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Restores Against Vikas Chaudhary in Tax Evasion Case
Division Bench overturns Single Judge ruling, holding that sufficiency of material for issuing an LOC lies within the executive's province and courts cannot substitute their own assessment.
A Division Bench of the , comprising Justice C. Hari Shankar and Justice Om Prakash Shukla, on , set aside a Single Judge's judgment that had quashed a (LOC) issued against businessman Vikas Chaudhary at the instance of the . The Bench restored the LOC, ruling that courts cannot sit in appeal over the of the authority issuing an LOC, nor assess for themselves whether the material on which the decision was based was sufficient.
The Background: A Search, Seizures, and an LOC
Vikas Chaudhary, a director of Nautilus Metal Crafts Pvt. Ltd. and Aastha Apparels Pvt. Ltd. — companies engaged in garment exports to the US, Europe, South America, the UK, and the UAE — became the subject of search operations conducted between , following a Warrant of Authorization issued under . A subsequent search of his locker on led to the seizure of jewellery valued at ₹1,00,67,181. On , the issued an LOC against Chaudhary at the instance of the , restricting his departure from India.
The reasons disclosed for the LOC included the alleged existence of undisclosed foreign assets and interests in foreign entities, rendering him liable for penalty and prosecution under the Income Tax Act, the , and the . Representations made by Chaudhary in , accompanied by affidavits asserting he held no foreign accounts or undisclosed assets in Dubai, proved unsuccessful. The LOC remained in force for three years without any FIR or criminal complaint being registered against him.
The Single Judge's Decision and the Appeal
The Single Judge had quashed the LOC on the fourth of four identified issues — whether Chaudhary's case fell within the ambit of
"
"
as provided under the 2017 OM. The Single Judge held that the authorities' case hinged on an unsigned draft agreement and certain WhatsApp chats which, even by the authorities' own admission, were inconclusive, and noted that the LOC had continued for three years without any penal proceedings being initiated.
The appealed, contending that the Single Judge had failed to consider the "magnitude of tax evasion" involving bogus purchases of approximately ₹1,153 crores, export incentives fraudulently earned to the tune of ₹170 crores, and allegations of hawala transactions through companies controlled by Chaudhary.
A Broad Canvas of Allegations
The Division Bench, examining the counter-affidavit filed by the Income Tax authorities, catalogued the breadth of material against Chaudhary:
- Hawala transactions : Avtar Singh Kochar, allegedly running a hawala racket, admitted to helping transfer funds to one of Chaudhary's entities. Sales made by Aastha Apparels, JBB Apparels, and JBN Apparels to companies involved in money laundering totalled approximately ₹19.23 crores.
- International hawala links : Contact numbers found in Chaudhary's mobile phone connected him to Manoj Garg, a person found involved in international hawala transactions, who owned Maximus International General Trading LLC, from which Chaudhary's group companies received ₹260.58 crores.
- Over-invoiced exports : Evidence indicated over-invoiced goods were exported to Dubai, with fraudulent export incentives running into ₹170 crores. Information was shared with the .
- Bogus purchases : Identified to the tune of ₹1,153 crores across three entities, with the confirming fake invoices and fraudulent GST input credit.
- Offshore investment : A draft agreement found on Chaudhary's mobile phone indicated his daughter Aastha acquired 10% shareholding in Centurion International Limited, a Dubai-registered company, valued at approximately ₹30 crores (AED 16.5 million).
The Bench noted that the total income tax evasion found by the Department exceeded ₹1,500 crores, and that investigations, including FT&TR references to authorities in Dubai, were ongoing.
Judicial Restraint in Economic Matters
The Division Bench extensively analysed the scope of , anchoring its reasoning in precedents including , , , and .
The Bench emphasised that in fiscal and economic matters, courts must defer to executive wisdom so long as constitutional boundaries are not breached. It criticised the Single Judge's finding that the authorities should have formed a "
" that departure would be detrimental
"to such an extent that it warrants curtailment of an individual's fundamental right."
"To our mind, the scope of of a decision to issue an LOC, while certainly not foreclosed, cannot extend to subjectively assessing the extent or magnitude of the material available with the authorities, or whether it is sufficient to issue an LOC. Radhika Agrawal specifically proscribes this," the Bench observed.
Key Observations
"The Court cannot sit in appeal over the of the authority issuing the LOC or assess, for itself, whether the material on the basis of which the decision has been taken is sufficient to justify the decision."
"The sufficiency of the material has, to our mind, fundamentally to remain within the province of the authority issuing the LOC. The Court cannot don the cloak of a ."
"Save and except where the decision to issue an LOC is so to the material on the basis of which the decision is taken, we are of the view that the issue of whether the material available with the executive authorities is sufficient to issue an LOC has to be left to the authorities."
"In matters involving economic considerations, and the fiscal or economic interests of the country, Courts have necessarily to step back."
The Verdict and Its Implications
The Division Bench quashed the Single Judge's judgment dated and dismissed the writ petition filed by Chaudhary, allowing the appeal with no order as to costs. The Bench examined the official file provided in a sealed cover and found that the contents bore out the assertions in the counter-affidavit.
"If, based on the above material, the Income Tax authorities were of the view that allowing the respondent to leave the country could be detrimental to its economic interests, it cannot, by any stretch of imagination, be said that the decision was taken on irrelevant, inadmissible or even insubstantial material,"
the court concluded.
The judgment reinforces a broad zone of deference to executive authorities in economic matters, signalling that constitutional courts should only intervene in LOC cases where material is "speculative" or "," rather than conducting their own qualitative or quantitative assessment of the evidence.
