Prosecution, Arrest and Bail in GST

The Manufacturer’s Ordeal: A Story of Prosecution, Arrest and Bail under GST

A narrative journey through the complexities of GST prosecution, arrest procedures, and the path to justice

Prologue: The Anonymous Tip

The morning of March 15th, 2024, started like any other day at the modest fruit juice manufacturing unit on the outskirts of Raipur. The machines hummed their familiar rhythm, workers moved with practiced efficiency, and the sweet aroma of processed fruits filled the air. Little did Rajesh know that an envelope sitting on a GST officer’s desk, 50 kilometers away, would change his life forever.

The envelope contained detailed information about his clandestine operations—a unit running off the books for years, manufacturing taxable fruit juice liable to 18% GST without registration, without invoices, and without paying a single rupee in tax to the government.

The informant? A disgruntled former employee who had memorized every detail of the operation during his years of service.

Chapter 1: The Raid

The Dawn Operation

At 6:00 AM on March 20th, 2024, a convoy of vehicles rolled into the industrial area. Armed with authorization under Section 67(2) of the CGST Act, 2017, the GST enforcement team had come prepared. The raid was swift and thorough.

What they found confirmed the tip-off:

• Manufacturing machinery in full operation
• Stock worth ₹30 lakhs of finished goods
• Packing materials with no GST invoices
• Production records hidden in a makeshift cavity

The entire stock and machinery were seized immediately. The panchnama was drawn up meticulously, witnesses were called, and the invisible unit that had operated in shadows for years was now under the harsh glare of law enforcement.

The Family Connection

Among the details gathered during the raid was information about Rajesh’s son, Arjun—a 25-year-old who occasionally visited the factory premises. While Arjun had no role in operations and was pursuing his MBA, his occasional presence at the unit would soon become a point of contention.

Chapter 2: The Summons

The First Appearance

Within days of the raid, summons under Section 70 of the CGST Act arrived at Rajesh’s residence. The summons commanded him to appear before the Senior Intelligence Officer on March 25th, 2024, for examination and to produce relevant documents.

Rajesh consulted his Chartered Accountant, CA Shubham, who immediately recommended engaging a criminal lawyer experienced in GST matters. Together, they decided Rajesh should cooperate fully.

On March 25th, Rajesh appeared before the GST authorities. The examination lasted eight hours. His statement was recorded under Section 70, where he made a crucial admission and an equally crucial denial:

He admitted: “Yes, I have been manufacturing fruit juice without GST registration for the past several years. The business was started small, and I never registered it. I accept my mistake.”

He denied: “My son Arjun has nothing to do with this business. He is a student pursuing his MBA. He occasionally visited the premises out of curiosity, but he has no role in operations, no knowledge of accounts, and no involvement in any decision-making.”

The statement, recorded in the presence of a panchnama witness, was read back to him. Rajesh signed it, unaware that these very words would become crucial evidence in his favor later.

Chapter 3: The Arrest

Building the Case

Behind the scenes, the investigation was progressing rapidly. The department was not satisfied with the seizure of ₹30 lakhs worth of stock. They were building a bigger case.

Based on:

• Rudimentary production records found during the raid
• Bank account analysis showing cash deposits
• Extrapolation of manufacturing capacity
• Statements from the original informant

The department estimated that Rajesh had evaded tax worth over ₹5 crores during the years of operation.

This brought the case squarely within the ambit of Section 132(1)(a) of the CGST Act—supplies without invoices with intention to evade tax—and more critically, within Section 132(5), which makes offences cognizable and non-bailable when tax evasion exceeds ₹5 crores.

The Authorization and Arrest

On April 2nd, 2024, the Commissioner of CGST, following the procedure laid down in Instruction No. 02/2022-23 (GST Investigation), recorded his reasons to believe that:

1. Rajesh had committed an offence under Section 132(1)(a)

2. The offence was punishable under Section 132(1)(i) (tax evasion exceeding ₹5 crores)

3. The intent to evade tax was evident and mens rea was palpable

4. Arrest was necessary to ensure proper investigation

The Commissioner authorized the arrest under Section 69(1) of the CGST Act.

The Arrest Procedure

At 10:00 AM on April 3rd, 2024, two GST officers arrived at Rajesh’s residence with the arrest warrant.

Following the procedure mandated by Instruction No. 01/2025-GST and the recent judgment in Kshitij Ghildiyal v. DGGI (Delhi HC, 2024), the officers:

1. Informed Rajesh orally about the grounds of arrest

2. Furnished grounds of arrest in writing as an Annexure to the Arrest Memo

3. Distinguished between:

• “Reasons for arrest” (the formal parameters like preventing further offence, proper investigation, preventing tampering)
• “Grounds of arrest” (specific factual details: nature of clandestine operation, estimated tax evasion of ₹5 crores, evidence seized, admission in statement)

4. Prepared the Arrest Memo in the format prescribed in Circular No. 128/47/2019-GST, which included:

• Date and time of arrest: April 3rd, 2024, 10:00 AM
• Relevant sections: 132(1)(a) r/w 132(1)(i) and 132(5)
• Grounds of arrest attached as Annexure
• Information to nominated person (Rajesh’s wife was immediately informed)
• Acknowledgment obtained from Rajesh

5. Medical examination was conducted by a registered medical practitioner as required under Section 35(7) of BNSS, 2023

6. Production before Magistrate: Since the offence was cognizable and non-bailable under Section 132(5), Rajesh was produced before the Magistrate within 24 hours as mandated by Section 69(2).

The Magistrate’s Remand

The Magistrate, after hearing the prosecution’s application for remand and Rajesh’s counsel’s submission, remanded Rajesh to judicial custody. No bail was granted at this stage given the non-bailable nature of the offence and the quantum of tax evasion alleged.

Rajesh’s world came crashing down. From a respected businessman to an undertrial prisoner—the transition was brutal and swift.

Chapter 4: The Web Expands

Summoning the Witnesses

With Rajesh in judicial custody, the investigation expanded. The GST department issued fresh summons under Section 70 to several former employees of the unit.

Interestingly, the list of employees to be summoned was prepared by the original informant—the disgruntled ex-employee who had triggered the entire investigation. The department relied on his knowledge of who had witnessed what during the years of clandestine operations.

The Damning Statement

One such employee, Ramesh Kumar, appeared before the GST officer on April 10th, 2024. During his examination, he made a statement that would dramatically alter the case:

“I worked at the unit for three years. During my time, I saw Arjun , the son of the owner, visiting frequently. He used to check the production records and sometimes gave instructions about dispatch. He was involved in the business decisions.”

This statement, recorded under Section 70, was in stark contrast to what Rajesh had stated earlier—that his son had nothing to do with the operations.

 The Relevancy of Statements Under Section 136

Here, the provisions of Section 136 of the CGST Act became crucial. This section makes statements recorded during summons under Section 70 relevant for proving facts in prosecution under certain circumstances:

• When the person who made the statement is dead, cannot be found, or is kept out of the way
• When the person is examined as a witness and the court considers the statement should be admitted in the interest of justice

The department now had documentary evidence—a statement under Section 70—implicating Arjun.

Arjun Becomes Co-Accused

Based on Ramesh Kumar’s statement, the department:

1. Issued a fresh notice to Arjun under Section 70

2. When Arjun failed to appear (he had left town immediately upon hearing about this development)

3. Added him as a co-accused in the investigation

The case now had two accused: Rajesh  (in custody) and Arjun  (absconding).

Chapter 5: The Battle for Bail

First Attempt: Sessions Court

With Rajesh languishing in judicial custody and Arjun in hiding, the family engaged Senior Advocate Meera to handle the bail matters.

On April 20th, 2024, two applications were filed before the Sessions Court:

Regular Bail Application for Rajesh

The arguments advanced were:

• Rajesh had made full confession and cooperated with investigation
• All documentary and physical evidence already seized
• No possibility of tampering with evidence
• The offence, while serious, did not justify indefinite incarceration pending trial
• Maximum punishment under Section 132(1)(i) is 5 years
• Offence is compoundable under Section 138 of CGST Act

Anticipatory Bail for Arjun

The arguments were even more compelling:

• Only one statement by Ramesh Kumar implicated Arjun
• Rajesh’s own statement (recorded earlier) explicitly stated Arjun had no role
• No documentary evidence linked Arjun to operations
• Arjun was a student with no control over business
• Apprehension of coercive arrest based on single uncorroborated statement

 The Sessions Court Order

On May 5th, 2024, the Sessions Court rejected both applications.

The reasoning:

“The offences alleged are of economic nature involving substantial tax evasion. The quantum of evasion alleged is over ₹5 crores, which is not a small amount. Such economic offences require stern treatment. While the applicant Rajesh  has confessed, the investigation is still ongoing. Regarding Arjun , there is prima facie evidence in the form of statement under Section 70 indicating his involvement. At this stage, this Court is not inclined to grant bail/anticipatory bail.”

The order was a setback, but not unexpected given the traditional approach courts took toward economic offences.

Chapter 6: The High Court Intervention

The Appeal

Undeterred, Senior Advocate Meera filed criminal petitions before the State High Court:

1. Criminal Appeal against rejection of regular bail for Rajesh

2. Criminal Miscellaneous Petition for anticipatory bail for Arjun

The matter came up for admission before Justice Ram on May 20th, 2024.

The Department’s Demand

The Assistant Solicitor General, appearing for the GST Department, made a specific request:

“Your Lordship, the investigation is at a crucial stage. We are in the process of examining multiple witnesses and tracing the entire money trail. We require 60 days to complete the investigation and file the charge sheet. We request that bail be not granted at this stage.”

This was a critical moment. The department was invoking the principle that in serious economic offences, investigation time should be protected.

The Court’s Interim Order

Justice Ram, after hearing both sides, passed a nuanced order on May 22nd, 2024:

“While this Court is conscious of the personal liberty of the accused as guaranteed under Article 21 of the Constitution, it is equally important to ensure that investigation in cases of economic offences is not hampered.

The learned ASG has sought time of 60 days for completing investigation and filing charge sheet. This appears to be a reasonable request.

However, this Court makes it clear that the department must utilize this time efficiently. The matter shall be listed after 60 days for final hearing.

In the meanwhile, the accused Rajesh  shall continue in judicial custody. However, insofar as the anticipatory bail petition of Arjun  is concerned, this Court is of the prima facie view that the only evidence against him is a solitary statement under Section 70, which stands contradicted by his own father’s statement. Therefore, ad-interim protection from arrest is granted to Arjun  until the next date of hearing, subject to his joining the investigation when called upon.

List on July 25th, 2024.”

This order gave Rajesh a timeline to look forward to, and gave Arjun temporary reprieve.

Chapter 7: The Charge Sheet and Extrapolation

The Investigation Intensifies

The GST department worked at breakneck speed during the 60-day window. The investigation team:

1. Examined all seized documents

2. Analyzed bank statements for past 7 years

3. Examined 15 witnesses including former employees, suppliers, and customers

4. Conducted forensic analysis of digital records

5. Prepared detailed calculations of alleged tax evasion

The Extrapolation Exercise

This is where the case took a dramatic turn.

The actual evidence showed:

• Stock seized: ₹30 lakhs
• Production records found: Covering 18 months, showing production of goods worth approximately ₹5.4 crores
• Actual tax evaded based on seized evidence: ₹98 lakhs (₹5.4 crores × 18% GST)

But the department went further. They:

1. Noted the factory had been operating for approximately 7 years (2017-2024)

2. Calculated the manufacturing capacity of the seized machinery

3. Assumed continuous production at 80% capacity

4. Extrapolated the production over 7 years

5. Applied GST rate of 18% to the extrapolated production

Result: Alleged tax evasion of ₹100 crores

This extrapolation was based on a methodology that assumed:

• Constant production throughout 7 years
• No breakdown or maintenance shutdowns
• Continuous market demand
• No variation in raw material availability

The Charge Sheet

On July 20th, 2024, just before the 60-day deadline, the department filed a comprehensive charge sheet before the Special Court (Economic Offences) at Raipur.

Accused Charged:

1. Rajesh  (in judicial custody)

2. Arjun  (on interim protection)

Offences Charged:

• Section 132(1)(a) of CGST Act: Supply of goods without invoice with intention to evade tax
• Section 132(1)(l) of CGST Act: Abetment (against Arjun)
• Punishable under Section 132(1)(i): Tax evasion exceeding ₹5 crores (alleged ₹100 crores)

Evidence Relied Upon:

1. Panchnama of raid and seizure

2. Statement of Rajesh  under Section 70 (confession)

3. Statements of 15 witnesses including Ramesh Kumar

4. Bank statements showing cash deposits

5. Seized production records and machinery

6. Expert opinion on manufacturing capacity

7. Extrapolation calculation sheets

Prayer: Maximum punishment under Section 132(1)(i)—imprisonment up to 5 years and fine

Cognizance and Sanction

Before the charge sheet was filed, a crucial procedural step was completed:

As per Section 132(6) of the CGST Act, no prosecution can be launched without the previous sanction of the Commissioner.

Following the procedure laid down in Instruction No. 04/2022-23 (GST Investigation), the investigating officer prepared an Investigation Report in the prescribed format (Annexure-I) which included:

• Details of accused persons and their roles
• Nature of offence and charges
• Material evidence (documentary and oral)
• Brief note on why prosecution is recommended

This report was endorsed by the Additional Commissioner and sent to the Commissioner, who examined it and granted formal sanction for prosecution on July 15th, 2024.

Only after this sanction was the charge sheet filed.

As per Section 134 of the CGST Act, the Special Court (Magistrate First Class level) took cognizance of the offence on July 22nd, 2024.

Chapter 8: The High Court’s Final Decision on Bail

The Hearing on July 25th, 2024

The matter came up for final hearing before Justice Ram as scheduled.

Now, with the charge sheet filed, the arguments had evolved.

Arguments by Senior Advocate Meera (for accused):

For Rajesh  (Regular Bail):

“Your Lordship, my client has been in custody for over 110 days now. The investigation is complete, charge sheet has been filed. All evidence is documentary and already on record. There is no possibility of tampering.

More importantly, the alleged tax evasion of ₹100 crores is a mathematical fiction. The actual evidence—seized stock and production records—shows tax evasion of merely ₹98 lakhs, not ₹100 crores.

This extrapolation is inherently unreliable. It assumes my client operated at 80% capacity for 7 continuous years without a single day’s breakdown—an impossibility in any manufacturing unit.

Under these circumstances, continued detention violates his right to speedy trial under Article 21.

I rely on:

• Gautam Garg v. Union of India (2025): SC restored bail in GST case involving managerial employee
• Amit Mehra v. Union of India (2025): SC granted bail after prolonged custody noting maximum punishment of 5 years

The offence is compoundable under Section 138. My client is willing to pay the actual tax due of ₹98 lakhs with interest and penalty.”

For Arjun  (Anticipatory Bail):

“Your Lordship, the case against Arjun is even weaker. The only ‘evidence’ is one statement by Ramesh Kumar, which is contradicted by:

• Rajesh ‘s own statement recorded under Section 70
• Absence of any documentary evidence linking Arjun to operations
• No bank transactions in Arjun’s name
• No signatures on any business documents

Ramesh Kumar is a handpicked witness selected by the original informant who had a grudge against the family.

I rely on:

• Akram Pasha v. DGGI (Karnataka HC, 2025): Anticipatory bail granted in ₹31 crore ITC fraud as investigation is document-based
• Alkesh Pendhadiya v. State (Jamnagar Court, 2025): CA granted anticipatory bail as custodial interrogation unnecessary in documentary cases
• Mohd. Farhan v. State (Chhattisgarh HC, 2025): Anticipatory bail to accountant in fake e-way bill case as maximum punishment is 5 years

Now that the main accused has been granted interim relief (if bail is granted), there is no reason to deny anticipatory bail to Arjun.”

Arguments by ASG (for Department):

“Your Lordship, this is a case of deliberate, systematic tax evasion over 7 years. The confession by Rajesh  is on record. The evasion is not ₹98 lakhs but ₹100 crores based on scientific extrapolation.

The offence falls under Section 132(5)—cognizable and non-bailable. This Court should not be swayed by technical arguments about bail being the rule.

I rely on:

• Ashish Goyal v. Union of India (2025): SC dismissed bail in ₹55 crore fake ITC case
• Y.S. Jagan Mohan Reddy v. CBI (2013): Economic offences need different approach in bail

As for Arjun, there is prima facie evidence in the statement under Section 70. The trial court will decide its credibility.

Both bail applications should be rejected.”

The Court’s Reasoning and Order

Justice Ram reserved the order and pronounced it on August 5th, 2024.

The order was a comprehensive 25-page judgment that analyzed the law and facts meticulously:

On the Nature of Offence:

“While economic offences are serious and affect the national economy, the Court must balance this against the constitutional guarantee of personal liberty under Article 21. Each case must be decided on its own facts.”

On Extrapolation:

“The Court has examined the extrapolation methodology adopted by the department. While extrapolation is a permissible method of determining tax liability in certain cases, it must be based on reliable data and reasonable assumptions.

In the present case, the assumption of 80% capacity utilization for 7 continuous years appears to be on the higher side. Manufacturing units typically face multiple constraints—raw material supply, market demand, machinery breakdowns, seasonal variations, labor issues, etc.

The actual evidence seized shows production records for 18 months indicating tax evasion ₹ 98 lakhs. Extrapolating this to ₹100 crores over 7 years requires a leap of faith that this Court is not prepared to make at this stage.

This is a matter to be decided during trial after examining all evidence. However, for the purposes of bail, the Court is inclined to view the actual evidence-backed tax evasion of ₹98 lakhs as more reliable than the extrapolated figure of ₹100 crores.”

On Prolonged Custody:

“Rajesh  has been in judicial custody for over 3 months. The investigation is complete. The charge sheet has been filed. All evidence is documentary in nature and already seized. There is no possibility of tampering with evidence or influencing witnesses.

The maximum punishment prescribed under Section 132(1)(i) is 5 years. Considering the actual evidence, even if convicted, the sentence may not exceed 2-3 years or may not be sentenced at all. Continued incarceration pending trial would be disproportionate.

This Court also takes note of the fact that the offence is compoundable under Section 138, indicating legislative intent that such matters can be resolved through compounding rather than prolonged prosecution.”

On Precedents:

“The recent trend in judgments of the Hon’ble Supreme Court, as seen in Gautam Garg v. Union of India (2025) and Amit Mehra v. Union of India (2025), indicates a more balanced approach to bail in GST matters, especially where the maximum punishment is 5 years and the accused has been in custody for a substantial period.”

On Arjun :

“As regards Arjun , the evidence against him is extremely tenuous. The only material is one statement by Ramesh Kumar, which is contradicted by Rajesh ‘s own statement.

No documentary evidence links Arjun to the operations. No bank transactions, no signatures, no business correspondence—nothing.

The principle that ‘bail is the rule, jail is the exception’ applies with full force in his case.

The judgment in Akram Pasha v. DGGI (Karnataka HC, 2025) is directly applicable. That was a case involving alleged fake ITC of ₹31 crores. The Karnataka High Court granted anticipatory bail observing that the offence carries maximum 5 years punishment, is compoundable, and custodial interrogation is unnecessary in documentary cases.

The same logic applies here.”

The Operative Order

“For the reasons stated above:

The bail application of Rajesh is ALLOWED. He shall be released on bail on furnishing a personal bond of ₹5,00,000 with two sureties of ₹2,50,000 each, subject to the following conditions:

a) He shall not tamper with evidence or influence witnesses

b) He shall surrender his passport

c) He shall appear before the trial court on all dates

d) He shall not leave India without permission of the trial court

The anticipatory bail application of Arjun is ALLOWED. In the event of his arrest, he shall be released on bail on furnishing a personal bond of ₹2,00,000 with one surety of ₹2,00,000, subject to similar conditions as above.

Both accused shall cooperate in the trial proceedings.

It is made clear that the observations made herein are only for the purpose of deciding bail and shall not influence the trial court during the trial.”

This order brought immense relief to the  family. After 115 days in judicial custody, Rajesh finally saw freedom, albeit conditional.

Chapter 9: The Parallel Proceedings—Adjudication

While the criminal prosecution was proceeding, the department had also initiated the civil/quasi-judicial proceedings for recovery of tax, interest, and penalty.

The Show Cause Notice (SCN)

On September 1st, 2024, the department issued a comprehensive Show Cause Notice to Rajesh  under Section 74 of the CGST Act.

The SCN alleged:

• Clandestine manufacturing and clearances without GST registration
• Tax evasion of ₹100 crores (based on the same extrapolation)
• Demand for:
  • Tax: ₹100 crores
  • Interest under Section 50: ₹35 crores (computed at 18% p.a. for varying periods)
  • Penalty under Section 74: ₹100 crores (equal to tax)
  • Total demand: ₹235 crores

The SCN gave Rajesh 30 days to respond.

The Reply

CA Shubham worked day and night preparing a detailed, 100-page reply to the SCN. The reply, filed on September 30th, 2024, made the following key submissions:

Challenge to Extrapolation Methodology:

“The extrapolation adopted by the department is arbitrary, unscientific, and unsustainable in law. The actual evidence shows:

• Seized stock: ₹30 lakhs
• Production records for 18 months: ₹5.4 crores
• Actual tax liability: ₹98 lakhs (₹5.4 crores × 18% GST)

The jump from ₹98 lakhs to ₹100 crores is based on assumptions that are demonstrably incorrect:

a) Capacity utilization: The department assumes 80% capacity utilization for 7 years continuously. This ignores:

• Seasonal demand fluctuations in fruit juice industry
• Machinery breakdowns and maintenance shutdowns
• Raw material supply constraints (fruits are seasonal)
• Market demand variations
• Initial years when production was minimal

b) Documentary evidence: The seized production records for 18 months show actual production. Extending this linearly over 7 years ignores business realities.

c) Bank statements: The cash deposits in bank accounts over 7 years total approximately ₹5.5 crores. If the department’s theory of ₹100 crore evasion were correct, where did ₹100 crores worth of goods go? How was ₹100 crores realized in cash and what happened to it?

d) Market reality: It is impossible for a small, unregistered unit to sell ₹555 crores worth of juice (₹100 crore tax @ 18% = ₹100/0.18 ≈ ₹555 crores) over 7 years without leaving any trace in the market.”

Admission of Actual Liability:

“Without prejudice to the challenge to extrapolation, the noticee admits and accepts liability for tax evasion based on actual evidence:

• Tax evaded: ₹98 lakhs
• Interest thereon: ₹35 lakhs
• Penalty: ₹98 lakhs

Total admitted liability: ₹2.31 crores

The noticee offers to pay this entire amount immediately upon finalization of assessment.”

The Adjudication Order

On January 10th, 2025, the Adjudicating Authority (Assistant Commissioner) passed the Order-in-Original.

The order was disappointing for Rajesh:

“Having carefully considered the Show Cause Notice, the reply filed by the noticee, and the evidence on record, I find that:

1. The noticee has himself admitted to running clandestine operations for years without GST registration. This is a clear case of suppression of facts with intent to evade tax.

2. The extrapolation methodology adopted is scientific and based on machinery capacity. The objections raised in the reply are factual disputes to be determined based on evidence.

3. After examining the machinery seized and the production records, I accept the department’s calculation of production capacity.

 Therefore, I hold:

– Tax demand: ₹100 crores

– Interest under Section 50: ₹35 crores

– Penalty under Section 74: ₹100 crores

Total demand: ₹235 crores

The noticee is directed to pay the above amount within 30 days, failing which recovery proceedings under Section 79 shall be initiated.”

Chapter 10: The Appellate Journey

First Appeal Before Commissioner (Appeals)

Dejected but not defeated, CA Shubham immediately filed an appeal before the Commissioner (Appeals) under Section 107 of the CGST Act on February 5th, 2025.

The appeal was accompanied by payment of:

• 10% of the disputed tax = ₹10 crores (which Rajesh arranged by mortgaging all his properties and taking loans)

As per Section 107(6), payment of 10% of disputed tax or ₹25 crores (whichever is lower) results in automatic stay of recovery pending appeal. This was a crucial relief.

The appeal memorandum was even more detailed than the SCN reply. It included:

Technical Arguments:

“The Adjudicating Authority has mechanically accepted the department’s extrapolation without independent application of mind. The order does not discuss:

a) How can a small unit sell ₹555 crores worth of juice without leaving market footprint? b) Where are the customers who bought this juice? c) If ₹100 crores tax was evaded, that means ₹555+ crores goods were sold. Where is the corresponding purchase of raw materials? d) The bank deposits of ₹8 crores completely contradict the ₹100 crore evasion theory.”

Legal Precedents:

The appeal cited multiple judgments on extrapolation including cases from Supreme Court and various High Courts establishing that extrapolation must be reasonable, based on reliable data, and corroborated by other evidence.

Alternative Submission:

“Even if extrapolation is accepted as a methodology, the capacity utilization should not exceed 40-50% considering all practical constraints. This would bring the tax liability to approximately ₹2-3 crores, which is in line with the admitted liability.”

Hearing Before Commissioner (Appeals)

The Commissioner (Appeals) conducted detailed hearings on three dates: March 15th, April 10th, and April 25th, 2025.

During the hearings:

• CA Shubham presented detailed calculations showing impossibility of ₹100 crore evasion
• An independent technical expert’s report was filed showing the machinery could not have operated at 80% capacity for 7 years
• Market survey reports were submitted showing no significant unaccounted fruit juice in the market
• Comparison with registered manufacturers of similar size was presented

The department defended the order, arguing extrapolation is legally permissible and the appellant’s arguments are factual disputes.

The Commissioner (Appeals) Order

On May 20th, 2025, the Commissioner (Appeals)

—much to everyone’s shock—dismissed the appeal.

The operative portion stated:

“The appellant has raised several technical objections to the extrapolation methodology. However, the fact remains that he was running clandestine operations. The burden of proving the quantum of clearances was on the appellant, which he has failed to discharge.

In the absence of proper books of accounts (which the appellant deliberately did not maintain), extrapolation is the only method available.

While the appellant claims only ₹98 lakhs tax is due, this is based on 18 months’ records. What about the remaining 5.5 years?

The Adjudicating Authority’s order is reasoned and sustainable. No interference is called for.

Appeal dismissed.”

This was the lowest point for Rajesh. Two levels of authorities had confirmed a demand of ₹235 crores against him, which he had no capacity to pay.

Chapter 11: GST Appellate Tribunal—The Turning Point

Second Appeal Before GSTAT

With no option left, CA Shubham filed an appeal before the GST Appellate Tribunal (GSTAT) under Section 112 of the CGST Act on June 10th, 2025.

The GSTAT had only recently been constituted after years of delay, and this was among the early batch of cases before it.

The appeal challenged both the Adjudication Order and the Commissioner (Appeals) Order on the following grounds:

Perversity of Findings:

“Both lower authorities have mechanically upheld the extrapolation without examining the fundamental impossibilities in the department’s case:

a) Raw material trail: To manufacture goods worth ₹555 crores, raw materials worth approximately ₹300-350 crores would be needed. Where is the purchase of such raw materials?

b) Electricity consumption: The seized machinery would consume approximately 500-600 units per day. Over 7 years, this would mean 12-15 lakh units. The electricity bills on record show consumption of only 2-3 lakh units over 7 years.

c) Manpower: To run a unit producing goods worth ₹80 crores annually (₹560 crores over 7 years), at least 50-100 workers would be needed. The appellant employed only 8-10 workers.

These are not technical disputes but basic arithmetic impossibilities.”

Violation of Principles of Natural Justice:

“Neither authority has given any reasoning for rejecting the specific objections raised. The orders merely state ‘extrapolation is permissible’ without addressing why THIS extrapolation in THIS case is reasonable.”

The GSTAT Hearing

The GSTAT, comprising a Judicial Member (former High Court Judge) and a Technical Member (former Chief Commissioner), conducted extensive hearings over four dates between July-August 2025.

The hearings were thorough and analytical. The Tribunal asked pointed questions to both sides:

To the Department:

• “You say ₹100 crores tax was evaded. That means ₹555+ crores worth of goods were sold (₹100 cr ÷ 18%). Where are these goods? Who bought them?”
• “The electricity consumption records show only 2 lakh units. Can you explain how machinery ran for 7 years consuming so little electricity?”
• “The bank deposits are only ₹8 crores. If ₹100 crores tax was evaded, where is the remaining ₹547 crores?” (₹555 cr goods value – ₹8 cr deposited)

To the Appellant:

• “You admit to running clandestine operations. Why should the Tribunal believe your claim of only ₹98 lakhs evasion? Could it not be more?”
• “You maintained no proper accounts. How can you now claim the extrapolation is wrong when you deliberately destroyed evidence?”

Both sides filed written notes and rejoinders.

The GSTAT Final Order

On September 15th, 2025, the GSTAT pronounced a landmark 45-page order.

The key findings were:

On Burden of Proof:

“While it is true that a person running clandestine operations cannot benefit from lack of evidence which he himself has destroyed, there are limits to extrapolation. The burden on the department is to show that the extrapolation is based on reasonable assumptions grounded in tangible evidence.

In the present case, the department’s extrapolation suffers from fundamental flaws:

1. The capacity utilization of 80% for 7 continuous years is unrealistic for any manufacturing unit, let alone a small, clandestine one.

2. The electricity consumption records completely contradict the production levels claimed. One cannot manufacture goods worth ₹100 crores per year using electricity bills of ₹30,000 per month.

3. The raw material purchases are not accounted for. Basic input-output ratios show that to produce ₹555 crores worth of fruit juice, raw materials worth ₹300-350 crores would be needed. There is no evidence of such purchases.

4. The market absorption is unexplained. Where did ₹555 crores worth of unaccounted juice disappear in a competitive market?

5. The bank deposits of only ₹8 crores over 7 years indicate the actual scale of operations was far smaller than extrapolated.”

On Legal Position:

“Extrapolation is a permissible method but it must satisfy the test of reasonableness. Several High Courts and the Supreme Court have held that extrapolation must be:

(a) Based on reliable sample data

(b) Corroborated by other evidence

(c) Account for variables and practical constraints

The department’s extrapolation fails all three tests.”

On Admitted Liability:

“The appellant has consistently admitted liability of ₹98 lakhs based on actual evidence—seized stock and production records for 18 months. He has offered to pay this amount with interest and penalty.

This admission itself indicates that the appellant is not trying to escape liability altogether, but is only challenging the unreasonable extrapolation.”

The Operative Order:

“For the reasons stated above:

1. The Order-in-Original dated 10.01.2025 and the Order-in-Appeal dated 20.05.2025 are SET ASIDE.

2. The demand is RESTRICTED to the admitted liability:

– Tax: ₹98,00,000

– Interest under Section 50: ₹35,00,000 (from respective due dates till date of payment)

– Penalty under Section 122: ₹98,00,000

Total: ₹2,31,00,000 (Rupees Two Crores Thirty-One Lakhs only)

3. The appellant is directed to pay the above amount within 60 days from the date of receipt of this order.

4. Upon payment of the above amount, no further proceedings shall be initiated for the period and transactions covered by the Show Cause Notice.

5. The appeal is partly allowed with the above directions.”

This was a momentous victory. The demand had been reduced from ₹260 crores to ₹2.31 crores—a reduction of 99%!

Within 15 days, Rajesh arranged payment of ₹2.31 crores through a combination of loans and sale of some assets. The payment was made on September 30th, 2025, and the tax liability was finally closed.

Chapter 12: The Criminal Trial—A Slow Grind

While the adjudication saga was reaching conclusion, the criminal trial was proceeding at its own glacial pace.

The Trial Court Proceedings

After cognizance was taken on July 22nd, 2024, the trial court proceedings moved as follows:

• August 10th, 2024: Accused present, matter adjourned for framing charges
• September 5th, 2024: Charges framed under Section 132(1)(a) r/w 132(1)(i) against both accused
• September 20th, 2024: Matter fixed for prosecution evidence
• October 15th, 2024: Prosecution witness PW-1 (Senior Intelligence Officer) appeared but his evidence could not be recorded as documents were not ready
• November 12th, 2024: PW-1 examination started but remained incomplete
• December 10th, 2024: PW-1 examination continued but again incomplete
• January 15th, 2025: PW-1 cross-examination started but matter adjourned midway as witness fell ill
• February 20th, 2025: PW-1 cross-examination concluded. Matter adjourned for next witness
• March 18th, 2025: PW-2 (Panchnama witness) examined
• April 22nd, 2025: PW-3 (Ramesh Kumar—the witness who implicated Arjun) to be examined but did not appear
• May 20th, 2025: PW-3 again did not appear, bailable warrant issued
• June 18th, 2025: PW-3 still absent
• July 16th, 2025: Matter adjourned at request of prosecution
• August 20th, 2025: Matter adjourned as court was on leave
• September 17th, 2025: Matter adjourned as no prosecution witness present

This slow progress was frustrating for both the accused and their lawyers. But such is the reality of criminal trials in India—delays are endemic.

Chapter 13: The Impact of GSTAT Order on Criminal Prosecution

The Application Under Section 138

After the GSTAT order was pronounced on September 15th, 2025, and payment was made on September 30th, 2025, Senior Advocate Meera filed a crucial application before the trial court.

The application sought:

“That in view of the finalization of the tax demand at ₹2.31 crores (which stands paid) by the GSTAT, and considering that the alleged tax evasion is now determined to be only ₹98 lakhs (less than ₹1 crore), the case no longer falls within the ambit of Section 132(5) of the CGST Act (which requires tax evasion exceeding ₹2 crores for cognizable and non-bailable offence).

Further, the accused wish to compound the offence under Section 138 of the CGST Act and Rule 162 of the CGST Rules. The Commissioner may be requested to examine the compounding application.”

The application was filed on October 5th, 2025.

The Compounding Application

Simultaneously, Rajesh filed a formal application for compounding before the Commissioner of CGST in Form GST CPD-01 as prescribed under Rule 162.

The application stated:

“The applicant has fully cooperated in the investigation. He has made full and true disclosure of facts. He has admitted his liability from the very beginning. The tax, interest and penalty demand has been finalized by the GSTAT at ₹2.31 crores, which stands fully paid.

The applicant seeks to compound the offence under Section 138 of the CGST Act and is willing to pay the compounding amount as determined by the Commissioner.”

 The Commissioner’s Order on Compounding

The Commissioner examined the compounding application in light of Section 138 and Rule 162 and the recent amendments introduced by Finance Act, 2023 (effective October 1, 2023).

Key considerations:

Eligibility for Compounding:

As per the provisos to Section 138(1), compounding is NOT allowed in the following cases:

• (a) A person who has already compounded once for offences under clauses (a) to (f), (h), (i) and (l) of Section 132(1)
• (b) A person already compounded once for any other offence where supplies exceeded ₹1 crore (this was amended in 2023)
• (c) Person accused of offence under clause (b) of Section 132(1) [issuing invoice without supply]—This exclusion was introduced in 2023
• (d) Person convicted by court
• (e) Any other prescribed class

Analysis in Rajesh’s case:

• Rajesh’s offence is under Section 132(1)(a) [supply without invoice], NOT clause (b)
• Therefore, the new bar introduced in 2023 for clause (b) does not apply
• He has never compounded any offence before
• He has not been convicted
• He has paid all tax, interest, and penalty

Conclusion: Rajesh is ELIGIBLE for compounding

Compounding Amount:

As per the Table in Rule 162(3A) inserted in 2023:

For offence under clause (a) punishable under Section 132(1)(i) [tax evasion exceeding ₹5 crores]:

• Compounding amount: 50% to 75% of tax evaded

For offence under clause (a) punishable under Section 132(1)(ii) [tax evasion ₹2-5 crores]:

• Compounding amount: 40% to 60% of tax evaded

But here, the tax evaded is only ₹98 lakhs, which falls under:

• Section 132(1)(iv): Falls under Entry 8 of table in Rule 162 (3A) where compounding amount is 25% of the tax evaded.

Calculation:

• Tax evaded: ₹98 lakhs
• Compounding amount: 25% of ₹98 lakhs = ₹24.5 lakhs

 The Commissioner’s Order

On October 25th, 2025, the Commissioner passed an order in Form GST CPD-02:

“Having examined the application for compounding, I am satisfied that:

1. The applicant has cooperated in the proceedings

2. Full and true disclosure has been made

3. The applicant is eligible for compounding under Section 138

4. Tax, interest, and penalty have been paid in full

Therefore, the application for compounding is ALLOWED.

The compounding amount is determined as ₹24,50,000 (Rupees Fifty-Eight Lakhs Eighty Thousand only).

Upon payment of this amount within 30 days, immunity from prosecution shall be granted to the applicant under Section 138(3) and the prosecution in the trial court shall stand abated.”

Rajesh arranged the payment of ₹24.5 lakhs within the stipulated time. The payment was made on November 10th, 2025.

Chapter 14: The Culmination

Effect of Compounding on Prosecution

After the compounding amount was paid, Senior Advocate Meera filed an application before the trial court on November 12th, 2025, under Section 138(3) of the CGST Act, which clearly states:

“On payment of such compounding amount as may be determined by the Commissioner, no further proceedings shall be initiated under this Act against the accused person in respect of the same offence and any criminal proceedings, if already initiated in respect of the said offence, shall stand abated.”

The application prayed that:

1. The prosecution against Rajesh  stands abated in view of Section 138(3)

2. Rajesh be discharged from the proceedings

3. The bail bonds be cancelled and sureties be discharged

The Prosecution’s Response

The Public Prosecutor did not oppose the application insofar as Rajesh  was concerned. The factum of compounding was verified, and the Compounding Order in Form GST CPD-02 was placed on record.

However, insofar as Arjun  was concerned, the prosecution submitted:

“The compounding has been done only by Rajesh . Arjun , who is accused of abetment under Section 132(1)(l), has not separately applied for compounding. Therefore, the prosecution against Arjun may continue.”

The Court’s Analysis

The Special Judge (Economic Offences) examined the matter carefully.

Key observations:

Nature of Evidence Against Arjun:

“The only evidence against accused Arjun  is the statement of witness Ramesh Kumar recorded under Section 70, which claims that Arjun was involved in operations.

However, this statement is contradicted by:

(a) Statement of Rajesh  himself (the main accused and father of Arjun) recorded under Section 70 clearly stating Arjun had no role

(b) Complete absence of any documentary evidence linking Arjun to operations

(c) No signatures, no bank transactions, no business correspondence in Arjun’s name

The charge against Arjun was primarily based on the fact that the main accused was evading huge tax. Now that the tax demand itself has been finalized at ₹98 lakhs (paid) and the prosecution against the main accused has abated, the foundation of the case against Arjun has collapsed.”

Abetment Without Principal Offence:

“Arjun is charged with abetment under Section 132(1)(l). Abetment is a parasitical offence—it derives its existence from the principal offence.

When the principal offender (Rajesh) has compounded the offence and the prosecution has abated, continuing prosecution against the abettor would be legally unsustainable and contrary to established principles of criminal jurisprudence.”

Interest of Justice:

“This Court has observed the entire proceedings over the past 15 months. The case has been marked by:

(a) Prolonged delays in trial

(b) Non-appearance of key witnesses

(c) Fundamental change in the tax demand from ₹100 crores to ₹98 lakhs

(d) Payment of all dues by the main accused

Continuing the prosecution against Arjun, based on one uncorroborated statement, would neither serve the interest of justice nor the purpose of the GST Act.”

The Final Order

On November 25th, 2025, the Special Judge passed the following order:

“For the reasons stated above:

1. The prosecution against accused Rajesh stands ABATED in view of compounding under Section 138(3) of the CGST Act.

2. Accused Rajesh is hereby DISCHARGED from the proceedings.

3. Insofar as accused Arjun is concerned, in view of the abatement of prosecution against the principal accused, and in the absence of any substantive evidence against him, the charges under Section 132(1)(l) are DROPPED.

4. Accused Arjun is hereby DISCHARGED from the proceedings.

5. The bail bonds of both accused are cancelled.

6. Their sureties are discharged.

7. The case is closed.”

And with that, after 20 months from the date of arrest, the criminal prosecution came to an end.

Summary of Key Legal Provisions Covered in the Story

For readers who wish to understand the legal framework, here is a quick reference of the provisions that played a role in Rajesh’s case:

Offences and Punishment (Section 132)

Section 132(1) lists 12 types of offences, of which the main ones are:

(a) Supply without invoice with intention to evade tax [Rajesh’s offence]

(b) Issuing invoice without supply leading to wrongful ITC/refund

(c) Availing ITC using fake invoices or fraudulently without invoice

(d) Collecting tax but not paying to government beyond 3 months

(e) Evading tax or fraudulent refund (residuary clause)

(f) Falsifying records with intention to evade tax

(l) Attempting or abetting any of the above offences [Arjun’s alleged offence]

 Punishment:

• If tax evaded > ₹5 crores: Imprisonment up to 5 years + fine [Section 132(1)(i)]
• If tax evaded ₹2-5 crores: Imprisonment up to 3 years + fine [Section 132(1)(ii)]
• If tax evaded ₹1-2 crores: Imprisonment up to 1 year + fine [Section 132(1)(iii)]

Cognizability and Bail:

• Offences under (a), (b), (c), or (d) with tax evasion > ₹5 crores are cognizable and non-bailable [Section 132(5)]
• All other offences are non-cognizable and bailable [Section 132(4)]

Arrest Provisions

Section 69:

• Commissioner can authorize arrest if he has reason to believe offence under Section 132(1)(a/b/c/d) punishable under 132(1)(i/ii) or 132(2) has been committed
• Arrested person must be produced before Magistrate within 24 hours
• For bailable offences, Deputy/Assistant Commissioner can release on bail

Safeguards (from Instructions and BNSS):

• Grounds of arrest must be furnished in writing (not just orally)
• Medical examination mandatory
• Nominated person must be informed immediately
• Arrest should not be mechanical—must be necessary for investigation

Compounding (Section 138)

Eligibility: Any offence can be compounded except:

• Person who already compounded once for serious offences under clauses (a) to (f)
• Person accused of issuing invoice without supply [clause (b)]
• Person convicted by court

Compounding Amount:

• As per Rule 162(3A): 25% to 100% of tax evaded (depending on offence)
• Must pay tax, interest, and penalty before compounding

Effect:

• No further proceedings under GST Act
• Criminal prosecution, if initiated, stands abated

Bail Provisions (BNSS)

Section 480(6) of BNSS (earlier 437(6) of CrPC):

• In Magistrate-triable cases, if trial not concluded within 60 days from first date of evidence, accused entitled to bail
• Unless Magistrate records reasons for delay and delay is not attributable to accused

Anticipatory Bail (Section 482 of BNSS):

• High Court and Sessions Court can grant pre-arrest bail
• Factors: nature of offence, role of accused, possibility of tampering, likelihood of absconding
• Liberal approach in cases with maximum punishment up to 7 years

Additional Aspects Not Fully Covered in the Story

While the story covered the main journey of Rajesh from raid to final discharge, there are several other important aspects of prosecution, arrest, and bail under GST that merit attention:

1. Presumption of Culpable Mental State (Section 135)

Section 135 creates a rebuttable presumption of guilty mind:

“In any prosecution for an offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence.”

Key points:

• Burden shifts to accused to prove absence of mens rea
• “Culpable mental state” includes intention, motive, knowledge, belief, or reason to believe
• Fact must be proved beyond reasonable doubt (not just preponderance of probability)

Practical impact: In Rajesh’s case, the department did not need to prove he “intended” to evade tax—it was presumed from the fact that he supplied without invoice. Rajesh would have had to prove he had no such intention (which is difficult when you’re running a clandestine unit).

2. Relevancy of Statements (Section 136)

Section 136 makes statements recorded under Section 70 (summons) relevant for prosecution in specific circumstances:

(a) When the person who made the statement:

• Is dead, or
• Cannot be found, or
• Is incapable of giving evidence, or
• Is kept out of the way by the adverse party, or
• Whose presence cannot be obtained without unreasonable delay/expense

(b) When the person is examined as witness in court and court considers the statement should be admitted in the interest of justice

3. Cognizance by Court (Section 134)

Section 134 mandates:

• No court shall take cognizance without previous sanction of Commissioner
• No court inferior to Magistrate First Class shall try the offence

Practical impact: This is why the Commissioner’s sanction order dated July 15th, 2024 was essential before the charge sheet could be filed. Without this sanction, the trial court cannot even take cognizance.

4. Offences by Companies (Section 137)

Section 137 deals with corporate liability:

137(1): When offence is committed by a company, every person who was in charge of and responsible for the conduct of business shall be deemed guilty and liable to be prosecuted

137(2): If offence committed with consent or connivance of or attributable to neglect by any director/manager/secretary/officer, such person shall also be deemed guilty

137(3): Similar provisions for partnership firms, LLPs, HUFs, and Trusts

Key defense under 137(4): A person can escape liability by proving:

• The offence was committed without his knowledge, OR
• He exercised all due diligence to prevent the commission of offence

 5. Arrest Guidelines—Detailed Analysis

Instruction No. 02/2022-23 (as amended by 01/2025) provides detailed guidelines:

Conditions Precedent to Arrest (Para 3)

Before arrest, officer must satisfy:

3.1 Legal requirements fulfilled:

• Offence under Section 132(1)(a/b/c/d) committed
• Punishable under 132(1)(i/ii) or 132(2)
• Reasons to believe based on credible material

3.2 Additional factors (at least one):

• Person concerned in non-bailable offence with credible information
• Arrest necessary to ensure proper investigation
• Likelihood of tampering with evidence or influencing witnesses
• Person is mastermind/key operator in proxy/benami transactions
• Arrest necessary to ensure presence before investigating officer

3.3 Intent and mens rea evident:

• Not mere technical violation or difference of opinion on law
• Element of guilty mind must be palpable

3.4 Other factors:

• Cooperation of accused in investigation
• Compliance with summons
• Voluntary payment of tax

Procedure for Arrest (Para 4)

4.1 Commissioner must record reasons for authorizing arrest

4.2 Arrest memo must comply with D.K. Basu guidelines (SC, 1997):

• Format prescribed in Circular 128/47/2019-GST

• Indicate relevant sections of CGST Act
• Grounds of arrest (not just reasons) must be furnished in writing
• Nominated person to be informed immediately
• Date and time of arrest must be mentioned
• Acknowledgment from arrested person

4.3 Separate arrest memo for each person arrested

4.4 Document Identification Number (DIN) mandatory

4.5 Special precautions:

• Woman to be arrested only by woman officer
• Medical examination by government/registered medical practitioner
• Female arrested person examined by female medical officer
• Reasonable care of health and safety
• Minimal use of force, no violence, reasonable restraint

6. Post-Arrest Formalities (Para 5)

For Bailable Offences [Section 132(4)]:

• Assistant/Deputy Commissioner bound to release on bail
• Bail conditions: personal bond + surety, appearance when required, not leaving country
• If bail conditions not fulfilled within reasonable time, produce before Magistrate within 24 hours

For Non-Bailable Offences [Section 132(5)]:

• Inform grounds of arrest
• Produce before Magistrate within 24 hours
• If necessary, hand over to police for safe custody under challan

Timeline for Prosecution:

• After arrest with no bail: file prosecution complaint within 60 days
• In other arrest cases: file within definite time frame
• Must maintain Bail Register with details

7. Prosecution Guidelines—Additional Details

Instruction No. 04/2022-23 prescribes:

Monetary Limits (Para 5):

Prosecution should normally be launched where tax evasion/ITC misuse/fraudulent refund > ₹5 crores

Exceptions where monetary limit not applicable:

• Habitual evaders: Person involved in 2+ confirmed demands in past 2 years totaling > ₹5 crores
• Arrest cases: Where arrest has been made under Section 69

Authority to Sanction (Para 6):

• Commissioner/Pr. Commissioner for cases investigated by regular formations
• Pr. ADG/ADG of DGGI for cases investigated by DGGI

Timing of Prosecution (Para 7):

General principle: Prosecution should be decided immediately after adjudication

But can be filed earlier if:

• Offence is grave
• Qualitative evidence available
• Delay in adjudication apprehended
• Arrest made (file within 60 days of arrest if no bail granted)

As per Radheshyam Kejriwal (SC, 2011):

• Adjudication and prosecution are independent
• Prosecution can proceed before/during/after adjudication
• Exoneration in adjudication on merit (not technical grounds) should result in withdrawal of prosecution

8. Bail Jurisprudence—Comprehensive Framework

Constitutional Foundation:

• Article 21: Right to life and personal liberty—bail protects this right
• Article 14: Equal protection—bail cannot be arbitrary or discriminatory

Statutory Provisions:

• Section 480 of BNSS (earlier 437 of CrPC): General bail provisions
• Section 482 of BNSS (earlier 438 of CrPC): Anticipatory bail

 Key Principles from Supreme Court:

1. Bail is the Rule, Jail is the Exception

• State of Rajasthan v. Balchand (1977): Unless there are compelling reasons (likelihood of fleeing, tampering with evidence, committing further offence), bail should be granted
• Sanjay Chandra v. CBI (2012): This principle applies even to economic offences

2. Presumption of Innocence

• Accused is presumed innocent until proven guilty
• Pre-trial detention should not become pre-trial punishment
• Arnab Goswami v. State (2021): Bail should not be withheld as punishment

3. Factors for Grant of Bail: As crystallized in Sanjay Chandra (2012) and P. Chidambaram v. Directorate of Enforcement (2020):

• Nature and gravity of charge
• Severity of punishment
• Character and antecedents of accused
• Possibility of fleeing from justice
• Possibility of tampering with witnesses/evidence
• Larger interest of public/State
• But: Delay in trial is a significant factor favoring bail

4. Economic Offences—A Balanced Approach:

• Y.S. Jagan Mohan Reddy v. CBI (2013): Economic offences are grave and need different approach
• BUT P. Chidambaram v. DoE (2020): Even in economic offences, bail cannot be denied mechanically. Each case must be examined on facts. Severity of punishment is important.
• Sanjay Chandra v. CBI (2012): Seriousness of economic offence by itself is not sufficient to deny bail

5. Special Considerations for GST Cases:

As seen in recent judgments:

• Akram Pasha (Karnataka HC, 2025): Maximum punishment 5 years + compoundable offence + documentary evidence = anticipatory bail granted
• Alkesh Pendhadiya (Jamnagar Court, 2025): Arrest should not be mechanical in GST cases. CA cannot be liable for client’s tax evasion. Custodial interrogation unnecessary when evidence is documentary.
• Ankit Bansal (Rajasthan HC, 2025): Section 480(6) of BNSS applies to GST prosecutions. Trial not concluded within 60 days = bail must be granted unless reasons recorded and delay attributable to accused.
• Gautam Garg (SC, 2025): Managerial employee with no direct involvement + cooperation in investigation + already on bail without incident = bail restored despite economic offence
• Amit Mehra (SC, 2025): 8 months custody + trial not commencing soon + maximum punishment 5 years = bail granted
• Mohd. Farhan (Chhattisgarh HC, 2025): Freelance accountant + documentary evidence already seized + no recovery pending + max punishment 5 years = anticipatory bail granted

Common threads in recent GST bail cases:

✓ Maximum punishment of 5 years is a significant factor favoring bail

✓ Compoundable nature indicates less serious offence

✓ Documentary evidence reduces need for custodial interrogation

✓ Economic offence alone is not ground for denial of bail

✓ Prolonged custody without trial violates Article 21

✓ Cooperation in investigation weighs in favor of bail

9. Interaction Between Adjudication and Prosecution

This is a crucial aspect clarified in Radheshyam Kejriwal (2011) 124 TAXLOK.COM (IT) 275 (SC):

Key holdings:

1. Adjudication and prosecution can be launched simultaneously

2. Decision in adjudication not necessary before prosecution

3. Both proceedings are independent

4. Findings in adjudication proceedings not binding on prosecution

BUT: If exoneration in adjudication is on merit (not technical ground) and person held innocent, prosecution on same facts cannot continue

 10. Compounding—Detailed Analysis

Amendments in Finance Act, 2023 (effective October 1, 2023):

Old law (before October 1, 2023):

• Compounding amount: ₹10,000 to ₹30,000 OR 50% to 150% of tax, whichever higher
• Compounding not allowed if person compounded once for any offence in clauses (a) to (f) + related (l) offences

New law (after October 1, 2023):

• Compounding amount determined by Table in Rule 162(3A): 25% to 100% of tax
• Person who compounded for (a) to (f), (h), (i) and related (l) cannot compound again
• NEW BAR: Person who compounded for ANY offence with supplies > ₹1 crore cannot compound again [Clause (b) to first proviso]
• NEW BAR: Person accused of clause (b) offence [issuing invoice without supply] cannot compound [Clause (c) to first proviso]

Effect of amendments:

• Compounding amounts reduced (100% max vs. 150% earlier)
• But more restrictions on who can compound

Procedure for Compounding (Rule 162):

Step 1: Application in Form GST CPD-01 to Commissioner

Step 2: Commissioner calls for report from investigating officer

Step 3: Commissioner examines:

• Has applicant cooperated in proceedings?
• Has full and true disclosure been made?
• Are tax, interest, penalty paid?

Step 4: Commissioner passes order in Form GST CPD-02 within 90 days:

• Either allows with compounding amount determined as per Table in Rule 162(3A)
• Or rejects with reasons

Step 5: Applicant pays compounding amount within 30 days

Step 6: If payment not made, order becomes void

Effect of Compounding:

• No further proceedings under GST Act
• Criminal prosecution abates (ends)
• Cannot be prosecuted for same offence again
• Immunity is final (but can be withdrawn if concealment/false evidence found)

11. Role of BNSS (Bharatiya Nagarik Suraksha Sanhita, 2023)

The BNSS, which replaced CrPC with effect from July 1, 2024, introduced several changes relevant to GST arrests:

Key changes:

• Section 35 (replacing Section 41 of CrPC): Enhanced protection for arrest without warrant
• Section 35(7): Special protection for persons above 60 years or infirm—no arrest without permission of DSP+ rank officer for offences punishable < 3 years
• Mandatory medical examination after arrest
• Enhanced rights: Full particulars of offence must be communicated
• Section 480(6) (replacing 437(6)): Bail if trial not concluded within 60 days

Applicability to GST: As held in Radhika Agarwal v. Union of India (2025 INSC 272):

• BNSS provisions apply to GST Act to the extent not expressly/impliedly excluded
• Section 69 of CGST Act itself cross-refers to CrPC (now BNSS)
• BNSS safeguards supplement GST Act provisions

Practical impact:

• Arrest procedures under GST must comply with BNSS requirements
• Bail provisions of BNSS apply to GST prosecutions
• Courts can invoke Section 480(6) for bail in GST cases as done in Ankit Bansal (Rajasthan HC, 2025)