2025 (10) TMI 1181 - HC - GST

Bail denied where prima facie evidence showed misuse of complainant's GST credentials to claim fraudulent input tax credits

Smti Renu Sunar Versus The State of AP.

HC refused pretrial bail. Court found prima facie use of the complainant's GST ID and password to effect fraudulent input tax credit transactions totaling ... Prayer for for release of the accused person on bail - fraudulent transaction - received ITC from unknown sources - HELD THAT:- Perusal of the records shows that prima facie the accused persons have used the ID and Password of the GST Account of the complainant for fraudulent transaction of Rs. 1,09,11,404/- with the Tax Invoices from the various proprietorship firms of Assam. It appears that there are many persons involved in alleged fraudulent transaction for which a proper investigation is required. Regard being had to the submission of learned counsel for the applicant that the arrest and detention is in violation of the mandatory provisions of law and the judgment of the Hon’ble Supreme Court to the effect that the accused persons were arrested from Harmuti, which is outside the jurisdiction, without informing the local police and no transit remand was obtained from the competent Court, the accused persons were brought to Arunachal Pradesh, which is illegal, to which this Court finds from the records that the provisions of the law with regard to arrest and transit remand have been duly complied with by the arresting authority. Therefore, the above submission appears to be not correct. Further, since the case appears to have been registered having been found cognizable offence, preliminary enquiry, perhaps may not be required and the person can be arrested without any preliminary enquiry by the police. It is only to the limited purpose of ascertaining as to whether the cognizable offence has been committed, a preliminary enquiry is required to be made. Thus, the alleged accused person is not entitled to be released on bail at this stage as the accused Shri Harka Bahadur Sonar @ Sumit Sonar, prima facie, appears to be involved in the case and many persons are also appears to be involved in the alleged offence of fraudulent invoices transaction of the GST Account of the complainant. Accordingly, the bail application stands rejected at this stage. Bail application is disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the accused is entitled to bail under Section 483 of BNSS, 2023 where alleged offence involves fraudulent GST transactions using another's GST User ID and Password. 2. Whether the arrest and detention of the accused (arrested outside local jurisdiction) violated mandatory legal requirements relating to informing local police and obtaining transit remand. 3. Whether a preliminary enquiry was required before registration of FIR and arrest in view of the allegation and the principle in Lalita Kumari (limited preliminary verification to ascertain commission of cognizable offence). 4. Whether prima facie materials exist to deny bail: (a) involvement in fraudulent input tax credit transactions of Rs.1,09,11,404/-, (b) non-cooperation with investigation, and (c) risk of tampering with witnesses or hampering investigation. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Bail entitlement under Section 483 BNSS, 2023 for alleged GST-related fraud Legal framework: Grant or refusal of bail hinges on prima facie satisfaction of involvement in cognizable offence, nature and gravity of allegations (high-value fraudulent GST transactions), multiplicity of accused, and potential to obstruct investigation. Section 483 BNSS, 2023 provides the statutory route for bail application in the present context. Precedent treatment: The Court considered established principles governing bail (liberty vs. need for investigation and public interest) and the limited requirement that bail is not punitive but intended to secure attendance; no precedent was overruled or distinguished beyond application of Lalita Kumari on preliminary enquiries (see Issue 3). Interpretation and reasoning: The record disclosed alleged use of the complainant's GST User ID and Password to effect Input Tax Credit transactions aggregating Rs.1,09,11,404/-, with multiple third-party proprietorships implicated. Material shows meetings and transfer of login credentials to accused and involvement of co-accused, indicating that a prima facie case exists. Given the gravity and complexity, the Court weighed the investigative need and potential prejudice to trial over the accused's liberty interest. Ratio vs. Obiter: Ratio - Where prima facie evidence indicates involvement in substantial fraudulent transactions and multiple persons are implicated, bail may be denied to safeguard investigation. Obiter - General statements on the non-punitive object of bail and Article 21 considerations were reiterated but not determinative. Conclusion: Bail was refused at this stage because prima facie involvement and multiplicity of actors justified continued detention to enable proper investigation. Issue 2 - Legality of arrest outside jurisdiction and requirement of informing local police/obtaining transit remand Legal framework: Arrests effected outside the local jurisdiction attract obligations to inform local police authorities and, where relevant, secure transit remand from competent courts before transferring the accused across jurisdictions. Precedent treatment: The applicant invoked authoritative guidance requiring preliminary compliance with such procedures; the Court examined the arresting records to verify compliance. No precedent was overruled; the Court applied established procedural law regarding arrest and transit remand. Interpretation and reasoning: The Court scrutinized the record and found that the arresting authority had complied with statutory/procedural mandates concerning arrest and transit remand. The submission of illegal arrest without informing local officials or obtaining transit remand was therefore rejected on facts. Ratio vs. Obiter: Ratio - Where documentary record establishes compliance with jurisdictional/ transit-remand obligations, allegations of illegal arrest fail. Obiter - Emphasis that non-compliance would vitiate arrest was noted but not necessary for decision. Conclusion: The arrest and detention were held lawful on the record; the contention of illegal arrest and transit-remand violation was rejected. Issue 3 - Necessity of preliminary enquiry prior to FIR/ arrest (application of Lalita Kumari principle) Legal framework: The principle articulated in Lalita Kumari permits limited preliminary verification to ascertain whether a cognizable offence has been committed before registration of FIR; however, where the offence is manifestly cognizable on available facts, immediate registration and arrest may follow. Precedent treatment: The Court applied Lalita Kumari to distinguish situations requiring preliminary enquiry from those where the FIR discloses a cognizable offence requiring registration and possible arrest; Lalita Kumari's limited enquiry rule was recognized but not treated as a bar in all cases. Interpretation and reasoning: Given documentary material (tax invoices, e-way bills, GST account statements reflecting significant Input Tax Credit entries) and the complainant's specific allegations of misuse of GST credentials, the Court found the FIR disclosed a cognizable offence. Thus, a prior preliminary enquiry was not necessary before registration/arrest for the limited purpose of ascertaining cognizability. Ratio vs. Obiter: Ratio - Where available facts and documents disclose a cognizable offence (e.g., large-scale fraudulent GST transactions), police need not conduct a preliminary enquiry before registration of FIR and arrest. Obiter - The limited utility of preliminary verification in marginal or doubtful situations was reiterated. Conclusion: Preliminary enquiry prior to FIR/arrest was not required in the present factual matrix; registration and arrest were justified on cognizability grounds. Issue 4 - Sufficiency of prima facie material: involvement, non-cooperation, and risk to investigation/witnesses Legal framework: Bail considerations include prima facie involvement, strength of materials, risk of witness tampering, risk of absconding, and likelihood of hampering investigation. Non-cooperation with investigators is a relevant factor against bail. Precedent treatment: The Court applied standard evaluative principles assessing prima facie material and the effect of non-cooperation and multiple implicated persons on the investigative process; no deviation from established law. Interpretation and reasoning: Record indicates: (a) meeting between accused and complainant where GST credentials were purportedly transferred; (b) multiple tax invoices and credit entries aggregating Rs.1,09,11,404/- routed through various proprietorships; (c) involvement of other accused; and (d) prosecution's assertion of non-cooperation and potential inducement/threat to witnesses. These factors, collectively, weigh against bail because continued custody is material to secure investigation and prevent tampering/obstruction. Ratio vs. Obiter: Ratio - Prima facie documentary and testimonial material showing large-value fraudulent transactions and multiple participants, together with risk factors (non-cooperation, witness intimidation), justify denial of bail pending investigation. Obiter - The Court's remarks on the presumption of innocence and the non-punitive object of bail are explanatory and not dispositive. Conclusion: Prima facie materials and risk factors justified refusal of bail; accused's application was rejected at this stage to protect the integrity of the investigation. Cross-References and Interplay of Issues 1. Issue 1 (bail entitlement) is informed by Issue 3 (cognizability/preliminary enquiry) because the Court's finding that the FIR disclosed a cognizable offence eliminated the need for preliminary enquiry and supported arrest and continued detention. 2. Issue 2 (legality of arrest/transit remand) was dispositive of a procedural challenge but did not independently entitle the accused to bail; procedural compliance reinforced the Court's ability to consider substantive matters (Issues 1 and 4). 3. Issue 4 (prima facie materials and risk) supplied the primary factual and legal basis for the Court's denial of bail under Issue 1, given the magnitude of alleged fraud and the multiplicity of actors implicated.