Regular bail granted in ITC fraud case despite economic offence charges and bogus supplies allegations

HC granted regular bail to petitioner charged with fraudulent ITC claims and bogus goods supplies. Court held that bail remains the rule even in economic offences, with refusal being exceptional. While gravity of offences must be considered, blanket denial of bail for economic crimes is not justified. Given maximum punishment of 5 years, documentary/electronic evidence nature, and no custodial interrogation required, further detention was unjustified. Court found no risk of witness tampering as evidence would come through official witnesses. Petitioner released on personal bonds with two sureties subject to conditions.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter include:

(a) Whether the petitioner is entitled to regular bail under Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023, in a complaint case filed under Section 132(1)(b) and (c) of the Central Goods and Services Tax Act, 2017 (CGST Act);

(b) Whether the arrest of the petitioner was lawful and in accordance with the mandatory procedural requirements under the CGST Act, specifically Section 73;

(c) Whether the allegations of fraudulent availment and utilization of Input Tax Credit (ITC) by operating fictitious firms are prima facie established;

(d) Whether the petitioner's detention is justified in light of the nature and gravity of the offence, the evidence involved, and the likelihood of tampering with evidence or influencing witnesses;

(e) The applicability of established legal principles and precedents governing bail in economic offences, particularly those punishable under Section 132 of the CGST Act;

(f) The conditions, if any, to be imposed on the petitioner upon grant of bail.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Entitlement to Bail under Section 483 BNSS and CGST Act Offences

The petitioner sought regular bail under Section 483 of the BNSS, challenging his arrest and detention in a case involving offences under Section 132(1)(b) and (c) of the CGST Act. The offences relate to issuance and utilization of invoices without actual supply of goods, leading to wrongful availment of ITC. The maximum punishment prescribed under Section 132(1)(i) is imprisonment up to five years with fine.

The Court examined the statutory framework, including Section 132 of the CGST Act, which specifies punishments for offences involving tax evasion and fraudulent ITC claims. It noted that the offences attract imprisonment ranging from one to five years depending on the amount of tax evaded or ITC wrongly availed.

Precedents cited by the petitioner, including recent Supreme Court decisions, emphasize that grant of bail is the rule, and refusal the exception, even in cases of grave economic offences. The Court referred to the principles laid down in Dataram Singh v. State of U.P., which reiterates the presumption of innocence and the liberal approach towards bail, and P. Chidambaram v. Directorate of Enforcement, which underscores the need to balance the nature of allegations, severity of punishment, and risk factors such as tampering with evidence or fleeing.

The Court observed that the petitioner had been in custody for over six months, the offence is triable by a Magistrate, and the evidence is primarily documentary and electronic, reducing the risk of tampering or influencing witnesses.

(b) Legality and Procedural Compliance of Arrest

The petitioner contended that his arrest was unlawful, as it was effected without the mandatory authorization and procedure prescribed under Section 73 of the CGST Act. He argued that no notice was issued to him for quantification of ITC before arrest, no grounds or reasons for arrest were communicated, and the arrest was made without tangible grounds.

The Court noted these contentions but did not find any explicit claim by the department for custodial interrogation or necessity for further detention. The Court did not delve deeply into the procedural irregularities alleged but considered the overall circumstances in the bail context.

(c) Prima Facie Case and Gravity of Offence

The respondents argued that the petitioner had caused massive loss to the Government Exchequer by creating fictitious firms and facilitating bogus invoicing, involving ITC of over Rs. 48 crores. They contended that the petitioner's active involvement was evident and that release on bail would risk influencing co-accused and witnesses.

The Court acknowledged the seriousness of the allegations but balanced this against the nature of evidence, the absence of custodial interrogation requirement, and the petitioner's personal circumstances, including no criminal antecedents, permanent business and residence, and willingness to cooperate.

(d) Risk of Flight, Tampering, and Interference with Justice

The Court considered the risk factors traditionally relevant in bail matters: likelihood of absconding, tampering with evidence, and influencing witnesses. It found that the petitioner had no history of fleeing, was willing to surrender his passport, and the evidence was documentary and electronic, minimizing the risk of tampering or intimidation.

The Court also imposed stringent conditions to mitigate any such risks, including prohibiting disposal of property under investigation and mandating cooperation in trial proceedings.

(e) Application of Legal Principles and Precedents on Bail in Economic Offences

The Court extensively reviewed binding precedents, including:

• Dataram Singh v. State of U.P. - emphasizing bail as the rule and incarceration as the exception;
• P. Chidambaram v. Directorate of Enforcement - highlighting factors such as nature of offence, severity of punishment, risk of tampering, and character of accused;
• Recent Supreme Court decisions granting bail in economic offences punishable under Section 132 of the CGST Act, where accused had undergone significant custody periods and trial was expected to be prolonged;
• Cases where bail was denied only in extraordinary circumstances, and where custodial interrogation was necessary.

The Court found these precedents persuasive and consistent with the facts of the present case.

(f) Conditions on Bail

Recognizing the gravity of the offence but balancing the petitioner's rights and the nature of evidence, the Court granted bail subject to conditions designed to protect the integrity of the trial and prevent misuse of liberty. These conditions included:

• Deposit of passport;
• Cooperation with trial and avoidance of unnecessary adjournments;
• Prohibition on tampering with prosecution evidence or intimidating witnesses;
• Restriction on disposing of property or business interests under investigation;
• Prohibition on engaging in further criminal activity;
• Submission of Aadhaar and contact details to the trial court.

The Court warned that breach of any condition would constitute grounds for cancellation of bail.

3. SIGNIFICANT HOLDINGS

The Court held that the petitioner was entitled to bail despite the serious allegations under Section 132(1)(b) and (c) of the CGST Act, considering the following principles and determinations:

"We are surprised to note that in a case like this, the appellant has been denied the benefit of bail at all levels, including the High Court and ultimately, he was forced to approach this Court. These are the cases where in normal course, before the Trial Courts, the accused should get bail unless there are some extraordinary circumstances."

The Court established that:

• The grant of bail remains the general rule even in economic offences punishable with imprisonment up to five years;
• The nature of evidence (primarily documentary and electronic) and absence of custodial interrogation needs weigh in favour of bail;
• The petitioner's personal circumstances, lack of criminal antecedents, and willingness to comply with bail conditions reduce the risk of flight or interference;
• Procedural irregularities in arrest and detention, while noted, do not preclude bail but form part of the overall assessment;
• Conditions imposed on bail are essential to safeguard the trial process and public interest.

Accordingly, the Court ordered release of the petitioner on regular bail subject to furnishing personal bonds with sureties and compliance with specified conditions, emphasizing that the observations made were confined to the bail application and not an expression on the merits of the case.

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