Facts of the Case

The petitioner, Amit Gupta, was alleged to be the mastermind behind fraudulent availment of Input Tax Credit (ITC) through non-existent firms, involving approximately ₹27.05 crores and total ITC exposure of ₹260 crores.

He was granted bail subject to conditions, including deposit of ₹2.70 crores. The petitioner complied by depositing:

  • ₹1.10 crores through cash ledger
  • ₹1.60 crores through reversal of ITC from electronic credit ledger

The Trial Court later cancelled bail on the ground that ITC reversal was not a valid mode of compliance.

Issues Involved

  1. Whether deposit of bail condition amount can be satisfied through reversal/utilization of ITC.
  2. Whether such compliance amounts to violation of bail conditions.
  3. Whether cancellation of bail was justified in absence of complete non-compliance.

Petitioner’s Arguments

  • ITC can legally be used for payment of liabilities under Section 49 of the CGST Act.
  • GST provisions and Form GST DRC-03 permit payment via electronic credit ledger.
  • Majority of ITC (beyond approx. ₹42 crores) was not proven fraudulent.
  • Bail condition required “deposit”, not specifically “cash deposit”.

Respondent’s Arguments

  • ITC utilized was allegedly fraudulent and hence invalid for compliance.
  • Bail condition implied deposit in cash, not through ITC reversal.
  • Petitioner did not seek prior permission for such mode of deposit.

Court Findings / Judgment

The Delhi High Court held:

  • Section 49 CGST Act allows utilization of ITC for payment of tax liabilities.
  • Investigation did not establish that entire ITC was fraudulent.
  • Partial compliance through ITC reversal cannot be termed illegal.
  • Bail condition stood substantially fulfilled.
  • Trial Court should have clarified mode of deposit if ambiguity existed.

Result:
The order cancelling bail dated 9 July 2021 was set aside, and bail was restored.

Important Clarifications

  • Utilization of ITC is legally permissible unless specifically restricted under Rule 86A.
  • Bail conditions must be interpreted reasonably, not rigidly.
  • Non-compliance must be substantial, not technical, to justify cancellation of bail.
  • Courts must consider practical compliance rather than procedural rigidity.

Link to download the order -  https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1661/MUG29042022CRLW12672021_144706.pdf

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