Bail in GST ITC fraud may be granted after prolonged pre-trial detention if the investigation is complete, the accused is not a flight risk and willing to comply conditions

The Hon’ble Gujarat High Court in the case of SUNIL HIRALAL MANDOWARA Versus STATE OF GUJARAT & ANR. - 2025 (10) TMI 365 - GUJARAT HIGH COURTheld that bail should be granted to an accused in a GST ITC fraud case considering the long period of pre-trial custody, the applicant’s willingness to comply with conditions, and lack of evidence of flight risk or tampering.

Facts:

Sunil Hiralal Mandowara (“the Petitioner”) was arrested on December 17, 2024 and remained in custody for nearly eight months, accused of illegally availing Input Tax Credit (ITC) exceeding ₹10 crores under the GST regime.

The State of Gujarat & Anr. (“the Respondent”), alleged that the Petitioner fraudulently created shell entities using fake documents and availed ITC on fictitious purchases and after serving his purpose, the accused allegedly ensured cancellation of the GSTIN of these shell firms.

The Petitioner contended that the ITC was availed through real transactions for genuine purchases. He asserted that he had no role in the subsequent cancellation of the supplier-firms’ registration and emphasized his extended pretrial incarceration, willingness to comply with bail conditions, and absence of risk of absconding or prejudicing trial.

The Respondent contended that the Petitioner orchestrated the entire web of shell firms, created false transactions, and availed wrongful ITC of more than ₹10 crores. They argued bail should be refused due to the seriousness of the offence and risk of the accused repeating the offense or influencing evidence.

Aggrieved by denial of bail in initial proceedings, and citing prolonged custody, the Petitioner filed this successive regular bail application under the Bharatiya Nagarik Suraksha Sanhita, 2023.

Issue:

Whether bail should be granted to an accused in a GST ITC fraud case, who has undergone extended pre-trial custody, is willing to comply with all bail conditions, and is not shown to be a flight risk or likely to tamper with evidence ?

Held:

The Hon’ble High Court in SUNIL HIRALAL MANDOWARA Versus STATE OF GUJARAT & ANR. - 2025 (10) TMI 365 - GUJARAT HIGH COURTheld as under:

• Observed that, three key factors must govern the grant of bail: (i) existence of a prima-facie case, (ii) possibility of accused being available at trial, and (iii) likelihood of tampering with prosecution witnesses.
• Noted that, the Petitioner has been in custody since December 17, 2024. The investigation is over and chargesheet has been filed, and the offense is punishable up to 5 years.
• Noted further that, there is no material to show that the Petitioner is a flight risk or would tamper with evidence if enlarged on bail.
• Directed that, the Petitioner be released on personal bond of ₹10,000 with one surety, subject to routine bail conditions including appearance before the police station, surrender of passport, prohibition on leaving India without permission, and no inducement or threat to witnesses.
• Held that, breach of any condition would entitle the trial court to revoke bail and act in accordance with law.

Our Comments:

The Gujarat High Court’s approach follows the principles laid down by the Supreme Court in SANJAY CHANDRA Versus CBI - 2011 (11) TMI 537 - Supreme Court, where it was held that prolonged incarceration pending trial should be avoided unless exceptional circumstances exist—especially when the investigation is over and trial is likely to take considerable time. Other High Courts have also followed similar reasoning in economic offences, emphasizing judicial reluctance to keep undertrials incarcerated for extended periods barring risk of absconding or obstruction of justice.

While economic offences, including GST frauds, are undoubtedly grave and non-bailable, bail jurisprudence, as set out by the Supreme Court in P. Chidambaram Versus Directorate of Enforcement - 2019 (12) TMI 186 - Supreme Court continues to give primacy to personal liberty and the presumption of innocence. The Court maintained a balance by imposing stringent conditions, including regular police reporting and property disclosure, to mitigate State concerns.

Relevant Provisions:

Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023

“483. Special powers of High Court or Court of Session regarding bail-

(1) A High Court or Court of Session may direct,-

(a) that any person accused of an offence and in custody be released on bail, and if the offence is of the nature specified in sub-section (3) of Section 480, may impose any condition which it considers necessary for the purposes mentioned in that sub-section;

(b) that any condition imposed by a Magistrate when releasing any person on bail be set aside or modified:

Provided that the High Court or the Court of Session shall, before granting bail to a person who is accused of an offence which is triable exclusively by the Court of Session or which, though not so triable, is punishable with imprisonment for life, give notice of the application for bail to the Public Prosecutor unless it is, for reasons to be recorded in writing, of opinion that it is not practicable to give such notice:

Provided further that the High Court or the Court of Session shall, before granting bail to a person who is accused of an offence triable under Section 65 or sub-section (2) of Section 70 of the Bharatiya Nyaya Sanhita, 2023, give notice of the application for bail to the Public Prosecutor within a period of fifteen days from the date of receipt of the notice of such application….”

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