Bail granted to construction company director arrested over supplier-created ITC mismatch after 15 days in custody.

By | July 3, 2026
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Bail granted to construction company director arrested over supplier-created ITC mismatch after 15 days in custody.

Issue

Whether a director of a civil construction company is entitled to regular bail under Section 483 of the BNSS, 2023, when arrested under Section 132(5) of the Assam GST Act for alleged wrongful Input Tax Credit (ITC) utilization arising from a supplier’s unilateral reversal of invoices.

Facts

  • The petitioner is a director of a civil construction company that engaged a supplier for an NHIDCL 4-laning project.

  • The supplier initially issued 9 e-invoices for works contract services with applicable GST, but later unilaterally issued credit notes and amended its tax returns to nominal values.

  • This unilateral reversal by the supplier created an Input Tax Credit (ITC) mismatch for the petitioner’s company.

  • In response, the petitioner’s company lodged a formal complaint, which prompted tax authorities to conduct an inspection at the supplier’s business premises.

  • The petitioner subsequently received a notice to appear under the Bharatiya Nagarik Suraksha Sanhita (BNSS), which he did not attend.

  • The petitioner was thereafter arrested by the tax authorities under the Assam GST Act for alleged offences under Section 132(5) involving wrongful ITC claims on supposedly fabricated invoices.

  • The petitioner approached the Court seeking bail after spending more than 15 days in custody.

Decision

  • Evidentiary Custody Complete: The High Court observed that the entire prosecution case is heavily dependent on documentary evidence, and all relevant documents and materials have already been seized by the investigating agency.

  • Proportionality of Punishment: The Court noted that the alleged offence under Section 132(5) of the Assam GST Act carries a maximum statutory punishment of five years.

  • No Purpose Served by Detention: Since the petitioner had already remained in custody for more than 15 days, his continued detention would serve no further investigative purpose and would instead adversely affect his ongoing business operations.

  • Bail Application Allowed: The High Court allowed the bail application and directed that the petitioner be released on regular bail.

Key Takeaways

  • Bail as a Rule for Limited Punishments: For GST offences where the maximum statutory punishment is capped at five years and the case is entirely paper-driven, courts lean heavily toward granting bail once initial custody and document seizures are complete.

  • Impact of Supplier Fraud on Genuine Buyers: Unilateral financial amendments, return down-gradings, or credit note issuances by a supplier can trigger aggressive criminal enforcement actions against the recipient taxpayer, making immediate documentary tracking crucial for the defense.

  • Custody Limits in Economic Offences: Continued pre-trial detention will not be used as a punitive tool by the courts when there is no risk of tampering with evidence that is already securely in the custody of the tax department.

HIGH COURT OF GAUHATI
Mukesh Jalan
v.
State of Assam
Parthivjyoti Saikia, J.
Bail Appln. 1461 of 2026
JUNE  17, 2026
Dr. Ashok Saraf, A. Kaushik, B Sarma, P K Bora, S J Saikia, N N Dutta and P Baruah, Advs. for the Petitioner.
ORDER
1. Heard Mr. A. Saraf, the learned senior counsel appearing for the petitioner. Also heard Mr. B. Gogoi, the learned Addl. Advocate General, Assam.
2. This is an application under Section 483 of the BNSS, 2023 whereby the petitioner Mukesh Jalan has prayed for releasing him on bail after his arrest in Case No.CT/ENF/ARST/2026/08 under Section 132(5) of the Assam Goods and Services Tax Act, 2017.
3. The petitioner Mukesh Jalan is the Director of M/s. Sadguru Engineering and Allied Services Pvt. Ltd. The allegation brought against him is that he had made fake and ineligible input tax credit.
4. M/s. Sadguru Engineering and Allied Services Pvt. Ltd. was entrusted with the work of finishing the 4 laneing of Jorhat to Jhanji National Highway. The work was given by National Highways and Infrastructure Development Corporation Limited (NHIDCL). The said project involved extensive civil construction activities.
5. M/s. Sadguru Engineering and Allied Services Pvt. Ltd. had employed M/s. Shiva Harlalka to execute the aforesaid work. On the basis of an agreement M/s. Sadguru Engineering and Allied Services Pvt. Ltd. was to provide operational assistance and logistical co-ordination and to supply materials required for execution of the work. Both of them started the work according to their agreement.
6. Since the date they had entered into the agreement on 02.03.2025, M/s. Sadguru Engineering and Allied Services Pvt. Ltd. had paid a substantial amount of money to M/s. Shiva Harlalka. The financial transactions between the two were done through bank accounts.
7. Thereafter, disputes arose between both of them. The disputes related to financial claims, reconciliation of accounts and release of payment.
8. In the month of February, 2025, M/s. Shiva Harlalka generated and uploaded 9 e-invoiced works contract invoices amounting to Rs.67,43,45,236/-, involving GST amount of Rs. 10,28,66,222/-. Those invoices were uploaded and reported by the supplier in its statutory GST returns into the GSTR-1/IFF and GSTR-2B in accordance with the procedure contemplated by the GST laws.
9. In the meantime, without knowledge and consent of M/s. Sadguru Engineering and Allied Services Pvt. Ltd., M/s. Shiva Harlalka unilaterally proceeding to issue corresponding credit notes against the aforesaid invoices. The said notes were generated and reported by the supplier through its own GST registration and statutory returns filing mechanism without any authorization, approval from M/s. Sadguru Engineering and Allied Services Pvt. Ltd.
10. M/s. Sadguru Engineering and Allied Services Pvt. Ltd. claimed that it had no role whatsoever in the generation of the aforesaid credit notes or in the subsequent amendment of the invoices and returns filed by M/s. Shiva Harlalka.
11. Out of the said 9 credit notes, M/s. Sadguru Engineering and Allied Services Pvt. Ltd. accepted only 1 credit note considering the fact that the payment of the said invoice was not made and rejected the other 8 credit notes.
12. In the month of September, 2025, M/s. Shiva Harlalka further undertook amendments to the aforesaid invoices and credit notes in its GST returns and electronic records maintained on the GST portal. By virtue of such amendments, the supplier reduced the taxable value reflected against the said invoices to a nominal amount of Rs.0.01 per invoice. The said amendments were carried out solely by the supplier using its own GST credentials and were entirely within the control and domain of the supplier.
13. The unilateral conduct of M/s. Shiva Harlalka, resulted in serious distortion and discrepancies within the GST records pertaining to M/s. Sadguru Engineering and Allied Services Pvt. Ltd. and generated artificial and adverse consequences in the auto populated statement and electronic records available to the company including GSTR-2B and invoice management system maintained under the GST framework resulting in artificial negative input tax credit impact.
14. The unilateral issuance of credit notes and subsequent amendment of the invoices by M/s. Shiva Harlalka gave rise to an abnormal and disputed position with respect to the availability of input tax credit, reconciliation of transactions and determination of tax liabilities.
15. Faced with the aforesaid unprecedented situation and apprehending serious misuse of GST system by the supplier, M/s. Sadguru Engineering and Allied Services Pvt. Ltd. had approached the tax authorities seeking intervention and protection. In fact, on 17.03.2026, M/s. Sadguru Engineering and Allied Services Pvt. Ltd. filed a complaint before the authorities against M/s. Shiva Harlalka.
16. Thereafter, inspection and search operation was conducted within the premises of M/s. Shiva Harlalka.
17. On 20.05.2026, the present petitioner received the notice under Section 35(3) of the BNSS, 2023 which required him to appear on 21.05.2026 at the premises of M/s. Shiva Harlalka. At that time, he was out of Guwahati and therefore, he could not appear and on subsequent occasion i.e. on 28.05.2026, the petitioner was arrested under Section 69 of Assam GST Act, 2017.
18. The respondent tax authorities claimed that the petitioner Mukesh Jalan is involved in wrongful receipt and utilization of input tax credit on the strength of fabricated tax invoices without actually receiving or supply of goods or services. It is claimed that the petitioner had knowing and willfully availed fraudulent input tax credit from non-existent and bogus tax payers involving a total tax amount of Rs.88,94,075.18 and availed ineligible input tax credit involving a total tax amount Rs.13,23,23,339.65. Thereby, causing substantial loss to the Government exchequer and indicating deliberate tax evasion.
19. Mr. Saraf has submitted that entire case of the respondent State is based on documentary evidence and all the documents are already seized or available electronically. According to Mr. Saraf, under this circumstance, the petitioner no longer deserves to be detained in custody.
20. I have considered the submissions made by the learned counsels of both sides.
21. There is no doubt that the case of the prosecution rests upon documentary evidence. All the documentary evidence and other materials are already seized by the investigating agency. The offence under Section 132(5) of the Act of 2017 prescribes punishment of 5(five) years only. For the last more than 15 days the petitioner Mukesh Jalan has been in custody. Now, detaining the petitioner in judicial custody would serve no purpose rather it would adversely impact his business only. Under the given circumstances, this Court is of the opinion that the petitioner no longer deserves to be detained in custody.
22. The bail application of the petitioner is allowed.
23. The petitioner, namely- Mukesh Jalan, who was arrested in Case No.CT/ENF/ARST/2026/08 under Section 132(5) of the Assam Goods and Services Tax Act, 2017, shall be released on bail of Rs.25,000/- with a surety of like amount to the satisfaction of the learned Chief Judicial Magistrate, Kamrup(M) at Guwahati.
With the above direction, the bail application is disposed of.