Bail Denied Under Section 69 CGST Act for Fraudulent ITC Claims and GST Evasion Over Rs 9 Crore

The Additional Sessions Court, Meerut, dismissed the bail application of the accused arrested under section 69 of the CGST Act, 2017, for clandestine supply of goods without issuing invoices and fraudulent availing of ITC amounting to over Rs. 9.32 crore, along with GST evasion of Rs. 0.58 crore. The accused, a key partner in the firm, confessed to the offences and was found to have received cash payments and paid commissions to fake invoice issuers. The court noted the absence of a charge sheet and held that releasing the accused on bail posed a risk of evidence tampering, witness influence, and flight. Considering the gravity of the economic offences and relevant SC precedents, bail was refused.

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ISSUES:

Whether arrest under Section 69 of the CGST Act, 2017 is justified without prior adjudication or determination of tax liability under Sections 73/74 of the Act.Whether invocation of Sections 132(1)(a), 132(1)(c), and 132(1)(i) of the CGST Act, 2017 against the accused is appropriate absent concrete evidence linking the accused to fraudulent availment or utilization of Input Tax Credit (ITC).Whether illegal detention prior to formal arrest violates procedural safeguards under the CGST Act and constitutional rights.Whether the accused poses a flight risk, likelihood of tampering with evidence, or influencing witnesses warranting denial of bail.Whether economic offences under the CGST Act should be treated with a different approach in bail considerations, given the gravity and impact on public funds.Whether classification disputes or alleged procurement of goods under incorrect descriptions constitute offences warranting arrest under Section 132 of the CGST Act.

RULINGS / HOLDINGS:

Arrest under Section 69 of the CGST Act requires "Reason to believe" based on sound legal principle and documentary or other evidence; mere allegations without prior adjudication under Sections 73 or 74 do not justify arrest. The court emphasized that "The power to punish set out in Section 132 of the Act would stand triggered only once it is established that an assessee has 'committed' an offence that has to necessarily be post-determination of the demand due from an assessee."Invocation of Sections 132(1)(a) and (c) was found inappropriate absent demonstration that the accused supplied goods without issuing invoices or fraudulently availed ITC. The court noted that "a bare perusal of the aforesaid sub-section suggests that the present applicant has not supplied any good or service without issue of invoice" and "he has not taken Input tax credit wrongly being so there is no question arises to invoke the present against the applicant."Detention of the accused prior to formal arrest was held illegal and violative of procedural safeguards, as the accused was kept in custody without proper arrest memo or justification. The court observed that "the applicant was illegally detained by the Respondent officers on 24.06.2025 itself and he was kept in the DGGI office till the time he was arrested."No material was produced by the prosecution to establish that the accused was a flight risk, likely to tamper with evidence, or influence witnesses. The court reiterated established principles that bail considerations require such factors and noted "Once the department has no any of the aforesaid apprehension, keeping the applicant in judicial custody is unwarranted."Economic offences, while serious, do not justify mechanical or casual arrests. The court cited the principle that "Power of arrest should not be exercised at the whims and caprices of any officer or for the sake of recovery or terrorizing any businessman or create an atmosphere of fear, whereas it should be exercised in exceptional circumstances during investigation."Classification disputes or procurement of goods under incorrect descriptions, such as procuring AGU instead of TGU, without malafide intention or concrete evidence of fraudulent intent, do not constitute offences warranting arrest under Section 132 of the CGST Act.

RATIONALE:

The court applied statutory provisions of the CGST Act, 2017, particularly Sections 69, 73, 74, and 132, emphasizing the procedural safeguards and the requirement of prior adjudication before criminal proceedings or arrest can be initiated.Precedents from various High Courts and the Supreme Court were relied upon to clarify that "Reason to believe" for arrest under Section 69 must be supported by evidence and cannot be a mere formality or mechanical exercise.The judgment referenced authoritative rulings including those of the Hon'ble Madras High Court in Jayachandran Alloys, the Delhi High Court in Make My Trip, and the Supreme Court in Amesh Kumar v. State of Bihar, which underscore that criminal liability under Section 132 arises only post-determination of tax liability through assessment.The court highlighted the constitutional protection of personal liberty under Article 21 and stressed that arrests in economic offences should be exceptional and based on concrete grounds such as flight risk or tampering with evidence, not mere allegations.It was noted that economic offences require a balanced approach considering the impact on the community and economy, but also the rights of the accused, citing Supreme Court dicta that economic offences are committed with "cool calculation and deliberate design" but arrest powers must be exercised with circumspection.The court rejected the prosecution's contention that the accused's involvement justified denial of bail, pointing out absence of evidence linking the accused directly to fraudulent acts and noting that the accused had cooperated with investigation.No charge sheet or adjudication order had been issued at the time of arrest, making the arrest premature and contrary to the statutory scheme of the CGST Act.

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