2025 (10) TMI 714 - HC - GST

Bail granted to accused who used shell companies to claim Rs.185 crore fake input tax credit under CGST Act

HC allowed bail to the applicant accused of orchestrating shell companies to obtain and pass on fake input tax credit of about Rs. 185 crores under ... Seeking release of the applicant on bail during pendency of the trial in the court below - applicant by way of fake input tax credit committed fraud of about Rs. 185 crores - offences u/s 132(1)(b), 132(1)(c), 132(1)(i) of CGST Act, 2017 - HELD THAT:- As per allegation applicant is a business man and he firstly formed number of shell companies with intention to commit fraud and thereafter by way of fake input tax credit, he availed and passed on more than Rs. 180 crores but in the instant matter after investigation complaint has been filed and applicant is in jail for last one year and for the alleged offence maximum punishment is five years. The Apex Court in case of Ratnambar Kaushik vs. Union of India [2022 (12) TMI 263 - SUPREME COURT] enlarged the accused on bail considering the facts that prosecution case is based on documentary and electronic evidence and investigation has been completed and accused is in jail for four months. Therefore, it appears, however, economic offences are a class apart but merely on this ground in the matter like present one bail application should not be dismissed by ignoring the one year long incarceration of the applicant considering the fact that for the alleged offences maximum punishment is five years and offences are triable by Magistrate and trial is at initial stage - Further, law is settled that unless proven guilty an accused is deemed to be innocent and bail is a rule while bail rejection is an exception and bail application should not be dismissed either for punitive or preventive purposes. Therefore, considering the facts and circumstances of the case, the applicant is entitled to be released on bail - the applicant is allowed to be released on bail subject to fulfilment of conditions imposed - bail application allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the applicant accused under Sections 132(1)(b), 132(1)(c) and 132(1)(i) of the Central Goods and Services Tax Act, 2017 is entitled to bail pending trial where investigation is complete, a charge-sheet/complaint has been filed, and the case is based predominantly on documentary and electronic evidence. 2. Whether the seriousness of alleged economic offences involving large monetary value and the contention that 'economic offences are a class apart' justifies refusal of bail notwithstanding completion of investigation and significant pre-trial incarceration. 3. Whether the principles governing bail in economic offences change where maximum sentence is limited (five years) and the trial is triable by a Magistrate and is at an initial stage with no prosecution witnesses examined. 4. What conditions, if any, are appropriate when granting bail in such economic offence matters to allay apprehensions of tampering, intimidation or absconding. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Bail entitlement where investigation is complete, complaint/charge-sheet filed, and evidence is largely documentary/electronic Legal framework: Bail is a rule and denial an exception; accused is presumed innocent until proven guilty; courts consider nature of evidence, stage of trial, duration of pre-trial custody, and whether presence in custody is necessary for further investigation. Precedent Treatment: The Court relied on apex court authorities (as cited in the record) that granted bail in cases where investigation was complete, charge-sheet filed, prolonged pre-trial incarceration had occurred, and evidence was documentary/electronic in nature. Those authorities were followed in principle. Interpretation and reasoning: The Court observed that where the prosecution's case is essentially documentary and electronic, and ocular evidence is likely through official witnesses, the risk of tampering, intimidating or influencing witnesses is reduced. Completion of investigation and filing of complaint/charge-sheet reduce the need for custodial interrogation. The Court also weighed the fact that the trial was at an initial stage with no prosecution witness examined despite the complaint having been filed. Ratio vs. Obiter: Ratio - Completion of investigation and predominance of documentary/electronic evidence are material factors favoring bail, particularly where custody is not necessary for further investigation. Obiter - Observations quantifying the weight of documentary evidence as eliminating risk of tampering are contextual but supportive of the ratio. Conclusion: The applicant is entitled to bail on the ground that investigation is complete, the prosecution's case is documentary/electronic in nature, and continued custody is not necessary for investigation. Issue 2 - Effect of seriousness/large monetary value and the proposition that economic offences are a class apart Legal framework: While gravity of offence and societal impact are relevant, they do not automatically oust the regular principles of bail. The courts must balance the seriousness of offence with presumption of innocence and other factors (duration of custody, stage of trial, nature of evidence, antecedents). Precedent Treatment: The Court acknowledged precedent recognizing that economic offences may be treated as a distinct category, but it followed authorities that nevertheless granted bail where investigation was complete and other bail-favoring factors existed. Interpretation and reasoning: The Court rejected a categorical rule that economic offences always justify denial of bail. It held that mere magnitude of alleged fraud (monetary figure) and societal impact cannot, by themselves, override considerations such as completed investigation, limited statutory maximum sentence, triability before a Magistrate, and prolonged pre-trial incarceration. The Court emphasized that bail must not be refused for punitive or preventive purposes. Ratio vs. Obiter: Ratio - The proposition that economic offences are a class apart is not absolute; each bail application requires balancing relevant factors. Obiter - Comment that economic offences should not lead to blanket denial of bail. Conclusion: Seriousness and large monetary value, while relevant, do not automatically preclude bail where other factors (complete investigation, documentary evidence, prolonged custody, limited sentence) favor release. Issue 3 - Relevance of statutory maximum punishment (five years), triability by Magistrate, stage of trial, and antecedents Legal framework: Statutory maximum sentence and triability influence the bail analysis - lesser maximum punishment and trial before a Magistrate weigh in favor of bail; antecedents (previous criminal history) are a relevant factor. Precedent Treatment: The Court applied precedents that granted bail in similar contexts where sentence was limited and antecedents were absent. Interpretation and reasoning: The Court noted the offences carry a maximum of five years imprisonment, are triable by a Magistrate, and the applicant had no prior criminal history. Combined with one year of incarceration and an early stage of trial (no prosecution witnesses), these facts militated in favor of bail. The Court observed that prolonged pre-trial incarceration where the penalty is limited warrants consideration for bail. Ratio vs. Obiter: Ratio - Limited statutory punishment and absence of antecedents are significant in deciding bail where investigation is complete and the trial is at an early stage. Obiter - Remarks on the expected duration of trial and administrative delays. Conclusion: Restricted maximum punishment, triability by Magistrate, and absence of antecedents support grant of bail under appropriate conditions. Issue 4 - Conditions to be imposed on bail to prevent tampering, intimidation or absconding Legal framework: Bail can be granted on conditions to secure the ends of justice; conditions may include personal bond, sureties, appearance obligations, and prohibitions on influencing witnesses or engaging in criminal activity. Precedent Treatment: The Court followed established practice of imposing stringent conditions when granting bail in economic offence matters to address prosecutorial concerns. Interpretation and reasoning: To allay apprehensions of tampering or absconding, the Court imposed a personal bond with two sureties, an obligation to appear on trial dates (unless presence exempted), prohibition against inducing, threatening or promising persons acquainted with the facts, and prohibition against engaging in criminal or anti-social activity. The Court preserved prosecution's remedy to move for cancellation of bail upon breach. Ratio vs. Obiter: Ratio - Conditions limiting interference with witnesses and ensuring attendance are appropriate safeguards when granting bail. Obiter - Procedural clarifications about remedies for prosecution on breach are explanatory. Conclusion: Bail is granted subject to specified conditions (personal bond, sureties, appearance obligations, non-interference with witnesses, and abstention from criminal activity), with liberty to seek cancellation on breach. Cross-References and Overarching Conclusions Cross-reference: Issues 1-3 are interlinked; completion of investigation, documentary/electronic nature of evidence, limited statutory punishment, absence of antecedents, and prolonged pre-trial custody collectively informed the Court's decision to grant bail despite the large alleged monetary fraud and the respondent's contention that economic offences are a class apart. Overarching conclusion: Applying settled principles and relevant precedents, the Court concluded that the applicant should be released on bail under specified conditions, emphasizing that such grant is without prejudice to the merits of the trial and that bail should not be refused for punitive or preventive purposes where the circumstances outlined above obtain.