CGST input tax credit fraud and anticipatory bail: arrest upheld for the main accused, relief granted to a dormant partner.

Pre-arrest bail was refused where the investigation disclosed a prima facie case of circular trading and wrongful availment of input tax credit through invoices unsupported by actual movement or receipt of goods. The Court held that offences under the CGST Act and assessment proceedings operate in distinct fields, and that arrest need not await completion of assessment or prior FIR registration. Custodial interrogation was justified to prevent disappearance or tampering of evidence, so coercive action against the principal applicant was upheld. Relief was granted to the second applicant because her role was found to be that of a dormant partner with no day-to-day operational involvement.

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Issues: Whether the applicants were entitled to pre-arrest bail in a case alleging fraudulent availment and passing on of input tax credit under the CGST regime, and whether the material on record justified custodial interrogation.

Analysis: The allegations disclosed a prima facie case of circular trading and wrongful availment of input tax credit on invoices unsupported by actual movement or receipt of goods. The material gathered in the investigation, including belated returns, absence of e-way bills, non-production of supporting documents, statements recorded during enquiry, and surrounding circumstances, was treated as sufficient to form a reason to believe that offences under the CGST Act had been committed. The Court rejected the contention that prosecution or arrest could not proceed until assessment was completed, holding that the offences and assessment provisions operate in distinct fields. The Court also declined to treat registration of FIR as a precondition for arrest under the CGST Act. On the facts, custody was considered necessary to prevent disappearance or tampering of evidence. As to the second applicant, the Court accepted that she was a dormant partner and not involved in the day-to-day business, which materially distinguished her role from that of the first applicant.

Conclusion: Pre-arrest bail was refused to the first applicant and granted to the second applicant.

Final Conclusion: The ruling upheld arrest-related coercive action against the principal alleged participant in the tax fraud, while extending protection to the partner whose role appeared peripheral.

Ratio Decidendi: In serious tax-fraud allegations under the CGST Act, anticipatory bail may be declined where the investigation discloses a prima facie case, the offence is cognizable and non-bailable, and custodial interrogation is shown to be necessary; relief may still be granted to an applicant whose role is shown to be limited and non-operational.

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