Gujarat High Court Grants Regular Bail in ₹21.94 Crore ITC Fraud Case

In a significant ruling from March 2026, the Gujarat High Court enlarged a partner of a metal firm on regular bail, reinforcing the principle that “bail is the rule and jail is the exception,” even in high-value economic offences, once the investigation is concluded.

The Allegations: ₹21.94 Crore “Ab Initio” Cancelled ITC

The Investigation by DGGI

The Directorate General of Goods and Services Tax Intelligence (DGGI), Ahmedabad, alleged that the applicant, an active partner of M/s Patel Metal Craft, had wrongfully availed Input Tax Credit (ITC) amounting to ₹21.94 crore.

The Modus Operandi

The department claimed the inward supplies (worth approximately ₹121.87 crore) were sourced from 38 different firms. Upon verification, the GST registrations of these 38 firms had been cancelled ab initio (from the beginning) because they were found to be non-existent or non-operational “paper companies” created solely to pass on ineligible credit.

The Legal Principles: Personal Liberty vs. Economic Interest

The Court exercised its discretion under Section 483 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023 (which has replaced the old CrPC) based on the following judicial reasoning:

Completion of Investigation: Since the DGGI had already filed the formal complaint (charge sheet) and the applicant had already spent time in custody, the Court found no “reasonable ground” to keep him detained further. All relevant documents were already in the possession of the authorities.
Maximum Punishment: The Court noted the maximum sentence for offences under Section 132 (usually 5 years). Prolonged pre-trial detention for an offence with a five-year cap is often viewed as “punishment before trial.”
Alternative Recovery Measures: The Revenue’s objection—that this was a large-scale fraud—was set aside. The Court observed that the GST Department has other statutory measures (such as attachment of property or recovery of tax) to protect the interest of the Revenue, which are independent of criminal prosecution.
Presumption of Innocence: The Court upheld the fundamental right to personal liberty, noting that the trial was likely to take a significant amount of time.

Key Takeaways for Businesses and Partners

Due Diligence of Vendors: This case highlights the extreme risk of dealing with vendors who might later be flagged as “non-existent.” If your supplier’s registration is cancelled ab initio, the DGGI can arrest the recipient of the credit for “conspiracy” or “wrongful availment.”
Bail After Charge Sheet: Once the “Complaint” is filed in court, the chances of getting bail increase significantly, as the “risk of tampering with evidence” is diminished.
Financial vs. Criminal Liability: Even if you secure bail, the financial liability (the ₹21.94 crore plus interest and 100% penalty) remains. Securing bail only protects your physical liberty; it does not absolve the firm of the tax debt.

Summary of Bail Conditions

The Court enlarged the applicant on bail subject to standard conditions, including:

Surrendering the passport.
Not leaving the state without prior permission.
Marking presence at the designated police station/DGGI office periodically.
Not tampering with any prosecution witnesses.

HIGH COURT OF GUJARAT

Jaydeep Mukeshbhai Virani

State of Gujarat^*

Nikhil S. Kariel, J.

R/CRIMINAL MISAPPLICATION NO. 2073 of 2026

FEBRUARY 19, 2026

Apurva N Mehta for the Applicant. Utkarsh R Sharma and Jay Mehta, Additional Public Prosecutor for the Respondent.

ORDER

1. Heard learned Advocate Mr. Apurva Mehta appearing on behalf of the applicant, learned Additional Public Prosecutor Mr. Jay Mehta appearing on behalf of the respondent no.1 -State and learned Advocate Mr. Utkarsh Sharma for the respondent no. 2.

2. Rule. Learned APP waives service of rule on behalf of the respondent no.1-State whereas Mr. Sharma learned Advocate waives service of rule on behalf of original complainant- Respondent no. 2.

3. The applicant has filed this application under Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023 for enlarging the applicant on Regular Bail in connection with File No.DGGI/INC/GST/2453/2025/ Gr. A-O/o ADG-DGGI-ZU-AHMEDABAD registered at Senior Intelligence Officer, DGGI Zonal Unit, Ahmedabad for the offence punishable under Section 132(1)(c) of the Central/Gujarat Goods & Services Tax Act, 2017.

4. Learned Advocate for the applicant would submit that considering the role attributed to the applicant, and nature of the allegation levelled, the applicant may be enlarged on regular bail. It is further submitted that since the charge-sheet is filed no useful purpose would be served by keeping the applicant in jail for indefinite period. It is further contended that the applicant is ready and willing to abide by all the conditions that may be imposed by this Court if released on bail.

5. As against the same, learned Additional Public Prosecutor appearing for the respondent — State and learned Advocate Mr. Sharma for the original complainant have vehemently objected to the grant of regular bail. Learned APP has submitted that looking to the nature of offence and the role attributed to the present applicant as coming out from the charge-sheet, this Court may not exercise the discretion in favour of the applicant and the application may be dismissed.

6. This Court has heard learned Advocates appearing on behalf of the respective parties and perused the papers. Following aspects have been considered:

(i)

The allegation being that the applicant being an active partner of one M/s Patel Metal Craft, had availed ITC aggregating to Rs. 21,93,65,376/- on inward supply of taxable value of Rs.1,21,86,96,528/- from 38 Firms whose GST registrations have been cancelled ab intio by the Department for being non existence non operational etc.

(ii)

It would appear in this regard that the applicant has been arrested and he is in custody since 28.11.2025 and whereas the investigation has completed and the complaint (charge-sheet) is filed by the Department.

(iii)

Considering the maximum punishment that could be imposed, since the investigation is completed, to this Court it would appear that there is no reasonable reason for keeping the applicant in custody any further.

(iv)

As far as objection raised by learned Advocate Mr. Sharma, as regards a large amount of money being defrauded by the applicant, the Department entitle to invoke to appropriate measures for taking action against the present applicant apart from the present criminal case, such an argument cannot be countenanced at this stage. Under circumstances to this Court the present application requires consideration.

7. This Court has taken into consideration the law laid down by the Hon’ble Apex Court in the case of Sanjay Chandra v. CBI [2012] 1 SCC 40.

8. In the facts and circumstances of the case and considering the nature of the allegations made against the applicant in the First Information Report, without discussing the evidence in detail, prima facie, this Court is of the opinion that this is a fit case to exercise the discretion and enlarge the applicant on regular bail.

9. Hence, the present application is allowed. The applicant is ordered to be released on bail in connection with File No. DGGI /INC/GST/2453/2025/ Gr.A-O/o ADG-DGGI-ZU-AHMEDABAD registered with Directorate of Revenue Intelligence on executing a bond of Rs.1,00,000/- (Rupees One Lakh only) with one SOLVENT surety of the like amount to the satisfaction of the trial Court and subject to the conditions that she shall;

not take undue advantage of liberty or misuse liberty;

not act in a manner injurious to the interest of the prosecution;

surrender passport, if any, to the lower court within a week;

not leave the State of Gujarat without prior permission of the Sessions Court concerned;

furnish the proposed address of residence to the I.O. and also to the Court at the time of execution of the bond and shall not change the residence without prior intimation to the I.O.;

mark presence before the Respondent No.2 once a month for a period of six months.

10. The Authorities will release the applicant only if she is not required in connection with any other offence for the time being. If breach of any of the above conditions is committed, the Sessions Court concerned will be free to take appropriate action in the matter.

11. Bail bond to be executed before the lower court having jurisdiction to try the case. It will be open for the concerned Court to delete, modify and/or relax any of the above conditions in accordance with law.

12. At the stage of trial, the trial court shall not be influenced by any observations of this Court which are of preliminary nature made at this stage, only for the purpose of considering the application of the applicant for being released on regular bail.

13. The application is allowed in the aforesaid terms. Rule is made absolute to the aforesaid extent. Direct service is permitted.