HC Grants Bail in ₹7.46 Cr GST Fraud Case, Citing Prolonged Custody and Documentary Evidence.

Issue

Whether an accused in a significant GST ITC fraud case is entitled to regular bail after several months of judicial custody, where the investigation is yet to be adjudicated, no further custodial interrogation is required, and the evidence is primarily documentary in nature.

Facts

The petitioner, a partner and sole proprietor, was alleged by the DGGI to have fraudulently availed and utilized Input Tax Credit (ITC) from eight fake firms.
The total value of the alleged bogus invoices was approximately ₹48.92 crores, resulting in a GST evasion of about ₹7.46 crores.
A Show Cause Notice (SCN) was issued, and a separate probe was initiated by the Anti-Evasion wing for a subsequent period.
The petitioner was arrested on July 3, 2025, and had been in continuous custody since.
Bail applications were declined by the Chief Judicial Magistrate (CJM) and the Additional Sessions Judge (ASJ), even after the SCN was issued.

Decision

The High Court allowed the petition and granted regular bail to the petitioner, subject to conditions.
The court observed that the petitioner had already been in custody since July 3, 2025 (over four months), and no further custodial interrogation was required.
It was held that the evidence in the case is mainly documentary, which is already in the possession of the authorities, minimizing the risk of tampering.
The court noted that the alleged offenses carry a maximum sentence of 5 years and are compoundable.
Balancing these factors, the court concluded that the petitioner’s further detention as an undertrial was unjustified.

Key Takeaways

Prolonged Custody: Pre-trial detention cannot be indefinite. Once an accused has spent a significant period in custody and is no longer required for interrogation, the case for bail becomes stronger.
Documentary Evidence: In cases of economic offenses where the evidence is primarily documentary (and already seized by the department), the risk of the accused tampering with evidence is low, which is a strong factor in favor of granting bail.
Nature of Offense: The court balanced the gravity of the offense (a large economic fraud) with the fact that the maximum punishment is 5 years and the offense is compoundable under the GST Act.
Bail is the Rule: The judgment reinforces the principle of “bail, not jail” (even in economic offenses), once the initial investigation is complete and the accused’s presence for trial can be secured by other means (like bail bonds).

HIGH COURT OF PUNJAB & HARYANA

Dipanshu Anand

Principal Commissioner, Central GST, Ludhiana^*

Mrs. MANISHA BATRA, J.

CRM-M-44890-2025 (O & M)

OCTOBER 27, 2025

Anil Mehta and Ms. Livleen Brar, Advs. for the Petitioner. Sourabh Goel, Sr. Standing counsel and Ms. Deify Jindal, Adv. for the Respondent.

ORDER

1. Prayer in this petition filed under Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (for short ‘BNSS’) is for grant of regular bail to the petitioner in case arising out of complaint No.GEXCOM/AE/ INV/570/2025-AE Office of PR Commissioner-CGST- Ludhiana filed under Sections 132(l)(c&l) and 132(l)(i) of Central Goods and Service Tax Act, 2017 (for short ‘CGST Act’).

2. As per the allegations, during the course of investigation conducted by DGGI, Regional Unit, Amritsar, it was revealed that M/s Gauri Shankar Metal Industries, which was a partnership concern of the petitioner and M/s Shivansh Enterprises, which is sole proprietary concern of the petitioner were engaged in availment of fraudulent Input Tax Credit (ITC) during the period from financial year 2017-18 to 2020-21, on account of eight fake firms created and operated by one Baljinder Singh @ Gopan and his accomplices. Searches were conducted by DGGI in the month of October, 2021 at the premises of the above named firms and a show cause notice was issued on 31.07.2024 under Section 74 of CGST Act. During independent investigation carried by Anti-Evasion Branch of CGST Commissionerate, searches were conducted during the month of July, 2025 at the premises of above named firms and it was revealed that both these firms were engaged in availment of fraudulent Input Tax Credit (ITC) on account of bogus invoices without actual supply of goods, issued by M/s New Vasan Electric Company and cancelled supplies, thereby causing wrongful loss to the Government Exchequer during the period from financial years 2019-2020 to 2024-2025. The petitioner was found involved in fraudulent availment/utilization of ITC through receipts of bogus invoices worth Rs.48.92 Crores in violation of provisions of Section 132(l)(c) of CGST and had evaded tax to the tune of Rs.7.46 Crores. Petitioner was arrested on 03.07.2025. He had moved application for grant of bail, which had been dismissed by the Court of learned Chief Judicial Magistrate, Ludhiana vide order dated 22.07.2025 and then by learned Additional Sessions Judge, Ludhiana vide order dated 06.08.2025.

3. It is argued by learned counsel for the petitioner that he has been falsely implicated in this case on allegations of wrongfully availing ITC of Rs.7.46 Crores on bogus invoices of Rs.48.92 Crores though through his firms, he had genuinely received and supplied goods against genuine invoices with a proper issuing of bills/Eway bills and further by making payments of those bills through banks. He had already made voluntary payment under Section 74(5) of the CGST Act to the tune of Rs. 1.72 Crores on behalf of his sole proprietary concern and had paid a sum of Rs.76.66 lakhs from M/s Gauri Shankar Metal Industries against the show cause notices issued on 31.07.2025. Allegations pertaining to purported involvement of the petitioner in a racket concerning fraudulent availment and utilization of ITC without any actual movement and supply of goods are based on unverified and uncorroborated data. The Court of learned Chief Judicial Magistrate and learned Sessions Judge while dismissing his bail application did not give due consideration to the fact that he had voluntarily deposited tax. As per report of the Investigating Officer himself ITC allegedly received in excess over the consecutive assessment years from 2019 to 2025 amounted to Rs.5.22 Crores in case of Shivansh Enterprises v. Union of India [CWP 32102-2024]. The ITC calculated for the assessment years 2019-20, 2020-21 has already been stayed by this Court in a Civil Writ Petition bearing CWP-32102-2024 as filed by the petitioner. As per the report of Investigating Officer, an amount of Rs. 1.21 Crores had been received as excess ITC by M/s Gauri Shankar Metal Industries during the consecutive assessment years from 2017 to 2025 and the assessment years staring from 2017-18 till 202021 have been stayed by this Court in civil writ petition filed by him. The correct calculation of the alleged wrongful ITC as availed by the petitioner has not been made in the show cause notices. Even as per the allegations, actual quantum of alleged Tax-Evasion pertaining to ITC in respect of both the firms of the petitioner collectively is approximately Rs.3.95 Crores only.

The petitioner is in custody since 03.07.2025. The investigation and trial would take considerable time. The subject offences are triable by the Magistrate. He does not have any criminal antecedents. He has permanent abode of business. The case rests upon documentary evidence and there are no chances of petitioner’s tampering with the same. The maximum punishment to be awarded to him in case of conviction is 05years. He is ready to abide by the terms and conditions to be imposed upon him. With these broad submissions, it is, urged that the petition deserves to be allowed and he deserves to be released on bail. In support of his arguments, learned counsel for the petitioner has relied upon the authorities cited as Ratnambar Kaushik v. Union of India [2023] 95 GST 548/68 GSTL 233 (SC)/2022 INSC 1254, Ashutosh Garg v. Union of India GST 572 (SC), Vipin Garg Alias Bindu v. State of Haryana GST 2/69 GSTL 3 (SC), Yash Goyal v. Union of India [Criminal Appeal No. 2784 of 2024, dated 28-6-2024], Deepak Sharma v. State of Punjab (Punj & Har)/[2024 NCPHHC 104729], Parteek Das Gupta v. State of Haryana [2024 NCPHHC 46670], Amit Bansal v. State of Haryana [2024 NCPHHC 19173], Tejpal Singh v. Director General of G.S.T. Intelligence GST 829/83 GSTL 247 (Punj & Har), Sunil Mahlawat v. CGST GST 180/68 GSTL 31 (Punj & Har), Shamim Akhtar v. DGGI GST 7/73 GSTL 582 (Punj & Har)/[2023 NCPHHC 66070] and Vineet Jain v. Union of India GSTL 129 (SC)/Criminal Appeal No. 2269 of 2025, decided on 28.04.2025.

4. Reply has been filed by the respondent. Learned senior standing counsel for the respondent/CGST has vehemently argued that the firms of the petitioner have evaded tax liability of huge amount of money by creating false invoices and adjusting the amount of those invoices, thereby passing on fake ITC and causing loss to the Government Exchequer. There are chances of the petitioner’s fleeing or tampering with the record, if extended benefit of bail. It is, thus, argued that under the given circumstances, he is not entitled to get indulgence of bail by this Court and that the petition is liable to be dismissed.

5. This Court has heard rival submissions made by learned counsel for the sides and have carefully considered the material placed on record.

6. Before proceeding to decide the prayer made by the petitioner for grant of bail, it would be apt to have a look at the relevant statutory provision contained in Section 132 of CGST Act, which read as under :

132. Punishment for certain offences.—

(1)

Whoever commits 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 such invoice or bill referred to in clause (b); 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;

7. A bare perusal of the above mentioned provision leaves no room to doubt that the offences alleged carry minimum punishment of 06 months and a maximum punishment of 05 years of imprisonment. Further, Section 138 of the CGST Act is relevant, as per which, the offences under Section 132 of the Act are compoundable.

8. The law regarding grant of bail has been discussed in several pronouncements of Hon’ble Supreme Court. It will be apposite to refer to some of them. Reference can firstly be made to Dataram Singh v. State of U.P. (2018) 3 SCC 22, wherein Hon’ble Supreme Court had reiterated the law of bail as follows:

” 2. A fundamental postulate of criminal jurisprudence is the presumption of innocence, meaning thereby that a person is believed to be innocent until found guilty. However, there are instances in our criminal law where a reverse onus has been placed on an accused with regard to some specific offences but that is another matter and does not detract from the fundamental postulate in respect of other offences. Yet another important facet of our criminal jurisprudence is that the grant of bail is the general rule and putting a person in jail or in a prison or in a correction home (whichever expression one may wish to use) is an exception. Unfortunately, some of these basic principles appear to have been lost sight of with the result that more and more persons are being incarcerated and for longer periods. This does not do any good to our criminal jurisprudence or to our society.

5. The historical background of the provision for bail has been elaborately and lucidly explained in a recent decision delivered in Nikesh Tarachand Shah v. Union of India [(2018) 11 SCC 1] going back to the days of the Magna Carta. In that decision, reference was made to Gurbaksh Singh Sibbia v. Stale of Punjab [(1980) 2 SCC 565] in which it is observed that it was held way back in Nagendra v. King-Emperor [AIR 1924 Cal 476] that bail is not to be withheld as a punishment. Reference was also made to Emperor v. Hutchinson [AIR 1931 All 356] wherein it was observed that grant of bail is the rule and refusal is the exception. The provision for bail is therefore age-old and the liberal interpretation to the provision for bail is almost a century old, going back to colonial days.”

9. It will also be proper to refer to Sanjay Chandra v. CBI (2012) 1 SCC 40, wherein Sessions Court and the High Court had refused the requests of the persons accused of committing offences of cheating and forgery and use of forged documents, for grant of bail on the grounds that offences alleged against them were serious involving deep rooted planning, causing huge loss to the State exchequer and that there was possibility of the accused persons tampering with the evidence. The Hon’ble Supreme Court observed as under :

“The grant or refusal to grant bail lies within the discretion of the court. The grant or denial is regulated, to a large extent, by the facts and circumstances of each particular case. But at the same time, right to bail is not to be denied merely because of the sentiments of the community against the accused. The primary purposes of bail in a criminal case are to relieve the accused of imprisonment, to relieve the State of the burden of keeping him, pending the trial, and at the same time, to keep the accused constructively in the custody of the court, whether before or after conviction, to assure that he will submit to the jurisdiction of the court and be in attendance thereon whenever his presence is required.

X XXX XXX

46. We are conscious of the fact that the accused are charged with economic offences of huge magnitude. We are also conscious of the fact that the offences alleged, if proved, may jeopardise the economy of the country. At the same time, we cannot lose sight of the fact that the investigating agency has already completed investigation and the charge-sheet is already filed before the Special Judge, CBI, New Delhi. Therefore, their presence in the custody may not be necessary for further investigation. We are of the view that the appellants are entitled to the grant of bail pending trial on stringent conditions in order to ally the apprehension expressed by CBI.”

10. Similar observations were made by Hon’ble Supreme Court in P. Chidambaram v. Directorate of Enforcement SCL 649 (SC)/(2020) 13 SCC 791 and Satender Kumar Antil v. CBI AIR 2022 SC 3386.

11. In view of the above discussion, 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 having 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. The broad parameters to be considered while deciding prayer of an accused for grant of bail can be enumerated as under :

(i)

whether there is any prima facie or reasonable ground to believe that the accused had committed the offence;

(ii)

nature and gravity of the charge;

(iii)

severity of the punishment in the event of conviction;

(iv)

danger of accused absconding or fleeing if released on bail;

(v)

character, behaviour, means, position and standing of the accused;

(vi)

likelihood of the offence being repeated;

(vii)

reasonable apprehension of the witnesses being tampered with; and

(viii)

danger, of course, of justice being thwarted by grant of bail.

12. Reference may now be made to the citations relied upon by the petitioner in support of their prayer for grant of bail. In Rainambar Kaushik’s case (supra), 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(l)(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. In Ashutosh Garg’s case (supra), the High Court of Judicature for Rajasthan at Jaipur had dismissed the prayer made by the petitioner, who was accused of creating and operating 294 fake firms and evaded tax liability of Rs.1032 crores. The Hon’ble Supreme Court allowed the Special Leave Petition filed by the accused by taking into consideration the fact that he was in custody for a period of 09 months and that the offence carried maximum punishment for 05 years of imprisonment. It was observed that it was not appropriate to keep him in custody any further.

13. Further, in Vipin Garg alias Bindu’s case (supra), there was allegation of misuse of ITC leading to loss of State exchequer. Chargesheet had been submitted. It was observed by Hon’ble Supreme Court that though heavy loss to the exchequer was alleged to be caused by the accused and no recovery had been effected but further detention of the accused during trial was not necessary and he was extended benefit of bail. In Yash Goyal’s case (supra), the petitioner was in custody for a period of 06 months for commission of offence punishable under Section 132 of the CGST Act. While considering that the maximum sentence which would be awarded was 05 years and that the trial was likely to take time, Hon’ble Supreme Court directed the appellant to be released on bail. Reliance can also be placed upon a recent pronouncement of Hon’ble Supreme Court in Vineet Jain’s case (supra), wherein a person accused of committing offence under Section 132(1) of the CGST Act was denied grant of bail. The Hon’ble Supreme Court allowed the appeal filed by the accused by taking into consideration the fact that he was in custody for a period of 07 months, chargehseet had been filed and that the offence carried maximum punishment for 05 years of imprisonment. While granting bail to the accused, the Hon’ble Supreme Court had made following observations:

“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.”

14. Similar observations were made by the co-ordinate Benches of this Court in Deepak Sharma’s case (supra), Parteek Das Gupta’s case (supra), Amit Bansal’s case (supra), Tejpal Singh’s case (supra) and Sunil Mahlawat’s case (supra).

15. Now adverting to the present case, the allegation against the petitioner is that his firms were involved in fake invoicing, thereby causing loss to the Government Exchequer through fraudulent GST Input Tax Credit claims. However, these claims are yet to be determined by the competent authority of the respondent by making proper assessment/adjudication. As such, it is only after assessment/adjudication that liability of the petitioner with regard to exact amount of evasion of tax is to be determined under the relevant provisions of CGST Act. The petitioner is in custody since 03.07.2025. Nothing has been shown to this Court which may justify the further detention of the petitioner in prison.

16. On consideration of the above discussed facts and circumstances and also considering that the alleged offences are punishable with maximum punishment up to 05 years and also keeping in view that in such circumstances, the further detention of the petitioners may not at all be justified since in case of this nature, the evidence to be rendered by the respondent would essentially be documentary and electronic, which will be through official witnesses, due to which, there cannot be any apprehension of tampering, intimidating or influencing the witnesses and further as it appears justified to strike a fine balance between the need for further detention of the petitioner when no custodial interrogation has been claimed at all by the department, this Court considers that the petitioner is entitled to be released on bail but subject to certain conditions.

17. As a result of above discussion, the petition moved by the petitioner is hereby allowed and he is ordered to be released on regular bail on his furnishing personal bonds with two sureties in the like amount each to the satisfaction of the Court concerned/Duty Magistrate. The concession of bail granted to the petitioner shall be further subject to following conditions:

(a)

He shall deposit his passport, if any, before the learned trial Court;

(b)

He shall cooperate in trial without seeking any unnecessary/ adjournments;

(c)

He shall not tamper with the prosecution evidence by intimidating or pressurizing the witnesses during trial;

(d)

He shall not dispose of any of their property or of the firms/companies in which he has substantial interest and which are also under investigation;

(e)

He shall not indulge in any criminal activity or in commission of any crime after being released on bail.

(f)

He shall provide the details of his Aadhar Card as well as his contact numbers to the trial Court.

18. Breach of any of the above conditions shall be a ground for cancellation of bail granted to the petitioner.

19. It is made clear that the observations made herein above are only for the purpose of deciding the present petition and the same shall not be construed as an expression of opinion by this Court on the merits of the case.