Bail Upheld for Accused in ITC Fraud Case; No Misuse of Liberty, No Criminal Complaint Filed Despite Long Investigation

Issue:

Whether bail granted to a respondent accused of fraudulently availing Input Tax Credit (ITC) and claiming fraudulent IGST refunds should be upheld, given that the respondent had resigned from the accused companies before the GST Act came into force, is a permanent resident, has no prior involvement as a habitual tax offender, and the department has not filed a criminal complaint despite a lengthy investigation.

Facts:

A number of companies were accused of fraudulently availing Input Tax Credit (ITC) and claiming fraudulent IGST refunds. The respondent in this case was implicated. The respondent submitted that he had resigned from the accused companies, and Form DIR-12 (intimating director’s cessation) was uploaded on the ROC (Registrar of Companies) portal well before the GST Act came into force (July 1, 2017).

The court noted that the investigation agency had ample power to look at records of the GST department, bank, and other material and to seize those records. It was also established that the respondent was a permanent resident of Delhi, and nothing was placed on record to show his previous involvement in such offenses or that he was a habitual tax offender. Importantly, pursuant to the inquiry/investigation, an adjudication order had already been passed. Despite the investigation being initiated by the department way back in the year 2020, no criminal complaint had been filed against the respondent till date. Furthermore, it was not alleged anywhere that the respondent, after being admitted to bail, had misused his liberty.

Decision:

Yes, the bail granted to the respondent was upheld. The court reasoned that even if the respondent had been in custody, he would have been entitled to default bail on the department not completing the investigation and filing a criminal complaint within the statutory period.

Key Takeaways:

Bail in Financial Offenses: While financial offenses involving fraud are serious, bail is generally granted unless there’s a strong likelihood of the accused absconding, tampering with evidence, influencing witnesses, or committing further offenses.
No Risk of Absconding/Tampering: The respondent being a permanent resident and the investigation agency having ample power to seize records mitigates the risk of absconding or tampering with evidence.
Past Conduct: The absence of a history of previous involvement or habitual tax offending strengthens the case for continued bail.
Default Bail (Section 167(2) CrPC/BNSS): The court highlighted the principle of default bail. If an investigation in a criminal case (here, a potential criminal complaint under GST Section 132) is not completed and a charge sheet/complaint is not filed within the statutory period (e.g., 60 or 90 days depending on the nature of the offense and punishment), the accused is entitled to mandatory bail. The fact that no criminal complaint was filed since 2020 strongly supports this.
No Misuse of Liberty: The absence of any allegation that the respondent misused the liberty granted by bail is a crucial factor in upholding it.
Resignation Pre-GST: The fact that the respondent resigned from the accused companies before the GST Act came into force weakens the direct culpability argument against him for post-GST fraudulent activities of those companies, though the investigation would still probe his involvement.
Adjudication Order Passed: The passing of an adjudication order indicates that the departmental investigation has progressed to a certain stage, further diminishing the need for continued custody for investigatory purposes.
Section 69 (Power to Arrest) and Section 132 (Punishment for Offenses): The case deals with the interplay of these sections, highlighting that while Section 69 grants arrest powers, these must be exercised judiciously, and the ultimate test for bail often falls under general criminal jurisprudence principles (like default bail or no risk to investigation/society).

HIGH COURT OF DELHI

Directorate General of GST Intelligence

Sunny Jain

Amit Mahajan, J.

CRL.M.C. No. 2116 OF 2020

MAY 26, 2025

Satish Aggarwala, SCC through V.C for the Petitioner. Priyadarshi Manish, Anjali Jha Manish and Ms. Madhuri Malegaonkar, Advs. for the Respondent.

ORDER

1. The petitioner / Department challenges the order dated 26.08.2020, passed by the learned Chief Metropolitan Magistrate admitting the respondent on bail.

2. The Department is essentially aggrieved that the respondent was admitted on bail after having spent only 13 days in custody.

3. Mr. Aggarwala, learned Senior Standing Counsel for the Department submits that huge amounts of tax evasion had been made by the accused companies which were controlled by the respondent. He submits that the allegations relate to the accused companies availing fraudulently input tax credit to the tune of ^20 crores and claiming fraudulent IGST refund of more than ^10 crores.

4. The learned Trial Court admitted the respondent on bail noting that he is in judicial custody since 17.08.2020 and the investigating agency had not sought the custodial interrogation at any stage.

5. The learned Trial Court also took note of the stand taken by the respondent that he had resigned from the accused companies between the period of 16.08.2016 and 20.08.2016 and a Form DIR 12 was also uploaded on the ROC Portal on 23.02.2017, that is, well before the Good and Services Tax Act, 2017 came into force.

6. The learned Trial Court, in the opinion of this Court, rightly noted that for the investigation in regard to allegations of evasion of GST, claim of false Input Tax Credit and IGST refund, the investigation agency has to only look at the records of the GST Department, Bank apart from other material and ample power has been given to the Investigating Officer to seize the said records. It was further rightly observed that the respondent is a permanent resident of Delhi and nothing has been placed on record to show his previous involvement or that he is a habitual tax offender.

7. It is pointed out that pursuant to the inquiry / investigation, the adjudication order has also been passed.

8. On being pointedly asked, it is informed that despite the fact that the investigation was taken up by the Department way back in the year 2020, no criminal complaint has been filed till date. Thus, even otherwise, had the respondent been in custody, he would have been entitled for default bail on the department not completing the investigation. It is not alleged anywhere that the respondent, pursuant to being admitted to bail, had misused the liberty.

9. Therefore, I find no merit in the present petition. Therefore, the petition is dismissed.