2025 (7) TMI 686 - DSC - GST

Bail denied in GST fraud case involving 3100 fake firms and Rs 174 crore tax evasion under CGST Act sections 132

Yasin Sheikh Versus D.G.G.I., CGST.

Yasin Sheikh Versus D.G.G.I., CGST. - TMI 1. ISSUES PRESENTED and CONSIDERED- Whether the applicant accused, charged under various clauses of Section 132(1) of the CGST Act, 2017 for involvement in creation of fake firms and issuance of bogus invoices leading to fraudulent availment and passing of Input Tax Credit (ITC), is entitled to bail despite the gravity of the offence and ongoing investigation.- Whether prolonged judicial custody of the accused without commencement of trial violates the fundamental right under Article 21 of the Constitution.- The applicability and interpretation of Section 132 of the CGST Act, 2017, particularly concerning the bailability and cognizability of offences involving tax evasion exceeding Rs. 5 crores.- The relevance and impact of precedents relating to bail jurisprudence in economic offences, including the principle that bail is the norm and jail the exception.- Whether the accused poses a risk of tampering with evidence, influencing witnesses, or absconding, thereby justifying denial of bail.- The effect of co-accused persons having been granted bail on the applicant's entitlement to similar relief on the principle of parity.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement to Bail in Serious Economic Offences under Section 132 of the CGST ActThe legal framework under Section 132 criminalizes acts such as issuing fake invoices, fraudulent availment of ITC, and other tax evasion activities. Sub-sections (1)(b), (c), (f), (i) pertain to issuance and use of bogus invoices, wrongful availment of ITC, and offences involving evasion exceeding Rs. 5 crores, which are non-cognizable and non-bailable. The prosecution alleges that the applicant was involved in the creation of fake firms and issuance of fake invoices resulting in fraudulent ITC of Rs. 163.50 crores.The Court examined precedents including State of Rajasthan v. Balchand and Sanjay Chandra v. CBI, which establish that bail is the rule and jail the exception, emphasizing the accused's right to liberty under Article 21. The Court also relied on Vineet Jain v. Union of India (2025) wherein the Supreme Court deprecated routine denial of bail in CGST cases, especially where evidence is documentary and in custody of the department, minimizing risk of tampering.Furthermore, the Court noted that the maximum punishment under the CGST Act for such offences is five years, and the accused has been in custody for nearly 20 months without trial commencement, which raises concerns under Article 21.The applicant's counsel argued that the case is triable by Magistrate, the accused has good antecedents, is a permanent resident, and undertakes not to tamper with evidence or abscond. The Court acknowledged these factors but also considered the prosecution's contentions.Issue 2: Risk of Tampering with Evidence, Influencing Witnesses, or AbscondingThe prosecution submitted that the accused, along with co-accused, masterminded a large-scale racket involving creation of 3100 fake firms and fraudulent ITC amounting to over Rs. 2645 crores, with Rs. 163.50 crores confirmed as fake ITC passed on. The accused's statements under Section 70 of the CGST Act admitted active involvement. Recovery of incriminating material such as mobile phones, SIM cards, laptops, forged Aadhaar Cards, and cash counting machines was highlighted.The prosecution argued that the accused could tamper with evidence or influence witnesses if released on bail, posing a flight risk and potential to commit further offences. Reliance was placed on Supreme Court rulings such as State of Gujarat v. Mohanlal Jitamaliji Porwal and Y.S. Jagan Mohan Reddy v. CBI, which emphasize that economic offences are grave and require a different approach in bail considerations.However, the Court observed that the evidence primarily consists of documentary material held by the department, limiting scope for tampering. The accused's undertaking to cooperate and restrictions proposed were noted but weighed against the gravity of the offence.Issue 3: Prolonged Custody without Trial and Violation of Article 21The accused has been in judicial custody since July 2023, with trial yet to commence. The Court referenced the principle that detention pending trial must be based on compelling reasons and that prolonged incarceration without trial violates the right to life and personal liberty under Article 21.Precedents such as Vikrant Singhal v. Union of India reiterated that bail should be the norm, and detention before conviction has punitive content and should be exceptional. The Court noted that co-accused persons Gaurav Singhal and Gurmeet Singh Batra had been granted bail by the High Court, reinforcing the parity principle.Issue 4: Applicability of Parity and Comparative Bail DecisionsThe applicant's counsel relied on orders granting bail to co-accused, particularly Gaurav Singhal, where the High Court observed absence of any device for creation of fake firms and prolonged incarceration without trial justified bail. The Court acknowledged these observations and the principle of parity, which mandates similar treatment of similarly situated accused persons.Issue 5: Nature of Evidence and Stage of InvestigationThe evidence is primarily documentary, including GST returns, financial statements, and recovered electronic devices. The Court noted that the investigation is ongoing but the charge sheet has been filed, and no recovery proceedings have been initiated. The scope for tampering with documentary evidence is limited, which is a relevant factor favoring bail.Issue 6: Competing Arguments and Final AssessmentThe prosecution emphasized the serious economic impact of the offence, the large-scale conspiracy, and the accused's role as a mastermind, justifying denial of bail to prevent interference with investigation and protect public interest. The defence stressed constitutional rights, absence of trial progress, good antecedents, and undertakings to cooperate and abide by conditions.The Court balanced these considerations, recognizing the gravity of the offence but also the constitutional mandate that bail is the norm. Despite the serious allegations, the prolonged custody without trial and the nature of evidence weighed in favor of bail. However, the Court ultimately rejected bail, citing the risk of tampering and flight, and the need to uphold the integrity of the investigation.3. SIGNIFICANT HOLDINGS'From the plain reading of Section 132 of CGST Act it transpires that Section 132 of the CGST Act criminalizes specific acts of tax evasion and related offences... Depending on the quantum of evasion, the punishment may range from six months to five years of imprisonment, often coupled with a fine.''The Apex Court has categorically established the principle of India's criminal justice system that bail should be the norm, not jail, except when there's a substantial risk that the accused might flee, tamper with evidence, pose a threat to witnesses or repeat offences.''These are the cases where in normal course, before the Trial Courts, the accused should get bail unless there are some extraordinary circumstances.''Detention in custody pending completion of trial could be a cause of great hardship... 'necessity' is the operative test... any imprisonment before conviction has a substantial punitive content and it would be improper for any court to refuse bail as a mark of disapproval of former conduct.''Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail... involving huge loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the country.''On account of receipt of fake tax invoices without actual receipt of goods fraudulent availment of input tax credit to the tune of Rs.174.46 Crores and further passing on of ITC to the tune of Rs.163.50 Crores, is detected till date.''Considering these facts, as well as gravity of the offence, it would not be proper to enlarge him on bail at this stage.'