2025 (10) TMI 365 - HC - GST

Bail granted to accused in alleged fake input tax credit scheme; investigation finished and complaint filed

SUNIL HIRALAL MANDOWARA Versus STATE OF GUJARAT & ANR.

HC allowed bail to an accused arrested in December 2024 for allegedly obtaining input tax credit through fictitious transactions. Investigation is ... Seeking grant of bail - illegally obtaining the benefit of Input Tax Credit by showing some fictitious transactions on record - HELD THAT:- In the present offence, investigation is over and complaint has filed. It is the case of the prosecution against the applicant that he had claimed the benefit of Input Tax Credit by showing some fictitious transactions on record, though actually the applicant had not purchased any such goods from any of the firms in question. As per the case of prosecution, it was the present applicant himself who had created those firms and had obtained the benefit of Input Tax Credit. The offence alleged against the applicant is punishable with imprisonment up to 5 years. The applicant was arrested in connection with the present offence in the month of December 2024 and since then he is in custody. Having regard to these aspects, the present application deserves considerations and hence, the present application is hereby allowed - taking into consideration the facts of the case, nature of allegations, gravity of accusation, availability of the applicant accused at the time of Trial etc. and the role attributed to the present applicant accused, the present application deserves to be allowed and accordingly stands allowed. This Court has also gone through the FIR and police papers and also the earlier order passed by the learned Sessions Court where the learned Sessions Judge has disallowed the bail Application at initial stage. Bail bond to be executed before the Trial Court having jurisdiction to try the case. It would be open for the Trial Court concerned to give time to furnish the solvency certificate if prayed for - petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the accused is entitled to regular bail under Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023 where investigation is complete and a charge-sheet/complaint has been filed. 2. Whether the statutory and judicially recognized factors (prima facie case, likelihood of the accused's availability at trial, and risk of tampering/hampering with witnesses) require denial or grant of bail in the facts of this case. 3. Whether the gravity of the allegations (alleged fraudulent claim of Input Tax Credit by showing fictitious purchases) and the maximum statutory punishment (up to 5 years) preclude grant of bail. 4. What conditions, if any, are appropriate and necessary to protect the investigation, the trial process and public interest while releasing the accused on bail. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to regular bail where investigation is complete and charge-sheet filed Legal framework: Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023 governs grant of regular bail. Judicial practice permits consideration of custodial period, stage of investigation/trial and other relevant factors. Precedent treatment: The Court expressly relied upon the law laid down by the Apex Court in the principle summarized from Sanjay Chandra v. C.B.I., identifying three core factors to be considered (prima facie case, availability at trial, risk of tampering with witnesses). Interpretation and reasoning: The Court noted that investigation is complete and complaint/charge-sheet has been filed but despite that the custody period already undergone (approximately eight months) and other factual aspects weigh in favour of release. The Court examined record including FIR, police papers and earlier order declining bail, but found overall circumstances justified bail. Ratio vs. Obiter: Ratio - a completed investigation and filing of complaint/charge-sheet does not automatically preclude grant of regular bail; the court must weigh the recognized factors and facts of the case. Conclusion: Bail was held permissible despite completion of investigation and filing of complaint, as the balance of factors favored release. Issue 2 - Application of the three-factor test (prima facie case; availability at trial; tampering with witnesses) Legal framework: The three-factor test identified by the Apex Court (prima facie case, accused's availability at trial, and risk of tampering/hampering witnesses) is to be applied when adjudicating bail applications. Precedent treatment: The Court followed the Sanjay Chandra formulation and applied it to facts before it. Interpretation and reasoning: The Court considered (a) prima facie strength of the prosecution case as presented in the record (prosecution alleges creation of firms and fictitious purchases to claim Input Tax Credit), (b) availability - applicant represented as not likely to abscond and having been in custody since 17.12.2024, and (c) tampering risk - conditions were imposed to mitigate any risk of influencing witnesses or tampering with evidence. The Court explicitly recorded that the prosecution's case alleges creation of firms and claims exceeding Rs.10 crores but nonetheless balanced the statutory factors and the accused's custodial period. Ratio vs. Obiter: Ratio - courts must balance prima facie strength against custodial period, likelihood of attendance, and tampering risk; mere gravity of accusations alone is not decisive. Obiter - detailed factual observations about how registrations were cancelled and specific monetary amounts are contextual but not general principles. Conclusion: Applying the three-factor test, the Court concluded that the accused's release on bail was justified subject to stringent conditions to address tampering risk and ensure presence at trial. Issue 3 - Effect of alleged gravity of offence and statutory maximum sentence on bail grant Legal framework: The seriousness of allegations and maximum punishment are relevant but not determinative in bail adjudication; they inform the prima facie assessment and the need for protective conditions. Precedent treatment: Adopted established practice that gravity and penal severity are factors to be weighed alongside custody duration and flight/tampering risks. Interpretation and reasoning: The Court acknowledged the gravity - allegations of fabricating firms and claiming Input Tax Credit exceeding substantial amounts and the offence being punishable up to 5 years. Nonetheless, given the accused's continued incarceration for about eight months and other mitigating factors (availability for trial, representation of non-flight risk), the Court deemed release appropriate with conditions tailored to address risks arising from the seriousness of allegations. Ratio vs. Obiter: Ratio - severity of offence and statutory maximum punishment are relevant but do not automatically bar bail; appropriate conditions can mitigate concerns. Obiter - emphasis on the prosecution's asserted monetary figure and cancellation of GST registrations serves factual context. Conclusion: Seriousness of allegations was a material consideration but did not outweigh factors favoring bail; accordingly bail granted with protective conditions. Issue 4 - Appropriate conditions and safeguards upon granting bail Legal framework: Bail may be granted subject to conditions reasonably necessary to secure attendance at trial, prevent tampering with witnesses/evidence, and protect public interest; trial court retains power to enforce conditions or issue warrants on breach. Precedent treatment: The Court exercised traditional supervisory power to impose conditions and to leave implementation and enforcement to the trial court. Interpretation and reasoning: To mitigate identified risks, the Court imposed specific conditions: execution of a personal bond with surety (Rs.10,000 and like amount), prohibition against inducement/threat/promise to witnesses, prohibition on criminal activity, furnishing and not changing residential address without permission, providing contact numbers and monthly police station appearances for six months, disclosure of immovable property by affidavit, restriction on leaving the country without prior trial court permission, and surrender of passport (or affidavit if none). The Court also expressly left to the trial court competence to accept bond, allow time to produce solvency certificate, and take action for any breach; it directed that trial court not be influenced by prima facie observations made in the bail order. Ratio vs. Obiter: Ratio - tailored, enforceable conditions are an appropriate and necessary method to balance liberty and the integrity of investigation/trial when granting bail. Obiter - procedural directions about solvency certificate timing and direct service are administrative adjuncts. Conclusion: Bail was granted subject to enumerated conditions; breach permits warrant or other lawful action by trial court; trial court retains discretion and must not be influenced by interim prima-facie observations in the bail order.