Facts of the Case

The petitioner, Rohit Kumar Gupta, proprietor of M/s Maa Steel, Ludhiana, was engaged in the business of trading iron and related goods. The proceedings arose from scrutiny of returns and E-Way Bills for the period from 01.04.2024 to 27.01.2026. The respondent alleged irregularities in transactions suggesting that invoices had been issued and received without actual supply or movement of goods.

On the basis of these allegations, the petitioner was arrested on 12.02.2026 and remained in judicial custody. The petitioner asserted that he had fully cooperated with the investigation and supplied the requisite documents. He further contended that his arrest was illegal and contrary to the safeguards under Section 35 of the BNSS, particularly because the evidence involved was essentially documentary.

The respondent-State alleged that scrutiny of E-Way Bill data revealed systematic issuance and utilisation of invoices without actual movement or supply of goods, resulting in wrongful availment of Input Tax Credit. According to the State, an approximate loss of ₹9,66,64,194 had been caused to the State Exchequer.

Issues Involved

  1. Whether the petitioner was entitled to regular bail in proceedings involving alleged wrongful availment of ITC through invoices without actual supply or movement of goods.
  2. Whether continued judicial custody was justified when the evidence was predominantly documentary and electronic in nature.
  3. Whether the magnitude of the alleged loss to the State Exchequer, stated to be approximately ₹9.66 crore, by itself justified continued incarceration.
  4. Whether the petitioner’s custody of more than three-and-a-half months, the likely duration of trial and the absence of material showing a risk of tampering with evidence or influencing witnesses supported grant of bail.
  5. Whether the principles laid down by the Supreme Court concerning arrest under the GST law, personal liberty, speedy trial and the rule that bail is the norm were applicable to the petitioner’s case.

Petitioner’s Arguments

The petitioner argued that M/s Maa Steel was a duly registered business entity genuinely engaged in trading iron and steel goods and that the allegation of wrongful availment of ITC was without adequate legal or evidentiary basis.

It was contended that there was no credible evidence supporting the allegation that ITC of ₹9,66,64,194 had been availed against fake invoices. The petitioner further argued that his ITC refund had earlier been processed after verification by the respondent’s officer, and that the subsequent allegation of absence of genuine trade or business transactions was unfounded.

The petitioner maintained that relevant business documents, including GST invoices and E-Way Bills, had been furnished to the respondent authorities and demonstrated actual business operations. He further submitted that he had already undergone incarceration for more than three-and-a-half months, the evidence was documentary and had substantially been collected, and further detention would serve no useful purpose.

Reliance was placed, inter alia, on Vineet Jain vs Union of India, 2025 SCC OnLine SC 2331; Ratnambar Kaushik vs Union of India, (2023) 2 SCC 621; Ashish Kakkar vs Union of India & Anr.; and Radhika Aggarwal vs Union of India & Ors., (2025) 6 SCC 545.

Respondent’s Arguments

The State opposed the bail petition and contended that it had been filed on false and frivolous grounds. It denied that the petitioner’s arrest violated Section 35 of the BNSS and maintained that all necessary statutory provisions, instructions and safeguards had been followed during investigation and arrest.

The State argued that a very large number of documents still required scanning and scrutiny and that the petitioner’s custody period of approximately three-and-a-half months could not be treated as prolonged incarceration.

It was further contended that the alleged fraud against the State Exchequer was enormous and involved false documents and wrongful benefit obtained in the name of the petitioner’s business entity. Considering the seriousness and magnitude of the alleged economic offence, the State sought dismissal of the bail petition.

The respondent relied upon Central Bureau of Investigation vs V. Vijay Sai Reddy, (2013) 7 SCC 452, emphasising the nature of accusations, supporting evidence, severity of punishment, possibility of interference with trial, apprehension of witness tampering and the larger interests of the public and State.

Court Order / Findings

The High Court examined the applicable principles governing bail and considered the Supreme Court’s ruling in Vineet Jain vs Union of India, where bail was granted in proceedings under Section 132(1)(c), (f) and (h) of the CGST Act, particularly considering the limited maximum sentence, custody period, documentary nature of evidence and absence of antecedents.

The Court also referred to Radhika Aggarwal vs Union of India & Ors., noting the principle that arrest must be founded upon a belief supported by reasons and material satisfying the statutory requirements and cannot be based merely on suspicion. The Court further noted the clarification that tax authorities cannot compel or extract tax by threatening arrest.

Reliance was also placed upon Sanjay Chandra vs CBI, (2012) 1 SCC 40, concerning personal liberty and speedy trial; Gurcharan Singh and Others vs State, AIR 1978 SC 179, regarding flight risk and witness tampering; Directorate of Enforcement vs Subhash Sharma, 2025 SCC OnLine SC 240, concerning violations of Articles 21 and 22; and State of Kerala vs Raneef, (2011) 1 SCC 784, concerning the fundamental purposes of bail.

The Court additionally considered Ashutosh Garg vs Union of India, where bail had been granted in an alleged ₹1,032 crore ITC fraud involving 294 fake firms, with custody period and maximum punishment being relevant considerations. It also relied upon Ratnambar Kaushik vs Union of India, where the Supreme Court considered the documentary and electronic nature of evidence and the likely duration of trial in a CGST tax-evasion matter.

The High Court further referred to Dataram vs State of Uttar Pradesh and Another, (2018) 3 SCC 22, reiterating the presumption of innocence and the principle that grant of bail is the general rule while incarceration is an exception. It also referred to Tapas Kumar Palit vs State of Chhattisgarh, 2025 SCC OnLine SC 322, concerning the constitutional right to speedy trial.

The Court noted similar bail orders in Atul Aggarwal vs State of Punjab & Ors., CRM-M-21915-2026; Bhanuj Jindal vs Directorate General of Goods & Services Tax Intelligence, CRM-M-881-2026; Deepak Goyal vs Inspector (Anti Evasion), CRM-M-49042-2025; and Arvind Kumar vs DGGI, 2025 NCPHHC 65125.

On analysing the facts, the High Court specifically found that:

  • the petitioner had already remained in custody for more than three-and-a-half months;
  • the judgment recorded the maximum prescribed punishment for the alleged offence as imprisonment up to seven years;
  • the evidence to be collected by the investigating agency was documentary in nature;
  • continued detention was unlikely to serve any useful purpose;
  • the trial was not likely to conclude in the near future;
  • there was nothing on record showing that the petitioner, if released, would tamper with evidence or influence witnesses; and
  • there was nothing on record indicating that the petitioner would fail to participate in or cooperate with the trial.

Considering the cumulative effect of these factors and the applicable legal principles, the Court held that the petitioner was entitled to bail and allowed the petition.

The petitioner was ordered to be released on bail upon furnishing personal and surety bonds to the satisfaction of the Trial Court/Duty Magistrate concerned, subject to conditions that he would not induce, threaten or promise any person acquainted with the facts of the case; would furnish and update his address before the concerned Court; and would not leave India without prior permission of the Trial Court. Violation of these conditions could expose the bail concession to cancellation.

Important Clarification

The High Court expressly clarified that the bail order was passed without commenting on the merits of the case. Any observations made in the judgment were only for deciding the bail petition and would have no bearing on the merits of the trial.

A significant aspect of the ruling is that the Court did not treat the alleged magnitude of tax loss as sufficient, by itself, to justify indefinite or unnecessary pre-trial detention. The decision emphasises the combined relevance of the custody period, documentary nature of evidence, likely delay in conclusion of trial, absence of demonstrated risk of tampering with evidence or influencing witnesses, and the accused’s likely participation in trial.

Sections Involved

Section 69, CGST Act, 2017 – Power of arrest in specified circumstances involving offences under the GST law.

Section 132, CGST Act, 2017 – Punishment for specified GST offences, including offences relating to invoices, supply of goods or services and wrongful availment or utilisation of Input Tax Credit, depending upon the allegations and statutory ingredients.

Corresponding provisions of the Punjab GST Act, 2017 – Invoked in relation to the alleged GST offences.

Section 35, BNSS, 2023 – Relevant to the petitioner’s challenge concerning statutory safeguards governing arrest.

Section 187, BNSS, 2023 – Referred to in the complaint proceedings as recorded in the judgment.

Section 483, BNSS, 2023 – Provision under which the petitioner filed the first bail petition before the High Court.

Articles 21 and 22 of the Constitution of India – Constitutional protections concerning personal liberty and safeguards against unlawful arrest and detention.

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783069995_435compressed.pdf

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