2025 (12) TMI 753 - HC - GST

Bail denied in GST fake invoice scam; accused seen as active conspirator in organized bogus ITC fraud u/s 132

HC rejected the petitioner's bail application in a GST fraud case involving non-existent firms and bogus GST registrations used for issuing fake invoices ... Seeking grant of bail - GST farud - petitioner indulged in obtaining GST registration of non-existing firms and acting as key persons for issuance of fake invoices to pass on fake Input Tax Credit (ITC) without any corresponding supply of goods and services - cognizable and non-bailable offences u/s 132 sub-(1) and in terms of Section 132 (5) - HELD THAT:- It is well settled law laid down by the Hon’ble Supreme Court in the case of Radhika Agarwal Vs. Union of India and Ors. [2025 (2) TMI 1162 - SUPREME COURT (LB)] that the safeguards regarding arrest would be applicable to any such arrest made by officials of the GST department as well. From the investigation materials prima facie, it appears that the petitioner was not an innocent proprietor of a Customer Service Point mainly helping the customers representing various business entities to make entries and register their firms and make other such related business transactions. The investigation materials, if accepted at their face value, will indicate that the present petitioner though running a business in the nature of a Customer Service Point - was aware of the fraudulent activities and he was a participant in the network of such fraudulent activities for which he received his due share of illegal remuneration. The investigation has revealed that the co-accused, originally hails from another state and other persons connected to him in these activities are also from other states as well. The Investigating Authority has referred to the network as a gang which was working actively in an organized manner to defraud the department of revenue through false entities and without corresponding real-time supply of goods and services. The investigation though has progressed, but, it appears to be still in an active stage - the investigating team on behalf of the Revenue is stated to be engaged in investigating and ascertaining the full dimensions of the alleged illegal and fraudulent activities - In the absence of any specific provision, perhaps, the prescribed statutory period of BNSS would be applicable herein as well. The offences for which, the petitioner has been prosecuted along with others are per se punishable by five years. Even though the petitioner has been in detention since 14.11.2025, but considering the nature of the alleged offences, the materials revealed by the investigation and the continuance of investigation into various dimensions of the alleged offences, it is opined that granting of bail at this stage may not be in the best interest of effective and complete investigation, as has been also rightly contended by the prosecution. The instant bail petition stands rejected at this stage. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the arrest of the petitioner by GST authorities complied with applicable statutory safeguards, including under BNSS and the CGST Act. 1.2 Whether, in light of the nature of the alleged GST fraud, the stage of investigation, and the materials collected, the petitioner was entitled to bail under Section 483 BNSS, 2023. 1.3 Whether the petitioner could be treated as an innocent service provider or was prima facie a knowing participant in the alleged fraudulent Input Tax Credit racket. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Compliance with statutory safeguards in arrest by GST authorities Legal framework 2.1 The Court noted that the prosecution invoked Section 132 read with Section 69 of the CGST Act, and that the alleged offences under Section 132(1), in terms of Section 132(5), are cognizable and non-bailable. The Court referred to Section 47 and Section 48 BNSS concerning notices of grounds of arrest to the arrested person and to family/relatives. The Court also relied on the decision reported in (2025) 6 SCC 545, wherein safeguards regarding arrest were held applicable to arrests by GST officials as well, by extending the principles and ratio relating to the power of arrest under comparable statutes. Interpretation and reasoning 2.2 The Court recorded that the Investigating Agency had taken due permission from the competent authority of the Commissioner of the Department as required under Section 69 of the CGST Act before arresting the petitioner. 2.3 The Court expressly perused the notices regarding grounds of arrest furnished to the petitioner under Section 47 BNSS and to his family/relatives under Section 48 BNSS, and also examined the authorization dated 14.11.2025 issued by the Principal Commissioner, which referred to detection of fraudulent invoicing causing loss in the range of Rs. 8.59 crores and contained an authorization to arrest under Section 69 of the CGST Act. 2.4 In view of the Supreme Court judgment referred to, the Court treated the safeguards concerning arrest as applicable to the GST authorities and examined whether such safeguards were complied with in the present case by scrutinizing the arrest authorization and the arrest-related notices. Conclusions 2.5 By noting the existence and contents of the authorization of the Principal Commissioner under Section 69 of the CGST Act and the service of grounds-of-arrest notices under Sections 47 and 48 BNSS, the Court implicitly accepted that the arrest met the required procedural safeguards for the present stage and did not find any infirmity in the arrest to warrant grant of bail on that ground. Issue 2: Entitlement to bail in the context of nature of offence, role of petitioner, and stage of investigation Legal framework 2.6 The application was under Section 483 BNSS, 2023 seeking bail. The prosecution asserted that the offences under Section 132(1) of the CGST Act are cognizable and non-bailable in terms of Section 132(5) and are punishable by imprisonment of five years. The Court observed that, in the absence of a specific provision, the prescribed statutory period of BNSS would be applicable for purposes of detention, noting that the maximum punishment for the alleged offences is five years. Interpretation and reasoning 2.7 The petitioner's counsel contended that the petitioner was a small businessman running a Customer Service Point, merely assisting customers in making entries and registrations of business entities, and that it was neither possible nor practicable for him to verify the correctness of data provided by customers; hence he could not be held liable for fraudulent conduct of others. 2.8 The Court examined the case diary, statements of the petitioner, co-accused and witnesses, and other investigation materials. On this basis, the Court rejected the portrayal of the petitioner as an innocent service provider. The Court found that, if the investigation materials were accepted at face value, they indicated that the petitioner, though operating a Customer Service Point, was aware of and participated in the fraudulent activities and received illegal remuneration for facilitating them. 2.9 The investigation materials showed that the petitioner was evasive about pertinent queries, including his bank accounts and transactions linked to non-existent firms and companies. The Court noted that the petitioner had admitted to receiving illegal remuneration and assisting co-accused and another person in making fraudulent registrations with the object of siphoning off Input Tax Credit. 2.10 The Court also considered the nature and scale of the alleged offence: a major detection of GST fraud involving fraudulent transactions exceeding Rs. 8 crores (approximately Rs. 8.59 crores as per authorization), through non-existent firms, fake invoicing, and passing on fake ITC without corresponding supply of goods and services. It accepted the prosecution's description of a large organized racket or gang, with participants spread across different states, working actively to defraud the revenue. 2.11 The Court found that the investigation, though progressed, was still in an active stage, with the Investigating Authority engaged in ascertaining the full dimensions of the alleged illegal and fraudulent activities. The Court considered that releasing the petitioner on bail at this stage could adversely affect effective and complete investigation. Conclusions 2.12 The Court held that, given (i) the cognizable and non-bailable character of the alleged offences under Section 132 of the CGST Act, (ii) the gravity and organized nature of the alleged fraud and its substantial revenue implications, (iii) the prima facie material suggesting that the petitioner was a knowing participant receiving illegal remuneration, and (iv) the fact that investigation was still active and ongoing, grant of bail would not be in the best interest of effective and complete investigation. 2.13 The detention of the petitioner since 14.11.2025 was noted, but this factor was held insufficient, in the circumstances and at this stage of investigation, to outweigh the above considerations. Accordingly, the bail application under Section 483 BNSS, 2023 was rejected. Issue 3: Characterization of petitioner's role as innocent intermediary or participant in fraud Interpretation and reasoning 2.14 On the specific contention that the petitioner was only running a shop to help customers in making entries and registrations and could not check the veracity of customers' data, the Court undertook a prima facie assessment of the investigation materials. 2.15 The Court observed that the materials on record, including the petitioner's statements, indicated that he was not merely an innocent proprietor of a Customer Service Point, but was aware of the fraudulent activities and was part of a network engaged in such activities, for which he obtained a share of illegal remuneration. 2.16 The petitioner's evasiveness regarding his bank accounts and his own admission, as recorded by the Investigating Authority, of having received illegal remuneration for assisting in fraudulent registrations, were treated as significant in negating the plea of innocence and in characterizing him as a participant in the fraudulent scheme. Conclusions 2.17 For purposes of deciding bail, the Court concluded that the petitioner could not be considered a mere innocent intermediary or service provider and that there was prima facie material showing his conscious involvement in the GST fraud racket. This conclusion formed a material ground for denial of bail at the current stage.