JULY 23, 2025

GST - Jail is a Detour; Bail is GPS

By Vijay Kumar

CLAUSE 39 of the Magna Carta of year 1215:

No free man shall be seized or imprisoned or stripped of his rights or possessions, or outlawed or exiled, or deprived of his standing in any other way, nor will we proceed with force against him, or send others to do so, except by the law of the land.

As Clause 39 echoes across centuries, one can't help but wonder: would King John have nodded approvingly at a GST bail hearing?

It is interesting that as long back as in 1924 it was held by the Calcutta High Court in Nagendra v. King-Emperor that the object of bail is to secure the attendance of the accused at the trial, that the proper test to be applied in the solution of the question whether bail should be granted or refused is whether it is probable that the party will appear to take his trial and that it is indisputable that bail is not to be withheld as a punishment.

In Emperor v. Hutchinson [1931], the Allahabad High Court observed that the principle to be deduced from the Criminal Procedure Code was that grant of bail is the rule and refusal is the exception. An accused person is presumed under the law to be innocent till his guilt is proved. As a presumably innocent person, he is entitled to freedom and every opportunity to look after his own case. An accused person, if he enjoys freedom, will be in a much better position to look after his case and to properly defend himself than if he were in custody. It is obvious that a presumably innocent person should have his freedom to enable him to establish his innocence.

Justice V.R. Krishna Iyer, in the Gudikanti Narasimhulu case (1977) observed,

The issue of bail is one of liberty, justice, public safety and burden of the public treasury, all of which insist that a developed jurisprudence of bail is integral to a socially sensitized judicial process.

Why all these old cases now? Alright let us come to the present:

On 21.12.2024, a taxpayer, let's call him MG was arrested by GST officers. He applied for bail which was dismissed by the Additional Sessions Judge on 20.03.2025. A complaint was filed against MG by the Directorate General of Goods and Services Tax Intelligence (DGGI) alleging that he had been operating two firms registered in his own name and two firms created in the names of fictitious proprietors. These firms were involved in bogus supplies of goods of taxable value of Rs.271.06 crores. He had received and issued invoices without the actual receipt or supply of goods, resulting in the wrongful availment and utilization of Input Tax Credit (ITC) to the tune of Rs.35.27 crores. That apart, he had also availed and passed on fraudulent ITC amounting to Rs.13.52 crores in the firms created by him in the names of fake and fictitious proprietors.

Against the dismissal of his bail application, MG is before the High Court. 2025-TIOL-1144-HC-P&H-GST

He argued that:

1. He has been falsely implicated in this case by circumventing the mandatory provisions of law.

2. No authorization had been obtained by the competent officer before effecting his arrest on 21.12.2024.

3. The procedure prescribed under section 73 of the CGST Act had not been followed. Neither grounds of arrest were supplied to him, nor reasons of arrest were given.

4. No notice under section 73 of the CGST Act was issued to him by the proper officer to afford opportunity of hearing before quantifying the ITC alleged to be wrongly availed by him.

5. The proper officer had no reason to believe the allegations levelled against him. Allegations with regard to availing of fraudulent ITC are totally misfounded.

6. The fictitious firms had wrongly been connected with his firms. He has been regularly paying GST.

7. His detention is in violation of articles 14 and 21 of the Constitution of India and was without following due procedure of law.

8. The trial would take considerable time to conclude.

9. The punishment provided under section 132(1)(i) is imprisonment which might extend to maximum period of five years and he is in custody for a period of about 6 months and 24 days.

10. He has been arrested only on the basis of suspicion. He has no criminal antecedents.

11. He has permanent place of business and abode. There is no flight risk as he is ready to surrender his passport and is ready to abide by the other terms and conditions of bail as imposed upon him.

The Department argued that:

1. The petitioner evaded tax liability of huge amount of money and passed fake ITC.

2. He has caused huge loss to the Government Exchequer by creating two fake and fictitious firms.

3. The allegations against him are serious in nature.

4. His active involvement in the commission of the subject crime is made out.

5. There is strong apprehension that if he is set free, he might influence the beneficiaries and other accomplices involved in the racket of fake invoicing.

While the ITC ledger may be imaginative, the taxpayer's journey through the judicial maze is painstakingly real.

The High Court observed:

1. A bare perusal of Section 132 leaves no room to doubt that the offences alleged carry minimum punishment of 06 months and a maximum punishment of 05 years of imprisonment.

2. Further, Section 138 of the CGST Act is relevant, as per which, the offences under Section 132 of the Act are compoundable.

The High Court cited a judgement of the Supreme Court in Dataram Singh where the Apex Court had noted:

A fundamental postulate of criminal jurisprudence is the presumption of innocence, meaning thereby that a person is believed to be innocent until found guilty.

Yet another important facet of our criminal jurisprudence is that the grant of bail is the general rule and putting a person in jail 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.

The High Court further observed:

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.

The High Court also referred to a recent order of the Supreme Court in Vineet Jain v. Union of India, (Criminal Appeal No.2269 of 2025) decided on 28.04.2025, wherein a person accused of committing offence under Section 132(1) of the CGST Act was denied bail. The 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, chargesheet had been filed and that the offence carried maximum punishment for 05 years of imprisonment. While granting bail to the accused, the Supreme Court 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.

The High Court considered that the petitioner is entitled to be released on bail:

1. On consideration of the facts and circumstances;

2. Considering that the alleged offences are punishable with maximum punishment up to 05 years;

3. Also keeping in view that in such circumstances, the further detention of the petitioner 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

4. 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,

Remember presumed innocence until proved guilty. Remember bail is the rule, jail is the exception? If only getting bail was as easy as claiming ITC.

Justice is not merely a line in the statute-it is a living promise, echoed in the Constitution, tempered by precedent, and shadowed by discretion. When arrest precedes inquiry and detention becomes routine, even tax law finds itself on trial. The GST framework was built for transparency and trust, not for turning procedural lapses into punitive theatre.

Presumption of innocence is not an administrative courtesy-it is the spine of civilized law. MG may well be guilty, but until conviction, he remains a citizen, not a cautionary tale. Bail is not absolution. It is balance.

The ledger of liberty must remain open-even as we audit accountability.