Facts of the Case

The petitioner, a partner of M/s. Keshan Industries LLP, registered under GSTIN 36ABFFA8447D1ZH at Toopran, Medak, Telangana and engaged in manufacturing copper products from copper scrap, was arrested on 10.08.2023 in File No. INV/GST/1533/2023-AE-MDCL. The department alleged that the LLP had irregularly availed Input Tax Credit from seven non-existent suppliers without actual receipt of goods, with e-way bill analysis showing the corresponding vehicles never made the claimed movements. The preliminary estimate of evasion was Rs. 24.30 crores, of which Rs. 8.1 crores pertained to FY 2023-24 up to July 2023. The petitioner sought regular bail under Section 439 CrPC.

Issues Involved

  1. Whether regular bail should be granted where the alleged evasion runs into crores but the maximum sentence under Section 132 of the CGST Act, 2017 is five years and the offence is compoundable.
  2. Whether simultaneous investigation by State and Central GST authorities was impermissible parallel proceedings.

Petitioner's Arguments

  • The State GST authorities had already investigated the same allegations in May 2023, and parallel investigation by Central and State GST was impermissible.
  • Discrepancies existed between the date/time of arrest recorded in the Panchanama and the Arrest Memo.
  • Given the maximum punishment of five years under Section 132 and the petitioner's compliance with summons, arrest under Section 69(1) was unwarranted; Rs. 2 crores had already been paid under protest, and reliance was placed on Depesh Tiwari v. State of Madhya Pradesh for bail on part-payment.

Respondent's Arguments

  • The State and Central investigations concerned different scope and periods, and a Division Bench of the High Court had already held there was no overlap, in the petitioner's own earlier writ petition (W.P. No. 22459 of 2023).
  • No goods were actually delivered by the seven firms despite invoices showing deliveries, evidencing deliberate fraud; evasion of nearly Rs. 24 crores was already established with further evasion likely to surface.
  • The petitioner's partner had not cooperated despite summons.

Court Order / Findings

  • The Court noted that documents had already been seized and delivery by the firm itself was not disputed, only the genuineness of the raw material receipt from the seven suppliers.
  • The Court held that since the offence carries a maximum of five years' imprisonment and is compoundable, and the petitioner had cooperated with the investigation and paid Rs. 2 crores under protest, regular bail was liable to be granted, relying on Depesh Tiwari (where anticipatory bail was granted to a cooperating accused) and reiterating that bail is the rule and jail the exception (Arnab Goswami v. State of Maharashtra).
  • Bail was granted subject to a personal bond of Rs. 2 lakhs with two sureties, surrender of passport, weekly appearance before the investigating officer, and compliance with Section 437(3) CrPC conditions.

Important Clarification

Where the maximum punishment prescribed under Section 132 of the CGST Act is five years, the offence is compoundable, and the accused has cooperated with the investigation and made a part-payment under protest, courts will lean in favour of regular bail rather than continued detention, even in large-value ITC fraud allegations, since detention cannot be used as a substitute for punishment at the pre-trial stage.

Sections Involved

  • Section 132, CGST Act, 2017 — penalises fraudulent availment of ITC and prescribes punishment up to five years.
  • Section 69, CGST Act, 2017 — empowers the Commissioner to authorise arrest for specified offences.
  • Section 6(2)(b), CGST Act, 2017 — bars parallel proceedings by Central and State tax authorities on the same subject matter.
  • Section 439, Cr.P.C., 1973 — confers power on the High Court/Sessions Court to grant regular bail.

Decision – In Favour of

In favour of the Assessee (accused) — regular bail was granted, though the underlying allegations of ITC fraud remain to be tried on merits.

Case Details

  • Court: High Court for the State of Telangana at Hyderabad
  • Case Number: Criminal Petition No.8330 of 2023
  • CNR / Citation: Criminal Petition No. 8330 of 2023
  • Coram: Hon'ble Sri Justice K. Surender
  • Date of Order: 8 September 2023

Link to Download the Order

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