners are ready to abide by the terms and conditions to be imposed by this Court, therefore, it is prayed that they be granted bail.

Arguments by Revenue

Stand taken by the department is that the petitioners have a very proximate nexus to the entire syndicate involved in clandestine manufacturing of pan masala and have caused huge loss to the sovereign exchequer. Acting on the intelligence information, when several persons were interrogated and search of several places was conducted, tax evasion of crores of rupees was detected. Still the investigation is going on. As many as 11 searches and 14 statements have been recorded after the arrest of the petitioners. In all possibilities the magnitude of the offence would increase in many folds. Release of the petitioners would hamper the investigation, which is at very crucial stage, therefore, it is prayed that they be not granted bail.

It is submitted that during the course of investigating very clinching and cogent evidence has been unearthed which indicates that in connivance with each other, the petitioners as well as other wrongdoers have adopted a peculiar modus operandi for clandestine manufacturing and sale of pan masala. The petitioners are not merely benefactors of illegal activities, but had a very proximate nexus with the entire band of persons involved in the said syndicate. 

Sale and distribution of pan masala has been completely banned across the country due to pandemic induced lockdown from 25th March, 2020 considering its risk in spread of Covid-19 infection. In spite of the strict restriction, the petitioners' firms took undue benefit of this emergent situation and supplied their finished goods clandestinely in the State of Madhya Pradesh in connivance with M/s. AAA Enterprises. 

Held by High Court

It is directed that the petitioners be released from custody on their furnishing a personal bond in the sum of â‚¹ 5,00,000/- (Rupees Five Lakhs Only) each with separate sureties to the satisfaction of the Trial Court for their appearance before it as and when required further subject to the following conditions :-

(i) The petitioners shall co-operate with the trial and shall not seek unnecessary adjournments on frivolous grounds to protract the trial.;

(ii) The petitioners shall not directly or indirectly allure or make any inducement, threat or promise to the prosecution witnesses, so as to dissuade him from disclosing truth before the Court;

(iii) The petitioners shall not commit any offence or involve in any criminal activity;

(iv) In case of their involvement in any other criminal activity or breach of any other aforesaid conditions, the bail granted in this case may also be cancelled.

(v) The petitioners shall submit their passports, if any, before the Trial Court and shall not leave India without prior permission of this Court.


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Aug 6, 2020

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