Bail Denied in ₹19.76 Cr GST Fraud Case Due to Absconding Co-Accused and Ongoing Investigation.
Issue
Whether an accused in a significant, multi-crore Input Tax Credit (ITC) fraud case should be granted bail while the investigation is still ongoing and a key co-accused is absconding.
Facts
- The petitioner was alleged to have managed three dummy firms linked to a main entity (Shri Ram Alloys) to fraudulently avail and pass on ITC without any actual supply of goods.
- A search operation yielded statements that the petitioner controlled the invoicing, e-way bills, and banking for these firms via a mobile application.
- The total alleged fraud was substantial: ₹10.41 crores of ineligible ITC availed and ₹9.35 crores passed on, aggregating to ₹19.76 crores.
- The petitioner was arrested and remanded for specified GST offenses.
- The investigation was not yet concluded, and a key co-accused, the petitioner’s brother-in-law, was absconding and had not cooperated with the investigation.
Decision
- The High Court dismissed the petition and declined to grant bail.
- The court found that releasing the petitioner at this preliminary stage was not appropriate for several key reasons:
- The investigation was still ongoing to uncover the full extent of the fraudulent transactions.
- A key co-accused was still absconding, and releasing the petitioner could hinder efforts to apprehend them.
- Given the gravity of the offense and the high quantum of the fraud, there was a significant risk that the petitioner would tamper with evidence or hamper the investigation if released.
Key Takeaways
- Absconding Co-Accused: The non-cooperation or absconding of a co-accused is a strong ground for denying bail to the applicant, as it suggests a risk of collusion or a conspiracy to evade the investigation.
- Stage of Investigation: Bail is less likely to be granted when the investigation is still in progress and the full scope of the fraud is not yet uncovered.
- Gravity and Quantum: The sheer size of the alleged fraud (nearly ₹20 crores) is a critical factor. High-value economic offenses are treated with greater severity by the courts at the bail stage.
- Risk of Tampering: The court’s primary concern is ensuring a fair and complete investigation. In cases involving complex networks and fake firms, the risk of the accused tampering with digital or documentary evidence is a major consideration.
HIGH COURT OF MADRAS
Mukesh Kumar
v.
Additional Assistant Director, Directorate General of GST Intelligence, Coimbatore Zonal Unit, Coimbatore
K. Rajasekar, J.
Crl. O.P. No. 27608 of 2025
OCTOBER 10, 2025
B. Kumar, Sr. Adv. and B. Sathish Sundar for the Petitioner. P. Vishnu, Special Public Prosecutor for the Respondent.
ORDER
1. The petitioner, who was arrested and remanded to judicial custody on 14.08.2025 for the alleged offence under Section 132(1)(b), 132(1)(c), and 132(5) of the CGST Act, 2017 in F.No.DGGI/INV/GST/1819/2025-Gr J on the file of the respondent, seeks bail.
2. The case of the prosecution is that based on intelligence, an investigation was initiated against M/s.Naklank Enterprises and during investigation it revealed that it’s suppliers were non-existent in entities, generated and passed on fake Input Tax Credit (ITC) to 25 other units (Level-2 units) without any actual supply of goods. Further, it revealed that some of these Level-2 units passed on ineligible ITC to three firms (Level-3 units), namely M/s.Parth Steel Alloys, M/s.Jay Enterprises, and M/s.Dhanlaxmi Trading. It was discovered that the petitioner herein was managing and handling these three firms for the purpose of availing and passing on ITC and it is also revealed that major outward supply from these three firms converged to a fourth entity, M/s.Shri Ram Alloys (Level-4 Unit), where the petitioner worked as the Manager and a search operation was conducted on 11.08.2025 at the premises of all four units. Based on search, it was found that the petitioner managed three dummy firms (M/s.Parth Steel Alloys, M/s.Jay Enterprises, and M/s.Dhanlaxmi Trading) from the premises of M/s.Shri Ram Alloys. The proprietors of these three firms-Shri Narendra Kumar, Shri Ashok Kumar, and Shri Subhash Ram were found to be labourers, staff and cooks working at M/s.Shri Ram Alloys. Further, voluntary statements were also recorded and revealed that the petitioner controlled all business operations, including the generation of invoices and e-way bills and all banking transactions, used the mobile app “Gimbooks” to generate fake invoices.
Based on the statements recorded from the petitioner dated 11.08.2025 and 13.08.2025, it revealed that the petitioner had fraudulently availed ineligible ITC amounting to Rs.10.41 Crores and has passed on ineligible ITC of Rs.9.35 Crores and totally quantified as Rs.19.76 Crores. Hence, the present complaint has been registered.
3. The learned Senior Counsel for the petitioner submitted that the reason to believe for commission of offence by the petitioner herein recorded by the Arresting Officer before arrest is not in accordance with the mandatory procedures prescribed and the satisfaction recorded is also misconceived. He further submitted that there is also a fabrication of record for getting the authorization for arrest from his Superior Officers of the Arresting Officer. For supporting his argument, the learned Senior Counsel produced the copy of the Arrest Memo as well as the Grounds of Arrest and Reason to Believe recorded by the Arresting Officer. He further submitted that the authorization itself was obtained from the Superior Officers only on 14.08.2025 around 10.39 a.m., but the petitioner was arrested at about 10.30 a.m., on 14.08.2025. According to him, without authorization, the petitioner has been arrested and subsequently records were fabricated for authorization to arrest the petitioner. He further submitted that the petitioner is in custody from 14.08.2025 and considering the incarceration suffered by the petitioner, he prayed for grant of bail to the petitioner.
(a) The learned Senior Counsel for the petitioner further relied on the Judgment of the Apex Court in Radhika Agarwal v. Union of India GSTL 225 (SC)/(2025) 27 Centax 425 (S.C) and submitted that “the power to arrest under Section 69 of the CGST Act, requires that reason to believe must be formed by the Commissioner on the basis of concrete material and evidence and further reason to believe must be based on facts and materials and not mere suspicion. Hence the reason to believe must be properly recorded and if the same is not properly recorded, it would result in failing the legal test for valid arrest”.
4. The learned Special Public Prosecutor appearing for the respondent reiterated the prosecution case and reported that value of the ITC wrongly availed exceeds the threshold of Rs.5 Crores as stipulated in Section 132 (1) (i) of the CGST Act, 2017 and therefore, the offences committed falls under Section 132 (1)(b) and 132 (1) (c) of the CGST Act, 2017 which are cognizable and non-bailable under Section 132 (5) of the said Act. He further submitted that voluntary statements were recorded from other firms revealed that this petitioner alone is handling all the operations including the generation of invoices and eway bills, without any actual movement of goods. He further submitted that the main accused in this racket namely one Shri Ishwar Lal, who is the brother-inlaw of the petitioner is also absconding and investigation in this case is pending. He further submitted that the petitioner is a native of Rajasthan and does not have any residence in Coimbatore and if he is released on bail, there is a possibility of tampering the witness. He further submitted that in the Arrest Memo, there is a clerical error in mentioning the sections and wrong quoting of sections alone is not sufficient to enable the accused to seek bail and since the petitioner is arrested he shall seek bail only on merits. Hence, he opposed to grant bail to the petitioner.
5. I have considered the submissions made on both sides and also perused the materials available on record.
6. Admittedly, the petitioner has been arrested and incarceration from 14.08.2025 after serving Arrest Memo and Grounds of Arrest. The Arrest Memo which reads that the petitioner was arrested at about 10.30 a.m., on 14.08.2025 and the Arresting Officer has obtained authorization to arrest from his Superior Officer on 14.08.2025 at about 10.04 a.m., however, the authorization letter seems to be generated from the office at about 10.39 a.m., on 14.08.2025. It is the contention of the respondent that the time of authorization has clearly mentioned in the document as 10.04 a.m., and after confirming that, Arrest Memo was issued at 10.30 a.m., and the petitioner was arrested. The computer generated copy was printed out by the Arresting Officer at about 10.39 a.m., and the same is not a ground to contend that this authorization was given after 10.30 a.m., and the same is a fabricated document. I am fully agree with the submissions made on behalf of the respondent that the authorization submitted by the Officer in the letter reads that at about 10.04 a.m., he has been authorized. It does not mean that this authorization was in the form of soft copies would have been generated only at 10.39 a.m. This generation only refers to converting soft copy into hard copy and this was immediately served on the petitioner immediately after serving Arrest Memo. I find that this action could not be considered as any fabrication of records since the time gap between the authorization, arrest and generation of computerised copy is within the short peiod.
7. The other contention raised by the learned Senior Counsel for the petitioner is that in the reasons to believe, the Additional Director General has not apply his mind properly and there is no proper grounds of arrest was given to the petitioner. In the reason to believe for commission of offence, Additional Director General states that, offences specified under Clause (b) and Clause (c) of Section 132 (1) of the CGST Act, 2017, which is punishable by imprisonment for a term that may extended to five years, along with a fine has been committed by the petitioner. Whereas, in the Arrest Memo, it has been mentioned that the petitioner was committed offence as satisfied in Clause (a) or Clause (b) or Clause (c) or Clause (d) of Sub Section (1) of Section 132 of the Central Goods and Service Tax, 2017, which is punishable under Clause (i) or (ii) of Sub Section (1) or Sub Section (2) of the said Section. Similarly, in the reason to believe, the Additional Director General has recorded in Para-2, his satisfaction that the petitioner herein has committed offence under Clause (a) of Sub Section (1) of Section 132 of the CGST Act, 2017 and the same is covered in Clause (i) of Sub Section (1) of Section 132 of the CGST Act, 2017.
8. The offences classified in Section 132 (i) (a), 132 (i) (b) and 132 (i) (c) of the CGST Act, 2017 are distinctive and each section prescribe different types of offences. For better understanding Section 132 reads as follows:
Section 132 – Punishment for certain offences.
| 1) | [Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences], namely:- |
| (a) | supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax; |
| (b) | issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax; |
| (c) | avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;] |
| (d) | collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due; |
| (e) | evades tax 3*** or fraudulently obtains refund and where such offence is not covered under clauses (a) to (d); |
| (f) | falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information with an intention to evade payment of tax due under this Act; |
| (g) | obstructs or prevents any officer in the discharge of his duties under this Act; |
| (h) | acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder; |
| (i) | receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder; |
| (j) | tampers with or destroys any material evidence or documents; |
| (k) | fails to supply any information which he is required to supply under this Act or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or |
| (l) | attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (k) of this section, shall be punishable- |
| (i) | in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine; |
| (ii) | in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine; |
| (iii) | in the case of any other offence where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to one year and with fine; |
| (iv) | in cases where he commits or abets the commission of an offence specified in clause (f) or clause (g) or clause (j), he shall be punishable with imprisonment for a term which may extend to six months or with fine or with both. |
| (2) | Where any person convicted of an offence under this section is again convicted of an offence under this section, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to five years and with fine. |
| (3) | The imprisonment referred to in clauses (i), (ii) and (iii) of sub-section (1) and sub-section (2) shall, in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, be for a term not less than six months. |
| (4) | Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), all offences under this Act, except the offences referred to in sub-section (5) shall be non-cognizable and bailable. |
| (5) | The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable. |
| (6) | A person shall not be prosecuted for any offence under this section except with the previous sanction of the Commissioner. |
Explanation. -For the purposes of this section, the term “tax” shall include the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or refund wrongly taken under the provisions of this Act, the State Goods and Services Tax Act, the Integrated Goods and Services Tax Act or the Union Territory Goods and Services Tax Act and cess levied under the Goods and Services Tax (Compensation to States) Act.”
9. While recording the reasons to believe by the Additional Director General, has stated that the petitioner has involved in under Clause (a) of Sub Section (1) of Section 132 of the CGST Act, 2017 and the same is covered under Clause (i) of Sub Section (1) of Section 132 of the CGST Act, 2017.
10. Section 132 (1) states that if the amount of tax evaded or the amount of input tax wrongly availed or utilized or amount of refund wrongly taken exceeds Rs.500 lakhs, the person shall be punishable with imprisonment for the term which may extend to five years. In this case, the allegation against the petitioner is that he is involved in availing ineligible ITC amounting to Rs.10.41 Crores and has passed on ineligible ITC of Rs.9.39 Crores totalling to Rs.19.76 Crores. Since the value of ITC availed is more than Rs.5 Crores, the offence committed is punishable under Section 132(i) of the CGST Act, 2017.
11. In the reasons to believe while concluding with the authorization to arrest the petitioner herein, the Additional Director General has stated that the petitioner committed an offence under Section 132 (1) (b) & (c) of the CGST Act, 2017. He further stated that the offence committed by the petitioner herein is punishable by term that may extend to five years along with fine.
12. It has been admitted by the respondent that in the concluding paragraph while authorizing the Additional Director General to arrest, the wrong provision has been mentioned and the same is purely a clerical error. The entire reading of the reasons to believe for arresting the petitioner recorded by the Additional Director General reveals that all the facts necessity to form a basis or form reasons to believe for arresting the accused has been clearly stated and there is a clerical error in the concluding paragraph while mentioning the relevant section. However, other portions of the document is unambiguous and no way it could be termed as non application of mind. Further, it could not be held that the petitioner has lost meaningful opportunity to defend himself due to wrong mentioning of the Section in concluding paragraph of the reasons to believe.
13. Next ground raised by the learned Senior Counsel for the petitioner that the petitioner is in custody for the past 56 days and major part of the investigation is concluded and prays to grant bail to the petitioner.
14. This Court is unable to agree with the contention raised by the learned Senior Counsel for the petitioner since the respondent has countered the same stating that one of the co-accused, who is also played a vital role along with the petitioner herein namely Sree Ishwar Lal, who is brother-in-law of the petitioner absconding and he has not co-operated for the investigation and failed to appear for the summons and further, the total amount involved in the case is Rs.19.76 Crores. Since the investigation is not concluded and the nature of allegations that several fake ITCs were issued and also ITC claims were made by various units including three firms handled by the petitioner and other accused, the investigation could not be concluded within a shorter period, and also the fact that the other accused are also absconding, I am of the view that granting bail at this stage would further hamper the investigation and it would pave way for the petitioner to involve in tampering with evidence. Hence, I am not inclined to grant bail to the petitioner.
15. Accordingly, this Criminal Original Petition stands dismissed.