2025 (10) TMI 1327 - HC - GST

Accused granted regular bail in alleged fraudulent Input Tax Credit scheme under Section 132(1)(c) CGST Act

The HC granted regular bail to the accused charged with fraudulent availment/utilization of Input Tax Credit through bogus invoices under Section ... Grant of regular bail - availment of fraudulent Input Tax Credit (ITC) - fraudulent availment/utilization of ITC through receipts of bogus invoices - violation of provisions of Section 132(1)(c) of CGST Act - HELD THAT:- A bare perusal of the Section 132 leaves no room to doubt that the offences alleged carry minimum punishment of 06 months and a maximum punishment of 05 years of imprisonment. Further, Section 138 of the CGST Act is relevant, as per which, the offences under Section 132 of the Act are compoundable. It will also be proper to refer to Sanjay Chandra vs. CBI [2011 (11) TMI 537 - SUPREME COURT], wherein Sessions Court and the High Court had refused the requests of the persons accused of committing offences of cheating and forgery and use of forged documents, for grant of bail on the grounds that offences alleged against them were serious involving deep rooted planning, causing huge loss to the State exchequer and that there was possibility of the accused persons tampering with the evidence. Now adverting to the present case, the allegation against the petitioner is that his firms were involved in fake invoicing, thereby causing loss to the Government Exchequer through fraudulent GST Input Tax Credit claims. However, these claims are yet to be determined by the competent authority of the respondent by making proper assessment/adjudication. As such, it is only after assessment/adjudication that liability of the petitioner with regard to exact amount of evasion of tax is to be determined under the relevant provisions of CGST Act. The petitioner is in custody since 03.07.2025. Nothing has been shown to this Court which may justify the further detention of the petitioner in prison. Considering that the alleged offences are punishable with maximum punishment up to 05 years and also keeping in view that in such circumstances, the further detention of the petitioners may not at all be justified since in case of this nature, the evidence to be rendered by the respondent would essentially be documentary and electronic, which will be through official witnesses, due to which, there cannot be any apprehension of tampering, intimidating or influencing the witnesses and further as it appears justified to strike a fine balance between the need for further detention of the petitioner when no custodial interrogation has been claimed at all by the department, this Court considers that the petitioner is entitled to be released on bail but subject to certain conditions. The petitioner is ordered to be released on regular bail on his furnishing personal bonds with two sureties in the like amount each to the satisfaction of the Court concerned/Duty Magistrate and subject to fulfilment of conditions imposed - bail application allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the petitioner accused of fraudulent availment and utilisation of Input Tax Credit (ITC) under Section 132(1)(c) of the Central Goods and Services Tax Act, 2017 is entitled to regular bail pending trial. 2. What legal principles and factors govern grant of bail in economic offences under Section 132 of the CGST Act, including the relevance of documentary evidence, period of custody, quantum of alleged tax evaded/ITC wrongly availed, risk of tampering/absconding, and severity of prescribed punishment. 3. Whether voluntary payment/deposits and interim orders in related civil proceedings (stays) and the nature of investigation justify grant of bail. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to Bail in the Present Case Legal framework: Offences under Section 132(1)(b)-(c) and punishment brackets under Section 132(1)(i)-(iii) of the CGST Act were considered; Section 138 (compoundability) noted. The statutory scheme prescribes maximum imprisonment up to five years where tax evaded/ITC wrongly availed exceeds Rs. 5 crore (and lesser terms for lower amounts), with minimum punishment at six months for certain categories. Precedent treatment: The Court relied on established Supreme Court principles (e.g., Dataram Singh, Sanjay Chandra, P. Chidambaram, and subsequent authorities) that (i) presumption of innocence and bail as the rule; (ii) grant/denial of bail is fact-specific; and (iii) broad parameters to be considered include prima facie culpability, gravity of charge, punishment severity, risk of absconding/tampering, character/standing, likelihood of repetition, and potential to thwart justice. Interpretation and reasoning: Applying the statutory scheme and precedents, the Court examined the material: allegations of bogus invoices/ITC amounting to large figures; investigations and searches; show-cause notices; and arrest and custody since 03.07.2025. The Court observed that (a) alleged liability is yet to be determined by assessment/adjudication; (b) evidence in such matters is essentially documentary/electronic and to be adduced through official witnesses; (c) no custodial interrogation was claimed as necessary by the department; (d) petitioner has deposited substantial sums voluntarily under Section 74(5) and against show-cause notices; (e) petitioner had no criminal antecedents, permanent business abode, and there is no positive material demonstrating risk of tampering or fleeing; and (f) maximum prescribed punishment is five years, a factor weighing in favour of bail where detention would otherwise be prolonged and evidence is documentary. Ratio vs. Obiter: Ratio - Where alleged economic offences under Section 132 involve documentary/electronic evidence, no custodial interrogation is required and there is no material showing risk of tampering/absconding, continued detention may be unjustified and bail may be granted subject to stringent conditions despite the gravity of allegations. Obiter - Observations on comparative figures of ITC/assessments and reference to the petitioner's specific interim civil stays are contextual and do not constitute binding ratio beyond the present facts. Conclusion: The Court held that the petitioner is entitled to regular bail subject to furnishing personal bonds and conditions (passport deposit, cooperation, non-tampering, non-disposal of property under investigation, abstention from criminality, and furnishing Aadhaar/contact details). Breach of conditions to invite cancellation. Issue 2 - Governing Principles for Bail in Economic Offences under Section 132 Legal framework: Fundamental precepts of criminal jurisprudence - presumption of innocence, bail as the general rule, and the statutory penalties under Section 132, read with compoundability under Section 138. Precedent treatment: The Court surveyed Supreme Court jurisprudence emphasising that economic offences are not to be categorically excluded from bail; factors to be weighed include prima facie case, gravity, sentence severity, risk of absconding/tampering, accused's antecedents/standing, likelihood of repetition, and risk to the trial process. Decisions granting bail where investigation is complete, evidence documentary, and accused has endured custodial period were applied as guiding authorities. Interpretation and reasoning: The Court distilled that the nature of evidence (documentary/electronic) reduces prospects of tampering through physical custody and that absence of requisite custodial interrogation lessens the need for further detention. The Court also recognised the need to balance State interest in protecting revenue with the accused's right to liberty and a fair trial, particularly where prolonged pre-trial incarceration is disproportionate to maximum statutory sentence and where interim civil adjudicatory stays and voluntary payments indicate partial compliance/mitigation. Ratio vs. Obiter: Ratio - The listed broad parameters (prima facie culpability, gravity, punishment, risk of absconding/tampering, personal standing) are the operative test for bail in economic offences and must be applied flexibly to facts; documentary character of evidence and lack of need for custodial interrogation are material considerations favouring bail. Obiter - Comparisons with other fact-specific bail grants in cited authorities are illustrative, not binding beyond their facts. Conclusion: The Court reaffirmed that economic offences are not per se grounds for denial of bail and must be decided by applying the enumerated factors to the facts; documentary/electronic evidence and absence of custodial necessity support a grant of bail with suitable conditions. Issue 3 - Relevance of Voluntary Payments, Interim Civil Stays, and Custodial Period Legal framework: Assessing likelihood of liability and risk to revenue involves accounting for interim payments and parallel civil stays affecting quantum assessments; these do not determine guilt but are relevant to bail considerations. Precedent treatment: Courts have considered the period of custody and steps taken by accused (surrenders, deposits) as relevant in multiple precedents cited to evaluate necessity of continued detention pending trial. Interpretation and reasoning: The Court treated voluntary payments and deposits and existing stays in related civil proceedings as factors supporting the inference that the accused has taken steps reducing the risk of absconding and showing some acceptance of fiscal responsibility; while not determinative, these factors weighed in favour of bail in the absence of contrary material indicating risk to trial integrity or flight. Ratio vs. Obiter: Ratio - Voluntary payments and civil stays are relevant mitigating factors in bail analysis though they do not absolve the accused; they contribute to the balance when assessing the need for detention. Obiter - Specific arithmetic of alleged ITC discrepancies noted in the record are factual observations for trial, not legal precedents. Conclusion: On the facts, the petitioner's voluntary deposits and civil stays tipped the balance towards release on bail subject to conditions, given lack of demonstrated risk of tampering/absconding and documentary nature of the evidence. Overall Court Conclusion The petition for regular bail is allowed. The Court concluded that, considering statutory punishment, the documentary/electronic nature of evidence, absence of custodial interrogation requirement, voluntary payments, lack of criminal antecedents, and no substantiated risk of tampering or fleeing, custody is not justified; release is ordered on furnishing bonds and compliance with enumerated conditions. Observations are confined to bail determination and are not expressions on merits of the underlying allegations.