2025 (5) TMI 1731 - HC - GST

High Court grants bail to GST fraud accused citing incomplete investigation and reliance on custodial confessions

Gaurav, Chandan Sharma Versus Union of India And Another

HC granted regular bail to two accused charged under Central GST Act, 2017 for operating fake firms and fraudulent input tax credit. Court found ... Seeking grant of regular bail - pendency of trial under Section 483 of the Bhartiya Nagarik Suraksha Sanhita, 2023 - fake firms - fraudulent input tax credit - supply of goods - offences punishable under Sections 132(1)(c), 132(1)(b) and 132(1)(i) of Central Goods and Services Tax Act, 2017 - HELD THAT:- This Court finds that the case of the complainant is mainly based upon the confession of the accused persons recorded in custody. During the course of hearing, it is not disputed by the learned counsel for the Union of India that the two accused are not at all connected with each other, though, through the common complaint, they are being prosecuted for commission of similar offences. Further, it is fairly stated by Mr. Parv Agarwal, learned counsel for the Union of India that during investigation, no evidence has been collected, which would show that the applicants were actually managing the affairs of these fake firms. However, Mr. Parv Agarwal, learned counsel for Union of India stated that the investigation is still going on, as the details of the beneficiary firms is not yet complete. Admittedly, the alleged offences are triable by Magistrate, which carry a maximum punishment of five years and after filing of the complaint, the prosecution is in the process of adducing pre-charge evidence. Thus, it is clear that the trial has not yet commenced and its conclusion would consume considerable time. The entire case of prosecution is either based upon the documentary evidence or confession of the accused, but in the considered opinion of this Court, the truthfulness of the confession of the accused or its evidentiary value would be tested during trial. That apart, the majority of the prosecution witnesses are official witnesses and at present, there does not seem to be any possibility of their being won over. Thus, keeping in view the nature of the offences and punishment provided for these offences as well as the period undergone by the applicants, this Court deems it appropriate to extend the concession of regular bail to the applicants, as their further detention behind the bars would not serve any useful purpose. Resultantly, without meaning any expression of opinion on the merits of the case, the bail applications are allowed and it is ordered that the applicants, namely, Gaurav and Chandan Sharma be released on regular bail in the above case, subject to their furnishing the requisite bail bonds and surety bonds to the satisfaction of the trial court. Further, it is directed that the accused- applicants shall abide by the terms and conditions of bail, which shall be imposed by the trial court at the time of acceptance of their bail bonds and surety bonds. The core legal questions considered by the Court in this judgment include:1. Whether the applicants are entitled to regular bail during the pendency of trial under Section 483 of the Bhartiya Nagarik Suraksha Sanhita, 2023, given the nature of the offences alleged under Sections 132(1)(c), 132(1)(b), and 132(1)(i) of the Central Goods and Services Tax Act, 2017.2. The sufficiency and reliability of the evidence against the applicants, particularly whether the prosecution has established a prima facie case connecting the accused to the fake firms and the alleged fraudulent input tax credit (ITC) transactions.3. The applicability of the provisions concerning the nature of offences, trial procedures, and the balancing of the accused's right to liberty against the interests of justice and investigation.Issue-wise Detailed AnalysisIssue 1: Entitlement to Regular Bail under Section 483 Bhartiya Nagarik Suraksha Sanhita, 2023The legal framework governing bail in this case is Section 483 of the Bhartiya Nagarik Suraksha Sanhita, 2023, which allows for the grant of regular bail during trial. The offences under Sections 132(1)(c), 132(1)(b), and 132(1)(i) of the Central Goods and Services Tax Act, 2017, relate to fraudulent availing and passing on of input tax credit without actual supply of goods, punishable with imprisonment up to five years.The Court noted that the offences are triable by Magistrate and carry a maximum punishment of five years, which is a significant factor in bail considerations. The Court also observed that the trial had not yet commenced and the prosecution was in the process of adducing pre-charge evidence, indicating a potentially lengthy trial process.The applicants had been in custody since their arrest on 13.02.2025, with bail applications earlier rejected by the Additional District and Sessions Judge. The Court weighed the period of custody already undergone against the nature of the offences and the stage of trial.In interpreting the legal provisions, the Court emphasized that the truthfulness and evidentiary value of the confessional statements recorded during custody would be tested during the trial, thus not warranting continued detention solely on that basis at this stage.Issue 2: Sufficiency and Reliability of Evidence Against the ApplicantsThe prosecution's case was primarily based on confessional statements recorded during custody and documentary evidence recovered during searches, including mobile phones, laptops, notebooks, rubber stamps, cheque books, and sale-purchase invoices.However, the Court noted significant gaps in the prosecution's evidence. It was undisputed that the incriminating material was recovered from three persons, but only two were prosecuted. Statements indicated that some materials were left at one accused's place by another, complicating direct attribution.Furthermore, the prosecution had not established documentary evidence directly connecting the applicants to the alleged fake firms. For example, in the case of one applicant, the proprietor of one fake firm testified that his identity documents were misused by a third party who was not arraigned as an accused. The prosecution had not implicated this third party, nor had it conclusively linked the applicants to the management or operation of the fake firms.The Court also observed that the two accused were not connected to each other despite being prosecuted under a common complaint for similar offences, suggesting independent and distinct roles or allegations.The prosecution conceded that investigation was ongoing, particularly regarding the identification of beneficiary firms, and no evidence had been collected to show that the applicants managed the affairs of the fake firms.Issue 3: Balancing the Rights of the Accused and the Interests of JusticeThe Court considered the nature of the offences, the maximum punishment prescribed, the stage of trial, and the period of custody already served by the applicants. It acknowledged that the offences involved fraudulent ITC claims amounting to substantial sums (approximately Rs. 59 crores and Rs. 54 crores respectively).However, since the trial had not commenced and the prosecution case was largely based on confessional statements and documentary evidence whose veracity was yet to be tested, the Court found no compelling reason to deny bail. It also observed that the prosecution witnesses were mostly official witnesses, reducing the risk of their being influenced or won over.The Court thus balanced the accused's right to liberty against the need to ensure the integrity of the investigation and trial, concluding that further detention would not serve any useful purpose.Treatment of Competing ArgumentsThe applicants argued that the prosecution had failed to produce documentary evidence linking them to the fake firms and that the confessional statements were recorded in custody, which required scrutiny during trial. They also pointed out that other persons connected to the incriminating material had not been made accused, indicating a lack of comprehensive investigation.The prosecution contended that the applicants were masterminds behind the fake invoice racket and had admitted involvement. They emphasized the non-existence of the fake firms and the large-scale fraudulent ITC passed on to end-users.The Court carefully considered both sides, noting the prosecution's reliance on confessions and documentary evidence but also the absence of direct evidence connecting the accused to the management of the fake firms and the ongoing nature of the investigation.ConclusionsThe Court concluded that the applicants were entitled to regular bail, subject to furnishing bail bonds and surety bonds as per the trial court's satisfaction. The Court imposed the condition that the applicants abide by the terms and conditions of bail to be imposed by the trial court.Significant HoldingsThe Court held:'The entire case of prosecution is either based upon the documentary evidence or confession of the accused, but in the considered opinion of this Court, the truthfulness of the confession of the accused or its evidentiary value would be tested during trial.''Admittedly, the alleged offences are triable by Magistrate, which carry a maximum punishment of five years and after filing of the complaint, the prosecution is in the process of adducing pre-charge evidence. Thus, it is clear that the trial has not yet commenced and its conclusion would consume considerable time.''Keeping in view the nature of the offences and punishment provided for these offences as well as the period undergone by the applicants, this Court deems it appropriate to extend the concession of regular bail to the applicants, as their further detention behind the bars would not serve any useful purpose.'The core principles established include the recognition that confessional statements recorded during custody require judicial scrutiny at trial and cannot solely justify continued detention. The Court reaffirmed that the stage of trial, nature of offences, and evidence on record are critical in bail determinations. It also underscored the importance of balancing the accused's right to liberty against the interests of justice and investigation.On each issue, the Court determined that the prosecution had not established a prima facie case warranting denial of bail and that the applicants should be released on regular bail subject to appropriate conditions.