Bail under GST: Practical Strategy

The Goods and Services Tax (GST) was meant to simplify India’s indirect tax landscape. But as enforcement has become stricter—especially in cases involving fake invoicing, ITC fraud, or large-scale evasion—businesses have increasingly encountered the sharp edge of the law: arrest and bail under GST.

In this environment, understanding the legal framework, learning from judicial precedents, and adopting a clear risk-management strategy are essential for companies, tax professionals, and advisors.

This article aims to explain the law in plain terms, and suggest practical steps to navigate GST investigations confidently and responsibly.

1. Why Bail Matters Under GST: Understanding Arrest Powers and Offence Classification

The arrest powers under GST arise from Section 69 of the CGST Act, which authorises the Commissioner to issue a written order of arrest if he has reason to believe that a person has committed certain offences listed under Section 132.

These offences include:

• Issuing invoices without actual supply of goods or services
• Availing or passing on fake Input Tax Credit (ITC)
• Collecting tax but failing to deposit it
• Fraudulent refunds or suppression of taxable turnover

The severity of the offence determines whether bail is automatic or requires judicial intervention:

Bailable Offences:

For lower thresholds of evasion or procedural violations, the arrested person may be released on bail by the GST officer.

Non-Bailable Offences:

When alleged tax evasion exceeds ₹5 crore, or fraudulent invoices are involved, offences become non-bailable, requiring the accused to approach a court for regular or anticipatory bail.

This is where the BNSS, 2023 (replacing the CrPC) becomes crucial, as it governs the procedure for arrest, remand, and bail.

2. BNSS 2023 Safeguards: How the New Criminal Procedure Protects Taxpayers in GST Arrests

The shift from CrPC to the Bharatiya Nagarik Suraksha Sanhita, 2023 has reinforced taxpayer protections.

The key BNSS safeguards relevant to GST arrests include:

• Section 35 — Written Reasons for Arrest:
  Officers must record detailed reasons for arrest. This is a powerful safeguard in economic offences where evidence is often document-based.
• Section 43 — Right to Inform a Relative or Advocate:
  Ensures immediate access to legal assistance.
• Section 51 — Mandatory Judicial Scrutiny:
  Courts must verify compliance with arrest procedures before granting remand.
• Section 482 — Anticipatory Bail:
  Continuation of the anticipatory bail mechanism allows businesses to seek pre-arrest protection where arrest appears imminent.

Together, these provisions ensure that arrest is not used casually, and that bail decisions rest on legality and necessity, not administrative discretion.

3. Practical GST Bail Strategy: How Businesses Should Respond Before and After Arrest

Professionals dealing with GST investigations quickly learn that bail matters are not just legal battles—they’re strategic moves. Here are practical, experience-based tips that businesses can implement immediately.

Before Arrest: Build an Immunity by following these:

• Respond Promptly to Summons (Section 70):
  Silence or delay creates suspicion. Clear communication shows bona fides.
• Prepare Documentation:
  Maintain reconciliations, supply trails, e-way bills, contracts, and bank statements in a structured format.
• Avoid Oral Explanations:
  Written replies ensure clarity and avoid misinterpretation.
• Conduct a Legal Risk Assessment:
  Identify whether the alleged offence, if assumed true, would even qualify as non-bailable.
• Seek Anticipatory Bail:
  If summons become repetitive, or statements indicate a shift toward personal liability, consider pre-arrest relief.
• Institute Internal Compliance Protocols:
  Create a “GST Investigation Response File” for quick access during raids or searches.

After Arrest: Immediate and Tactical Response

• File a Bail Application Without Delay:
  Timeliness signals preparedness and cooperation.
• Argue Lack of Custodial Necessity:
  Most GST investigations are document-driven, reducing the need for custody.
• Highlight Cooperation:
  Courts give substantial weight to voluntary participation in the investigation.
• Check for Procedural Irregularities:
  If BNSS safeguards were not followed, they strengthen the bail plea significantly.
• Emphasise the Presumption of Innocence:
  GST disputes often involve interpretation, not criminality.

PMLA Risk in GST Cases: Navigating Dual Exposure and Ensuring Consistent Defence

Large GST cases—especially those involving alleged fake billing or circular transactions—may trigger inquiry under the Prevention of Money Laundering Act (PMLA).

This introduces additional complexity:

• GST authorities focus on tax evasion, while
• Enforcement Directorate (ED) focuses on “proceeds of crime.”

Defence strategy must therefore be consistent across both statutes.

Key pointers:

• Maintain one coherent factual narrative.
• Avoid contradictions in GST and ED statements.
• Argue that disputed tax liability does not automatically constitute “proceeds of crime,” an argument accepted in several court matters.
• Protect business assets early if provisional attachment appears likely.

4. Compliance Action Checklist: Preventive Steps to Avoid GST Litigation and Arrest

Here’s a concise, practical list for companies to stay prepared:

• Strengthen documentation culture

Ensure GST filings, ITC reconciliations, and vendor validations are clean and traceable.

• Create a standard “Summons Response Kit”

Draft templates for replies, checklists for documents, and internal protocols.

• Train teams on investigation conduct

Many problems arise from inconsistent or hurried statements during summons proceedings.

• Engage counsel early

Not at the stage of arrest, but at the stage of “persistent inquiry.”

• Monitor vendor networks

Many GST arrests involve alleged “fake or risky vendors.” Continuous vendor due diligence reduces exposure.

• Document cooperation

Courts consider cooperation a major factor in granting bail.

• Prepare for parallel PMLA risk

Maintain a holistic compliance file for use in both GST and ED proceedings.

A Balanced Approach:

GST was never meant to be a criminal statute. Its core objective is to ensure smooth tax collection and honest compliance. But in the race to curb fraud, enforcement cannot lose sight of individual rights and business realities.

The emerging jurisprudence shows that courts expect the State to use arrest sparingly and to justify it with compelling reasons. At the same time, businesses must elevate their compliance capacity and respond proactively during investigations.

The real solution lies not in confrontation, but in transparency, preparedness, and strategic legal response.

And remember—bail is the rule, not the exception, even under GST.

In case of any query and clarification regarding indirect taxation including GST and Customs, and require any support, you may like to connect with us.

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Abhinarayan Mishra FCA, FCS, LL.B, IP, RV; Partner, KPAM & Associates, Chartered Accountants, SAM Law Associates LLP. New Delhi ; +91 9910744992; ca.abhimishra@gmail.com; samlawassociates18@gmail.com