Regular Bail Granted in Product Misclassification Evasion Case as Complaint Was Filed and Custody Was Unnecessary

ORDER

1. This is the first application filed by the applicant under Section 483 of the BNSS seeking regular bail. The applicant has been arrested on 21.03.2026 in connection with Crime No.156/2026 registered by the Principal Commissioner, Central GST & Central Excise Headquarters, Bhopal Branch, Gwalior for the offences punishable under Sections 18(1)(a), (b), (c), (d) and Section 19(1)(a) of the Health Security and National Security Cess Act, 2025 (hereinafter referred to as “HSNS Cess Act”). The complaint has already been filed before the competent Court.

2. As per the prosecution case, acting upon specific intelligence, officers of the Central GST Department conducted inspection and search proceedings on 19.03.2026 and 20.03.2026 at the factory premises of M/s Vikas Enterprises situated at Shankarpur Taal, Industrial Area, Gwalior, belonging to the present applicant. During inspection, several automatic pouch packing machines, manual pouch packing machines, raw materials, finished goods, documents, CCTV devices and electronic gadgets were seized. According to the prosecution, although the applicant claimed to manufacture scented supari falling under HSN 2106, investigation revealed that he was actually manufacturing pan masala by mixing scented supari with lime and other ingredients without obtaining mandatory registration under the HSNS Cess Act, 2025. It is alleged that the applicant possessed three automatic pouch packing machines and twelve manual pouch packing machines without obtaining registration or making declaration before the competent authority. It is further alleged that the applicant intentionally classified the product under HSN 2106 attracting GST @5%, whereas the goods actually manufactured were pan masala attracting GST @28% along with HSNS Cess. The prosecution has further alleged that statements recorded under Section 70 of the CGST Act establish the involvement of the applicant and that investigation also disclosed evasion of GST as well as Cess under Rule 32 of the HSNS Cess Rules, 2026. According to the prosecution, investigation further revealed that the applicant’s brother is also involved in another similar tax evasion case and both are operating as part of a larger syndicate indulging in tax evasion across several States. On these allegations, the applicant was arrested on 21.03.2026.

3. Learned Senior Counsel for the applicant submits that the arrest itself is illegal and contrary to the constitutional safeguards guaranteed under Article 21 of the Constitution. It is argued that the applicant remained in continuous custody and supervision of the GST officials from 19.03.2026 till the evening of 20.03.2026 but was shown to have been formally arrested only on 21.03.2026, thereby defeating the mandatory safeguard of production before the Magistrate within twenty-four hours. It is further submitted that the applicant throughout cooperated with the search proceedings and remained available to the investigating officers. Learned counsel submits that the offences alleged against the applicant carry a maximum punishment of five years and are triable by the learned Judicial Magistrate First Class. It is argued that investigation cannot be a ground for indefinite incarceration particularly when the prosecution itself never sought police custody nor custodial interrogation after the applicant was remanded to judicial custody. It is submitted that the applicant has remained in judicial custody since 21.03.2026 and despite availability of sufficient opportunity, the Department never moved any application seeking police remand. It is argued that this circumstance itself demonstrates that custodial interrogation of the applicant is no longer necessary.

4. It is further contended that the prosecution case is entirely documentary in nature. All relevant documents, computers, electronic devices, machinery and goods have already been seized by the Department during search proceedings. Therefore, there remains practically no possibility of tampering with documentary evidence. Learned counsel further submits that the applicant has no criminal antecedents and is a permanent resident of Gwalior therefore, there is no possibility of his absconsion. It is submitted that the applicant is 42 years of age and is the sole earning member of his family comprising his wife and two minor daughters. It is further argued that continued incarceration would cause irreparable hardship to his dependent family. Learned counsel submits that the applicant satisfies the well-settled triple test governing grant of bail as there is no possibility of his absconding, influencing the witnesses or tampering with the evidence. The learned counsel has further invited attention of this Court towards the seizure panchnama dated 19.03.2026 and 20.03.2026. It is submitted that the seizure memo itself does not disclose seizure of tobacco. Looking carefully to the seizure panchnama it is evident that no tobacco leaves, no tobacco dust, no nicotine, no chewing tobacco, no khaini, no zarda, no gutkha have been seized.

5. It is argued that the articles seized comprise scented supari, betel nut, cloves, cardamom, menthol, perfume, mulethi, lime, packing materials and machines. According to learned counsel, even if the entire prosecution case is accepted at its face value, the seizure itself demonstrates manufacture of scented supari and not tobacco products. It is further submitted that whether addition of lime to scented supari converts the product into pan masala is itself a matter requiring evidence during trial. Such disputed questions cannot be conclusively determined at the stage of consideration of bail.

6. Learned counsel has further argued that the complaint has already been filed before the competent Court and, therefore, the investigation, so far as the present applicant is concerned, substantially stands completed. Consequently, further incarceration would serve no useful purpose.

7. Learned counsel further submits that since the maximum punishment prescribed is only five years and the offences are triable by the JMFC, the principles laid down by the Hon’ble Supreme Court in Arnesh Kumar v. State of Bihar (2014) 8 SCC 273 andSatender Kumar Antil v. CBI (2022) 10 SCC 51 squarely apply.

8. Learned counsel for the applicant also placed on the judgements of the Hon’ble Apex Court in the case of P. Chidambaram v. Directorate of Enforcement   (SC)/(2020) 13 SCC 791 , CGST Delhi West v. Vishal Goyal (CRL.M.C. No. 1242 of 2026), Delhi High Court,Directorate of Revenue Intelligence v. Khushant Nagpal 2025 DHC 4086, Amarendra Dhari Singh v. Directorate of Enforcement  162 (Delhi)/2021 SCC OnLine Del 3901 , D.K. Shivakumar v. Directorate of Enforcement  (Delhi)/Bail Application No. 2484/2019, Vipul Chitalia v. CBI [Bail Application No. 3810 of 2021, dated 18-8-2022], Gautam Khaitan v. CBI [Bail Application No. 2701 of 2022, dated 4-7-2023], Delhi High Court, decided on 16.09.2022.

9. In the further argued that the applicant is ready and willing to abide by all the terms and conditions as may be imposed by this Court and is also willing to co-operate in investigation and trial and make himself available as and when required. Hence, on these grounds, it is prayed that the applicant be enlarged on bail.

10. Per contra, learned counsel for the Respondent/Union of India opposed the prayer and prayed for its rejection by contending that the present case does not involve a mere technical violation of taxation laws but relates to a well-planned and systematic economic offence whereby the applicant, by deliberately suppressing the actual nature of the product manufactured in his factory, caused huge loss to the public exchequer. Learned counsel submits that acting upon specific intelligence, officers of the Central GST Department conducted inspection under Section 67(1) of the CGST Act at the premises of M/s Vikas Enterprises situated at Shankarpur Taal, Industrial Area, Gwalior. During inspection, it was discovered that although the applicant had declared himself to be manufacturing scented supari falling under HSN 2106, he was actually engaged in manufacturing pan masala by mixing lime and other ingredients through automatic pouch packing machines. It is submitted that during inspection and search proceedings, three automatic pouch packing machines and twelve manual pouch packing machines were found installed in the factory. The applicant failed to produce any declaration or registration under the Health Security National Security Cess Act, 2025 in respect of the said machines.

11. Learned counsel further submits that under Rule 32 of the HSNS Cess Rules, 2026, once such undeclared machines are found in operation, the cess liability is required to be determined on the basis of machine capacity and the statutory deeming provision.

12. According to the respondent, invoices recovered from the premises indicate purchase of lime powder, menthol, betel nut pieces, perfume, cloves, cardamom, peppermint, flavouring agents and other ingredients ordinarily used in the manufacture of pan masala, whereas no material relatable to ordinary scented supari or mouth fresheners was found corresponding to the GST classification adopted by the applicant. It is further submitted that the statements recorded under Section 70 of the CGST Act clearly implicate the applicant and constitute relevant material under Section 136 of the CGST Act. Learned counsel further submits that despite repeated interrogation even after judicial custody, the applicant failed to disclose the identity of suppliers of raw material, suppliers of packing material and purchasers of finished goods, thereby seriously hampering the investigation. It is also contended that investigation has revealed involvement of the applicant’s brother in another similar tax evasion case involving substantial revenue loss, thereby indicating that the present offence is not an isolated incident but forms part of a larger organised modus operandi. According to the respondent, investigation regarding interstate supply chain, beneficiaries, transport network and ultimate recipients is still continuing. It is submitted that if enlarged on bail, there exists every likelihood of the applicant influencing witnesses connected with the business, destroying further evidence and obstructing investigation. Learned counsel submits that economic offences constitute a distinct class and are required to be viewed differently while considering the question of bail.

13. In support of the above submissions, reliance has been placed upon the following judgements passed in the cases of Y.S. Jagan Mohan Reddy v. CBI (2013) 7 SCC 439 , Amal Mubarak Salim Al Reiyami v. Union of India [S.B. Criminal Misc. Bail Application No. 1870 of 2015, dated 26-3-2015]/2015 (321) ELT 590 (Raj.), Rajesh Goyal v. Union of India 2011 (3) ILR (Raj.) 378. State of Gujarat v. Mohanlal Jitamalji Porwal  (SC)/AIR 1987 SC 1321. It is, therefore, prayed that the present application deserves to be dismissed.

14. Heard learned counsel for the parties at length and perused the case diary, seizure panchnama, documents filed by both the parties and the complaint filed before the competent Court.

15. Before adverting to the rival submissions, it would be appropriate to notice the principles governing grant of bail in economic offences.

16. The applicant has relied upon the decisions in Arnesh Kumar(supra), Satender Kumar Antil(supra) , P. Chidambaram(supra), P. Chidambaram v. CBI (2020) 13 SCC 337 , Amarendra Dhari Singh (supra), D.K. Shivakumar (supra), Gautam Khaitan (supra), CGST Delhi West v. Vishal Goyal (supra) and Khushant Nagpal (supra) to contend that in offences punishable up to seven years, continued incarceration should not be resorted to unless custodial interrogation is necessary or the accused fails to satisfy the triple test.

17. On the other hand, the respondent has relied upon the judgments of the Hon’ble Supreme Court in Y.S. Jagan Mohan Reddy (supra), and State of Gujarat v. Mohanlal Jitamalji Porwal, (supra), as well as the decisions of the Rajasthan High Court in Rajesh Goyal (supra) and Salim Al Rayami (supra), to contend that economic offences stand on a different footing and deserve a stricter approach while considering bail.

18. There cannot be any quarrel with the proposition laid down in Y.S. Jagan Mohan Reddy (supra) that economic offences are serious in nature and affect the economy of the country. Similarly, the observations made in Mohanlal Jitamalji Porwal (supra) emphasise that deliberate tax evasion adversely affects public interest.

19. However, it is equally well settled that neither of the aforesaid judgments lays down an absolute proposition that bail must invariably be refused in every economic offence irrespective of the facts of the individual case.

20. The subsequent judgments of the Hon’ble Supreme Court in P. Chidambaram (supra) , P. Chidambaram (supra) and finally the Constitution Bench principles reiterated in Satender Kumar Antil v. CBI (supra) clearly recognise that even in economic offences, grant or refusal of bail has to be determined on settled parameters such as the nature of accusation, requirement of custodial interrogation, likelihood of tampering with evidence, possibility of absconding and overall facts of the case.

21. Similarly, Arnesh Kumar (supra) reiterates that arrest and continued detention cannot be employed as a punitive measure where the statute prescribes imprisonment up to seven years unless the statutory requirements are satisfied. Thus, while the gravity of an economic offence certainly remains an important consideration, it cannot eclipse the settled principles governing personal liberty guaranteed under Article 21 of the Constitution.

22. The applicant has been prosecuted for the offences punishable under Sections 18(1)(a), (b), (c), (d) and Section 19(1)(a) of the Health Security National Security Cess Act, 2025. It is not disputed by either side that the maximum punishment prescribed for the alleged offences is imprisonment extending up to five years. Therefore, the present case falls within the category of offences punishable with imprisonment up to seven years.

23. The Hon’ble Supreme Court in Arnesh Kumar v. State of Bihar, (supra), while dealing with offences punishable up to seven years, has held that arrest is not to be made routinely and deprivation of liberty must be justified by compelling reasons.

24. The principles governing arrest and bail in offences punishable up to seven years have thereafter been comprehensively reiterated by the Hon’ble Supreme Court in Satender Kumar Antil v. CBI, (supra), wherein emphasis has been laid upon preservation of personal liberty, particularly where investigation can proceed without continued incarceration. Thus, the statutory framework governing the present case itself requires the Court to examine whether continued detention of the applicant is genuinely necessary.

25. A significant circumstance which weighs with this Court is the seizure panchnama dated 19.03.2026 and 20.03.2026. The prosecution itself has relied upon the said seizure memo.

26. A careful reading of the panchnama shows seizure of scented supari, betel nut, chopped betel nut, betel nut dust, mulethi, cloves, cardamom, nutmeg, perfume, menthol (solid and liquid), lime, packing material, pouch rolls, automatic pouch packing machines, manual pouch packing machines, finished packets described as “VM Black Scented Supari”, ready mix scented supari, documents, electronic devices and CCTV equipment.

27. Significantly, the seizure memo does not record seizure of tobacco, chewing of tobacco, nicotine, khaini or any finished product that may be described as gutkha. No laboratory report has been placed before this Court at this stage demonstrating that the seized finished goods contain tobacco. Similarly, the seizure memo does not indicate recovery of tobacco leaves, tobacco powder or any other tobacco product. Whether the addition of lime to scented supari would by itself convert the product into “pan masala” attracting the provisions invoked by the prosecution is essentially a matter requiring appreciation of evidence during trial. At the stage of consideration of bail, this Court is not expected to undertake a detailed examination regarding classification of goods or record conclusive findings upon disputed questions of fact. Nevertheless, for the limited purpose of deciding the present application, the seizure panchnama prima facie indicates seizure of materials ordinarily associated with manufacture of scented supari, whereas direct recovery of tobacco products is conspicuously absent. This circumstance, though not determinative of the ultimate guilt or innocence of the applicant, is undoubtedly a relevant factor while considering his entitlement to bail.

28. Another important circumstance is that the respondent itself admits that the complaint has already been presented before the competent Court on 20.05.2026. Thus, investigation, insofar as filing of prosecution complaint is concerned, already stands completed. The prosecution has also not disputed that the applicant has remained in judicial custody since 21.03.2026. The record further reveals that after the applicant was remanded to judicial custody, no application seeking police custody has been filed by the investigating agency. Even according to the respondent, interrogation was conducted in jail itself. This circumstance assumes significance because if custodial interrogation were genuinely indispensable, the investigating agency could have availed the statutory remedy of seeking police remand. The fact that no such request was ever made indicates that further custodial detention of the applicant is not indispensable for investigation.

29. The prosecution case is substantially founded upon seizure of machinery, seizure of documents, purchase invoices, GST returns, electronic records, CCTV devices, digital data, statements recorded under Section 70 of the CGST Act, laboratory examination, if any, statutory calculations under Rule 32. All such evidence is documentary or electronic in nature. The machines have already been sealed. Documents have already been seized. Electronic devices have already been taken into custody.The prosecution has not pointed out any specific documentary evidence which still remains susceptible to tampering by the applicant. The Hon’ble Supreme Court in P. Chidambaram (supra), has observed that where documentary evidence is already in possession of the investigating agency, the apprehension of tampering substantially loses its force. The said principle appears applicable to the facts of the present case.

30. Nothing has been placed before this Court suggesting that the applicant ever attempted to evade the process of law. Therefore, at least for the purposes of adjudication of the present application, the applicant appears to satisfy the triple test recognised by the Hon’ble Supreme Court in P. Chidambaram (supra).

31. This Court is conscious of the observations made by the Hon’ble Supreme Court in Y.S. Jagan Mohan Reddy (supra), Mohanlal Jitamalji Porwal (supra) as well as the decisions in Rajesh Goyal and Amal Mubarak Salim Al Rayami (supra) , wherein economic offences have been treated as grave offences affecting the economy. However, those judgments do not lay down an absolute embargo against grant of bail. Gravity of the accusation undoubtedly constitutes an important consideration. Yet, it is equally well settled that seriousness of allegations alone cannot justify prolonged pre-trial incarceration once the investigation substantially stands completed and the accused otherwise satisfies the settled parameters governing bail.

32. Considering the facts and circumstances of the case, along with the facts that the offences are punishable with imprisonment up to five years, the case is triable by the JMFC, the complaint has already been filed, no police custody was ever sought after judicial remand, the applicant is under custody since 21.03.2026, the prosecution case rests predominantly on documentary and electronic evidence already seized, the seizure panchnama, prima facie, does not indicate recovery of tobacco or gutkha, and even no tobacco leaves, no tobacco dust, no nicotine, no chewing tobacco, no khaini, no zarda, no gutkha have been seized, though the prosecution alleges manufacture of pan masala, which remains a matter for trial and the case of the brother of the present applicant was related to manufacturing/production of “pan masala”, but without expressing any opinion on merits of the case, this application is allowed and it is directed that the applicant be released on bail on furnishing a personal bond in the sum of Rs.1,00,000/- (Rupees One Lakh only) along with one solvent surety in the like amount to the satisfaction of the trial Court/Committal Court.

33. This order will remain operative subject to compliance of the following conditions by the applicant:-

34. E- copy of this order be sent to the trial Court concerned for compliance.

35. Certified copy as per rules.