2025 (10) TMI 1121 - HC - GST

Regular bail granted in fake ITC claim where tax not yet assessed under SGST Act; applicant cooperative, detention unnecessary

HC granted regular bail to the applicant in a case alleging availing ineligible or fake ITC from non-existent or cancelled-registration entities, on ... Seeking grant of regular bail - availing ineligible or fake Input Tax Credit (ITC) from non-existent, registration-cancelled, or suspected business entities - HELD THAT:- Taking into consideration the fact that the complaint has already been filed against the applicant and further no statutory notice or assessment has been conducted against the applicant under the SGST Act, 2017, the quantum of tax involved remains unassessed and appealable, and the applicant has fully cooperated with the investigation and further the compliant has been filed, it appears that no purpose would be served by his further detention. The primary object of the Act is economic recovery rather than punitive incarceration. In view of the settled principles of law laid down by the Hon’ble Supreme Court in Vineet Jain [2025 (5) TMI 925 - SC ORDER], as well as various High Court rulings, and considering the character, standing, and conduct of the applicant and the fact that applicant is languishing in jail since 20.08.2025, his custodial detention is not warranted hence, without commenting anything on merits of the case, it is inclined to grant regular bail to the applicant, subject to fulfilment of conditions imposed. Accordingly, the bail application on behalf of the applicant – Ankit Singh is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether, on the materials before the Court, the requisites for constituting offences under Section 132(1)(b) and (c) of the SGST Act, 2017 are established even prima facie so as to justify continued custodial detention. 2. Whether statutory notice and assessment under the SGST/CGST framework are mandatory preconditions before invoking penal provisions and effecting arrest/continued detention for alleged GST fraud. 3. Whether the settled supervisory principles and guidelines (as applied by higher courts) governing grant of bail in economic/GST offences weigh in favour of release where investigation is complete, complaint is filed, the tax liability remains unassessed/appealable, and the accused has cooperated. 4. Whether the economic character of the statute, availability of compounding, the nature and quantum of tax liability (unassessed), and the accused's conduct collectively preclude further custody and justify grant of regular bail subject to conditions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Prima facie establishment of offences under Section 132(1)(b) & (c) of the SGST Act, 2017 Legal framework: Section 132(1)(b) and (c) prescribe penal liability for specified offences involving tax evasion/claims of inadmissible ITC; criminal process requires satisfaction of statutory ingredients before custody is justified. Precedent Treatment: The Court referred to recent decisions holding that mere allegation of tax fraud does not automatically justify custodial detention and that bail should ordinarily be considered where the statutory and evidential preconditions are not firmly established at the arrest stage. Interpretation and reasoning: The Court examined the prosecution case that alleges orchestration of a network to claim ineligible/false ITC. Noting the material on record, the Court found that assessment of tax liability - a determinative element for quantum of punishment - has not been completed; therefore, the ingredients necessary to justify continued custody are not conclusively established on the present record. The accused's role, though alleged, had not been shown to require further custodial interrogation or to pose a real risk of evidence tampering on the material before the Court. Ratio vs. Obiter: Ratio - custodial detention is not warranted where the prima facie material does not establish the statutory requisites for the offence and where investigation is complete and no further custodial necessity appears. Obiter - observations on the alleged modus operandi and enumeration of connected companies are descriptive of the prosecution case but not determinative of guilt. Conclusion: On the materials before the Court, the requisites for sustaining continued custody under Section 132(1)(b) and (c) are not sufficiently made out to justify denial of bail. Issue 2 - Necessity of statutory notice/assessment before invoking penal provisions Legal framework: The SGST/CGST statutory scheme contemplates assessment and opportunity for objection/appeal; certain judicial authorities have held that statutory notice and assessment are essential prerequisites to criminal penal action in tax matters. Precedent Treatment: The Court relied on High Court decisions emphasizing mandatory notice/assessment prior to penal invocation and accepted the proposition as a relevant consideration in bail adjudication; it also relied on higher-court guidance limiting custodial measures where assessment is pending. Interpretation and reasoning: The Court observed that no statutory notice or assessment has been served/undertaken against the accused; as the quantum of tax - which determines the nature/extent of penal consequences - remains unassessed and appealable, initiating or continuing custodial incarceration would be premature and contrary to the remedial/administrative character of tax assessment remedies. Ratio vs. Obiter: Ratio - absence of statutory assessment/notice is a significant factor militating against custodial detention in GST-related offences at the bail stage. Obiter - remarks on the administrative objectives of assessment procedures supplement but do not replace fact-specific inquiry. Conclusion: The lack of statutory notice/assessment is a material consideration against continued custody and supports grant of bail in the circumstances presented. Issue 3 - Application of bail principles in economic/GST offences where investigation is complete and complaint filed Legal framework: Principles for bail in economic offences include examination of nature of accusation, gravity of offence, likelihood of tampering with evidence, character and antecedents of the accused, completion of investigative steps, and public interest; higher-court guidelines direct liberal grant of bail in certain GST offences where custodial necessity is absent. Precedent Treatment: The Court applied the guiding decisions that recommend early bail in offences under Section 132(1) where punishment is not of extreme severity and custodial interrogation is not requisite; these precedents were followed as applicable to the facts. Interpretation and reasoning: The Court noted that investigation is complete and the complaint has been filed, that the accused cooperated fully, and that no further evidence was shown to require custodial interrogation or to indicate risk of tampering. Given these factors and the composite judicial guidance favoring bail in similar GST matters, the Court concluded that continued detention would not further investigation or protect public interest beyond what conditions of bail could secure. Ratio vs. Obiter: Ratio - where investigation is complete, complaint filed, the accused has cooperated, and no custodial necessity is demonstrated, bail should ordinarily be granted notwithstanding the seriousness of economic allegations, subject to appropriate conditions. Obiter - comparative references to other benches' treatments reinforce but do not expand the ratio beyond fact-specific application. Conclusion: The established bail principles, applied to the completed investigation and cooperation by the accused, weigh in favour of regular bail subject to conditions. Issue 4 - Role of compounding, economic object of statute, and unassessed quantum in bail determination Legal framework: The SGST Act allows compounding of offences; the statutory scheme aims at revenue recovery and regulation of economic activity rather than purely punitive incarceration; assessment determines tax liability which informs sentencing exposure. Precedent Treatment: Courts have treated the availability of compounding, remedial character of tax statutes, and unassessed/appealable tax liability as relevant mitigating considerations at bail stage; those lines of authority were relied upon to assess proportionality of custody. Interpretation and reasoning: The Court emphasized that the primary object of the Act is economic recovery, that compounding is available, and that the monetary quantum which defines the severity of penal consequences remains unassessed. Taken together with the accused's cooperation and lack of custodial necessity, continued detention was deemed disproportionate and unnecessary for public interest or the integrity of the investigation. Ratio vs. Obiter: Ratio - compounding availability and unassessed tax quantum are relevant, substantial considerations in favour of bail in GST offences where other custodial necessities are absent. Obiter - broader policy remarks on prison overcrowding and objective of statutes were made in support but are not dispositive of distinct factual permutations. Conclusion: The economic objective of the statute, availability of compounding, and unassessed/appealable tax liability cumulatively support release on bail under appropriate conditions. Overall Disposition Conclusions drawn by the Court: Considering the absence of statutory assessment/notice, completion of investigation and filing of complaint, the accused's cooperation, the economic/recovering object of the statute, and binding/salient judicial guidance favouring early bail in comparable GST matters, custodial detention was not warranted; accordingly, regular bail was granted subject to furnishing prescribed bonds and surety, without adjudication on merits.