2025 (12) TMI 1135 - HC - GST

Alleged fake firms and goods-less invoices to claim fraudulent ITC under GST, accused granted bail with conditions.

The dominant issue was whether an accused alleged to have fraudulently availed ITC through goods-less invoices and fake firms should be granted bail. ... Seeking grant of bail - availing Input Tax Credit without actual transaction of goods - adopting fraudulent ways and means to draw undue advantage by issuing goods-less invoices, creating fake firms and then claiming Inward Tax Credit (ITC) - HELD THAT:- In the present case, it is relevant to note here that with regard to right of bail, the Hon’ble Supreme Court of India in the case of Vineet Jain v. Union of India, [2025 (5) TMI 925 - SC ORDER] where it was held that 'We are surprised to note that in a case like this, the appellant has been denied the benefit of bail at all levels, including the High Court and ultimately, he was forced to approach this Court. These are the cases where in normal course, before the Trial Courts, the accused should get bail unless there are some extra ordinary circumstances.' It is also relevant to mention here that the Hon’ble Supreme Court of India in the case of Radhika Agarwal [2025 (2) TMI 1162 - SUPREME COURT (LB)] has propounded that “the arrest must proceed on the belief supported by reasons relying on material that the conditions specified in Section 132(5) are satisfied, and not on suspicion alone. An arrest cannot be made to merely investigate whether the conditions are being met. The arrest is to be made on the formulation of the opinion by the Commissioner, which is to be duly recorded in the reasons to believe. The reasons to believe must be based on the evidence establishing to the satisfaction of the Commissioner that the requirements of sub-section (5) to Section 132 of the GST Act are met’ - It has also been observed by the Hon’ble Supreme Court of India in the above mentioned case that “the figures with regard to the tax demand and the tax collected would, in fact, indicate some force in the petitioners' submission that the assessees are compelled to pay tax as a condition for not being arrested. Sub-section (5) to Section 74 of the GST Acts gives an option to the assessee and does not confer any right on the tax authorities to compel or extract tax by threatening arrest. This would be unacceptable and violative of the rule of law’. In the case of Sanjay Chandra v. CBI [2011 (11) TMI 537 - SUPREME COURT], the Hon’ble Supreme Court of India has ruled that the benefit of bail cannot be denied merely in view of severity of the offence, and that the Court ought to be conscious of the right to speedy trial bestowed on the account by virtue of Article 21 of the Constitution of India. In the case of Sanjay Chandra, the Hon’ble Supreme Court of India has observed that it is not in the interest of justice that accused should be in jail for any indefinite period. According to Hon’ble Apex Court, even if the offence is serious in terms of huge loss to the State exchequer, that, by itself, should not deter the Court from enlarging the appellant on bail, when there is no serious contention of the respondent that the accused, if released on bail, would interfere with the trial or tamper with the evidence. If the cumulative effect of all the factors, involved in the instant case, is taken into consideration, it leads to a conclusion that the petitioner is entitled for the benefit of bail, and that the present petition deserves to be allowed. The petitioner is hereby ordered to be released on bail on furnishing personal bond and surety bond(s) to the satisfaction of learned trial Court, subject to the fulfilment of conditions imposed - petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1) Whether, having regard to the nature of the alleged CGST offences, maximum punishment, stage of investigation, and the absence of material showing risk of tampering or non-cooperation, the petitioner was entitled to regular bail. 2) Whether allegations concerning violation of fundamental rights in connection with arrest/detention (including the asserted detention beyond 24 hours before production) and non-service of written grounds of arrest materially supported grant of bail. 3) Whether the petitioner's medical condition and the fact of interim bail on medical grounds, without misuse, were relevant factors warranting continuation/grant of bail. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to regular bail in the CGST prosecution considering nature of offence, punishment, and status of investigation Legal framework (as discussed by the Court): The Court treated the governing considerations for bail as including: the offence being triable by a Judicial Magistrate; maximum punishment up to five years; the prosecution being substantially documentary/electronic in nature; and standard bail factors such as likelihood of absconding, tampering with evidence, or influencing witnesses. The Court also noted the constitutional dimension of bail principles, including presumption of innocence and that bail is the general rule, as well as the right to speedy trial under Article 21. Interpretation and reasoning: Applying these considerations to the facts, the Court found cumulatively that (i) the case is triable by a Judicial Magistrate and carries a maximum sentence of five years; (ii) investigation was already complete and nothing remained to be recovered from the petitioner; (iii) the trial was not likely to conclude in the near future; and (iv) continued judicial custody would not serve a useful purpose. Crucially, the Court recorded that there was nothing on record indicating that, if released, the petitioner would tamper with evidence, influence witnesses, or fail to participate/cooperate in trial. The Court therefore treated the usual preventive justifications for pre-trial custody as not being established on the record before it. Conclusion: Regular bail was warranted on the cumulative assessment of (a) limited maximum sentence, (b) completion of investigation with no further recoveries, (c) anticipated delay in trial, (d) lack of material showing tampering/absconding risk, and (e) lack of purpose in continued custody. Issue 2: Effect of allegations of illegality in arrest/detention and service of grounds of arrest on bail Legal framework (as discussed by the Court): The Court considered that where fundamental rights under Articles 21 and 22 are violated in the course of arrest or post-arrest, such violation vitiates arrest and obligates the bail court to release the accused. The Court also treated as relevant the requirement that grounds of arrest be furnished in writing to enable the arrestee to contest the arrest and seek bail, in consonance with Article 22(1). Interpretation and reasoning: The Court did not render a definitive factual finding on the disputed allegations of illegal search, detention, or non-service of grounds (which were denied by the respondent). However, it treated as material that there were very serious allegations regarding the period of detention before the petitioner was produced before the Magistrate. This factor was expressly included by the Court among the decisive circumstances supporting bail, alongside other established factors (completion of investigation, absence of tampering risk, etc.). The Court thus considered the asserted fundamental-rights concerns as an additional weighty consideration in favour of bail, without deciding the merits of the prosecution case. Conclusion: The Court treated the serious allegations concerning detention/production and arrest-related safeguards as a significant factor supporting release on bail, while granting bail without commenting on the merits of the case. Issue 3: Relevance of medical condition and interim bail without misuse Legal framework (as discussed by the Court): The Court considered health and custody-related medical exigencies as relevant to bail assessment, especially where custody had led to hospitalisation and interim bail had already been granted on medical grounds. The Court also factored the absence of misuse of interim bail as relevant to the assessment of future compliance. Interpretation and reasoning: The Court noted that the petitioner had been suffering from serious ailment, had to be shifted to hospital during custody, and had already been granted interim bail on medical grounds. It also accepted as a relevant circumstance that there was no allegation that interim bail had been misused. These facts reinforced the Court's view that continued incarceration was unnecessary and that the petitioner could be managed through conditions ensuring presence and non-interference. Conclusion: The petitioner's medical condition, coupled with hospitalisation during custody and non-misuse of interim bail, supported grant of regular bail as part of the overall cumulative assessment. Final determination and operative bail conditions (material to decision) The Court allowed the bail petition and ordered release on bail on personal bond and surety to the satisfaction of the trial court, subject to conditions: (i) no inducement/threat/promise to persons acquainted with facts; (ii) furnishing and updating address; (iii) submission of a security bond equal to the amount claimed as tax and penalty, to be available for realisation if found guilty; and (iv) not leaving India without prior permission. Violation of conditions would expose the bail to cancellation.