2025 (11) TMI 187 - HC - GST

Regular bail granted in alleged ITC/GST fraud; release ordered on personal bond with two sureties

Raman Kumar Chaurasia & another Versus Directorate General of GST Intelligence, Ludhiana & anr.

HC allowed petitions and granted regular bail to the accused in an alleged fraudulent ITC/GST racket, directing release on personal bond with two sureties ... Seeking indulgence of this Court for grant of regular bail - fraudulent availment and utilization of Input Tax Credit (ITC) - HELD THAT:- It emerges that the position of law regarding grant of bail is that the basic jurisprudence relating to bail in economic offences remains the same in as much as the grant of bail is the rule and its refusal is the exception, so as to ensure that an accused has the opportunity to get fair trial. However, at the same time, it is not advisable to categorize all the economic offences into one group and deny bail on that basis. While considering the question of grant of bail, the gravity of offences is an aspect, which is required to be taken into consideration. The gravity has to be gathered from the facts and circumstances arisen in each case. One of such circumstances is also the term of sentence that is prescribed for the offence the accused is alleged to have committed. While considering the prayer for grant of bail in any offence, including economic offences, it is not a rule that bail should be denied in every case where the allegation is one of grave economic offences since there is not such bar created in the relevant enactment passed by the Legislature nor does the jurisprudence provide so. In Ratnambar Kaushik’s case [2022 (12) TMI 263 - SUPREME COURT], the High Court had dismissed an application filed by the accused for grant of regular bail in the proceedings for the offences alleged against him under Sections 132(1) read with Section 132(5) of the CGST Act. While observing that the alleged evasion of tax by the accused was to the extent as provided under Section 132(1)(i) and the punishment provided was imprisonment which might extend to 05 years and fine, the fact that the accused had already undergone incarceration for 04 months and completion of trial was likely to take time and further that the evidence to be tendered was of documentary nature, the Hon’ble Supreme Court had passed an order for release of the accused on bail. As per the allegations, the petitioners in connivance with each other and one Deepanshu Srivastav was involved in the business of fake invoices and bills by creating several fake and bogus firms with an intent to and thereby causing loss to the Government Exchequer through fraudulently GST Input Tax Credit claims. Trial has commenced but will take considerable time to conclude. The petitioners are in custody since 15.05.2025. There is nothing on record to justify further detention of the petitioners in prison. The evidence to be adduced by the respondent would be essentially documentary and electronic, which will be through official witnesses and as such, there can be no apprehension of the petitioners' tampering with evidence, intimidating or influencing the witnesses. The subject offences are punishable for maximum punishment upto 05 years. It appears justified to strike a fine balance between the need for further detention of the petitioners when no custodial interrogation has been claimed at all by the respondent No. 1 - this Court is of the considered opinion that the petitioners are entitled to be released on bail subject to certain conditions. The petitions moved by both the petitioners are hereby allowed and they are ordered to be released on regular bail on their 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 petitioners are entitled to regular bail despite allegations of large-scale fraudulent availment and utilisation of Input Tax Credit (ITC) and creation of bogus firms leading to substantial loss to the Government Exchequer, under the statutory and jurisprudential framework applicable to offences under Section 132 of the Central Goods and Services Tax Act, 2017. 2. Whether there exist prima facie or reasonable grounds to believe the petitioners committed the offences alleged, having regard to documentary and electronic material, recorded statements, and the likelihood of tampering with evidence or influencing witnesses if bail is granted. 3. The relevance of: (a) severity of prescribed punishment under Section 132; (b) compoundability of the offence; (c) period of pre-trial incarceration already undergone; and (d) other bail jurisprudential factors (risk of absconding, character, standing, risk of repetition of offence) in determining entitlement to bail. 4. Appropriate conditions, if any, to be imposed upon grant of regular bail to protect the investigatory and trial process and larger public interest. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to bail in offences under Section 132 (fraudulent ITC and fake invoices) Legal framework: Section 132 prescribes punishments for issuance/availing of invoices leading to wrongful availment/utilisation of ITC; penalties range up to five years' imprisonment depending on amount involved. Section 138 indicates offences under Section 132 are compoundable. The petition was instituted under statutory bail regime applicable to offences alleged under the CGST Act. Precedent treatment: The Court relied upon established principles from apex-court jurisprudence that (i) presumption of innocence and that bail is the rule while incarceration is the exception; (ii) economic offences require sensitivity to the nature and gravity of allegations, period of sentence and attendant circumstances; and (iii) relevant factors for bail include prima facie satisfaction, gravity, severity of punishment, risk of absconding, character/standing, likelihood of repetition and risk of tampering with witnesses or evidence. The Court noted multiple higher court decisions where accused in large-scale ITC evasion matters were either granted or denied bail depending on facts such as custodial period, stage of investigation/trial and risk of interference with evidence. Interpretation and reasoning: Applying the statutory scheme and jurisprudential parameters, the Court examined the material: recorded statements, documents indicating alleged connivance to create fictitious entities and avail inadmissible ITC, and the fact that the prosecution's evidence is primarily documentary and electronic and to be led through official witnesses. The Court weighed (a) gravity of allegations (large sums alleged); (b) that trial had commenced but would take considerable time; (c) petitioners' custodial period since 15.05.2025; (d) absence of claim by the respondent that custodial interrogation was necessary; and (e) absence of factual material demonstrating real risk of tampering with documentary/electronic evidence or intimidating official witnesses. The compoundable nature of the offence and maximum sentence (up to five years) were also factored into the balancing exercise. Ratio vs. Obiter: Ratio - Bail may be granted in serious economic offence prosecutions where the prosecution has not demonstrated necessity of continued custody for further investigation, especially when evidence is documentary/electronic and to be produced by official witnesses, and when accused have already undergone substantial pre-trial custody and there is no material showing risk of tampering or absconding. Observations on comparative case outcomes and general jurisprudential exposition are obiter to the extent they illustrate application of principles to other fact patterns. Conclusion: The Court concluded that, on the facts before it, the petitioners were entitled to regular bail. The balance favored release because no custodial interrogation was claimed, evidence was documentary/electronic, there was no material showing risk of tampering/intimidation, and the petitioners had already been in custody for a period rendering further detention unjustified. Issue 2 - Prima facie satisfaction and risk-based considerations (tampering, absconding, repetition) Legal framework: The guiding tests require assessment of prima facie grounds, risk of absconding, likelihood of tampering with evidence, and danger of repetition; these are to be evaluated in light of nature and gravity of charges and prescribed punishment. Precedent treatment: The Court reiterated that while economic offences can be grave, they are not automatically relegated to a no-bail class; each case must be judged on its particular facts, including whether further detention is necessary for investigation or to prevent interference with the trial process. Interpretation and reasoning: The Court found that recorded statements and documents existed but did not sufficiently establish that continued custody was necessary for interrogation. The documentary/electronic nature of evidence and the fact that witnesses were official reduced the possibility of tampering or intimidation. Petitioners had permanent abodes, clean antecedents were asserted, and there was no specific material demonstrating risk of absconding or repetition. The Court stressed the need to balance protection of the investigatory process with the fundamental presumption of innocence and the rule that bail is the norm. Ratio vs. Obiter: Ratio - Absent concrete material showing prima facie necessity for custody (e.g., risk of tampering, absconding, or need for custodial interrogation), mere gravity of alleged economic loss does not automatically preclude grant of bail. Observations regarding assessment of witnesses being 'official' and reduced tampering risk are factual conclusions applied to these petitions (ratio for these facts) and illustrative for similar cases (obiter for differing facts). Conclusion: No reasonable likelihood of tampering, absconding, or repetition was found on the record to justify continued detention; prima facie considerations did not outweigh the petitioners' right to bail under the circumstances. Issue 3 - Relevance of punishment severity, compoundability and period of custody Legal framework: Severity of prescribed sentence is a relevant factor; compoundability under Section 138 is also relevant. Pre-trial custody period contributes to the balance when trial is likely to be protracted. Precedent treatment: Courts have treated imprisonment term and compoundability as important but not determinative; long pre-trial custody, completed investigation/chargesheet filing, and lack of need for further custody have led to bail in numerous economic-offence matters. Interpretation and reasoning: The Court recognized the maximum punishment of up to five years but emphasized that this alone cannot justify continued detention when investigatory needs are satisfied and custody is unnecessary. Compoundability was noted as a mitigating statutory feature. The petitioners' continued incarceration since mid-May was a factor favoring bail given protracted trial prospects. Ratio vs. Obiter: Ratio - High maximum sentence does not, by itself, bar bail; compoundability and duration of custody are relevant mitigating factors in the bail calculus. Observations on comparative outcomes in other matters serve as persuasive guidance rather than binding ratio. Conclusion: Severity of punishment and compoundability weighed in favor of releasing the petitioners on bail subject to appropriate conditions, given absence of pressing custodial necessity and significant pre-trial custody already undergone. Issue 4 - Appropriate conditions to safeguard investigatory and trial interests upon granting bail Legal framework: When bail is granted in serious offences, courts may impose conditions designed to protect the integrity of evidence, ensure attendance, and protect public interest. Precedent treatment: The Court followed established practice of imposing conditions-personal bond with sureties, deposit of passports, cooperation in trial, prohibition on tampering with evidence, restrictions on disposal of assets under investigation, and provision of contact/Aadhaar details. Interpretation and reasoning: Given concerns about potential influence on accomplices and the need to protect prosecution evidence, the Court formulated specific conditions calibrated to prevent tampering or dissipation of assets and to ensure availability for trial. Ratio vs. Obiter: Ratio - Grant of bail in such cases is permissible with stringent conditions tailored to the facts to secure trial integrity; such conditions are an integral part of the bail order. Observations on specific standard conditions are operative directions for these petitions and instructive for analogous cases. Conclusion: Bail was granted on furnishing personal bonds with two sureties and on conditions including deposit of passports, cooperation in trial, non-tampering with evidence, prohibition on disposing of relevant property, prohibition on further criminal activity, and furnishing Aadhaar/contact details; breach to attract cancellation of bail. Cross-reference See Issue 1 and Issue 3 for interplay between gravity of offence, statutory punishment, compoundability and pre-trial custody; see Issue 2 and Issue 4 for relationship between nature of evidence, risk of interference, and conditions imposed to safeguard trial integrity.