Bail Granted in Alleged ₹8.36 Crore Fake ITC Case as Investigation Was Complete

Sarthak Jain Vs Senior Intelligence Officer (Punjab and Haryana High Court)

The Punjab and Haryana High Court considered a petition seeking regular bail in a prosecution under Sections 132(1)(b) and 132(1)(c), punishable under Section 132(1)(i) of the Central Goods and Services Tax Act. The prosecution alleged that the petitioner was the proprietor of one firm, a partner and authorized signatory of another, and controlled the business and financial activities of a third entity. It was alleged that through these three firms, the petitioner fraudulently availed fake Input Tax Credit (ITC) of approximately ₹8.36 crore on the basis of fake GST invoices amounting to about ₹98.81 crore and passed on the wrongly availed ITC to beneficiary firms. According to the complaint, the ITC was claimed on invoices issued by 38 allegedly fake entities whose GST registrations had been cancelled on the ground that they were non-existent or non-operational. Searches conducted under Section 67(2) of the CGST Act led to the recovery of documents and electronic devices allegedly linked to fake GST billing activities. The petitioner was arrested on 22.02.2025 after investigation.

The petitioner argued that he had been falsely implicated and contended that his arrest was illegal because the grounds of arrest were not provided as required under Section 69 of the CGST Act. It was further argued that no enquiry under Section 70 of the CGST Act had been conducted before his prosecution. The petitioner submitted that the maximum punishment prescribed for the alleged offences was five years, that he had already undergone about five months of incarceration, had no criminal antecedents, and that the investigation stood completed as evidenced by the filing of the complaint. He also contended that the case was based entirely on documentary evidence and relied on various judicial precedents in support of his bail plea.

The respondent opposed the petition, asserting that the petitioner was the key person behind the fraudulent availment, utilization, and passing on of ITC worth ₹8.36 crore without actual receipt of goods from non-existent firms. It was submitted that the case had been developed through data analytics tools and intelligence inputs. The respondent maintained that the petitioner acted as the mastermind behind the alleged fraud and highlighted that the petitioner’s wife, who was also connected with one of the firms, had not joined the investigation.

After considering the submissions and examining the record, the High Court observed that the petitioner had been prosecuted for offences relating to alleged wrongful availment of ITC. The Court noted that the investigation had already been completed and the complaint had been filed. It further observed that the allegations and counter-allegations were matters to be determined during trial. The custody certificate showed that the petitioner had no criminal antecedents and had remained in custody since his arrest, completing approximately five months of incarceration.

The Court held that the judgments cited by the petitioner were relevant for consideration of the bail application. Taking into account the facts and circumstances of the case, the completion of investigation, the absence of criminal antecedents, the period of custody already undergone, and the fact that the veracity of the allegations would only be determined during trial, the Court found that a case for grant of bail had been made out. It also observed that the trial was likely to take a considerable amount of time.

Accordingly, the High Court allowed the petition and directed that the petitioner be released on bail upon furnishing the requisite bail and surety bonds to the satisfaction of the concerned trial court or duty magistrate. The Court clarified that nothing stated in the order should be treated as an expression of opinion on the merits of the case.

FULL TEXT OF THE JUDGMENT/ORDER OF PUNJAB AND HARYANA HIGH COURT

1. Present petition has been filed for grant of regular bail in COMA-5720/2025 dated 22.04.2025 arising out of DIN No.202502DNN50-00000BP68 titled as Senior Intelligence Officer Vs. Sarthak Jain for offence under Section 132(1)(b) & 132(1)(c) and punishable under Section 132(1)(i) of Central Goods and Services Tax Act. Further prayer has been made for grant of ad interim bail to the petitioner.

2. Succinctly the facts of the case are that the petitioner has been prosecuted by the respondent in a complaint case for the offence under Section 132(1)(b) & 132(1)(c). It was alleged in the complaint that the petitioner is the proprietor of M/s Sarthak Enterprises, partner and authorized signatory of M/s Disha Enterprises and controller/operator of all business and financial activities of M/s Kashbhi Accessories point. The petitioner through these 03 firms had fraudulently availed fake Input Tax Credit (ITC) amounting to Rs. 8.36 crores approx. through fake GST invoices of Rs.98.81 crores approx. The petitioner was alleged to have passed-on wrongfully availed ITC to various beneficiary firms/companies. Thus, by his malafide actions, he actively commissioned the offence and defrauded the Govt. Exchequer to the tune of Rs.8.36 crores. It was alleged in the complaint that by his malafide action, the petitioner had committed a non-bailable and cognizable offence punishable under Section 132(1)(b) & 132(1)(c) of Central Goods and Services Tax (CGST) Act, 2017 and Punjab GST Act, 2017. The intelligence was gathered that the taxpayer had claimed ITC on the basis of invoices raised by 38 fake entities which have been cancelled suo-moto. Acting upon the intelligence, searches were carried out under Section 67(2) of the CGST Act, 2017. Upon consequent searches, number of incriminating documents and electronic devices related to allegedly fake GST billings had been recovered from the office premises of the petitioner under 03 separate Panchnamas all dated 21.02.2024. It was alleged that during course of investigation, it was found out that GST registration Number of 38 firms were cancelled by Jurisdictional Officer of GST Department on the ground of non-existent/non-operational at the declared Principal Place of Business. Thus, the petitioner was arrested on 22.02.2025. Aggrieved by the same, the petitioner approached the Court of learned Additional Sessions Judge, Ludhiana praying for grant of bail, however, finding no merit, the same was declined after hearing both the sides by learned Additional Sessions Judge, Ludhiana vide order dated 06.05.2025. Hence, the petitioner is before this Court by way of filing of present petition for grant of bail.

3. Learned Senior counsel for the petitioner has vehemently contended that the petitioner has been falsely and frivolously implicated by the respondent in the present case. He submits that petitioner has been prosecuted for the offence under Sections 132(1)(b) & 132(1)(c) of Central Goods and Services Tax Act. He submits that in a due deliberated manner, the petitioner was called by the respondent in their office on 21.02.2025 and thereafter, he was clandestinely arrested. He was shown to be arrested on 22.02.2025. It is submitted by learned Senior counsel that as per the provisions of Section 69 of the CGST Act, every person is to be provided the ground of arrest before effecting his arrest so as to apprise the petitioner of his ground of arrest, however, the same was not provided to the petitioner. It is submitted that arrest of the petitioner is thus, illegal in view of the provisions of Section 69 of the CGST Act. He further submits that as per the provisions of Section 70 of CGST Act, enquiry is essential before the prosecution of any person, however, without there being any enquiry having been carried out as per the provision of Section 70 CGST Act, the petitioner was straightway arrested. He further submits that as per provisions of 132(1)(b) & 132(1)(c) of the CGST Act, in case the charges are proved against the petitioner, the maximum sentence he can be awarded is 05 years. He submits that the petitioner had already suffered an incarceration of about 05 months. It is submitted that the petitioner has no criminal antecedents and the investigation in the case has already been carried out as is evident from the complaint filed by the respondent. It is submitted that the complete case planted against the petitioner is totally based upon the documentary evidence and thus, the petitioner in the overall facts and circumstances of the case, deserves to be granted bail. He relied upon the judgments passed in ‘SLP (Criminal) No.4349 of 2025’ titled as ‘Vineet Jain Vs. Union of India’, ‘CRM-M-37860-2024’ titled as ‘Vishal Chauhan Vs. Haryana State GST (Intelligence Unit) through Excise Taxation Officer-cum-Proper Officer, Rohtak’, ‘CRM-M-24201-2025’ titled as ‘Arvind Kumar Vs. Directorate General of GST Intelligence, Amritsar’ and ‘Writ Petition (Criminal) No.336 of 2018’ titled as ‘Radhika Agarwal Vs. Union of India and others’.

4. Per contra, learned State counsel has opposed the submissions made by the counsel for the petitioner and submits that the petitioner has committed a serious offence. He submits that the petitioner has claimed ITC on the basis of invoices raised by 38 fake entities which have been cancelled suo-moto. It is submitted that the Officers of DGGI, Ludhiana Zonal Unit by making use of data analytics tools like BIFA, ADVAIT, e-Way Bill Portal, GST Prime and local intelligence which further developed the case. It is submitted that as per the analysis of data, Sarthak Jain i.e. the petitioner is the proprietor of M/s Sarthak Enterprises, partner and authorized signatory of M/s Disha Enterprises and controller/operator of all business and financial activities of M/s Kashbhi Accessories point. He submits that the petitioner was the key person for the fraudulent availment, utilization and passed on ITC of Rs.8.36 crores without any physical receipt of goods from non-existent firms. He has drawn attention of this Court to the reply filed wherein the total ineligible ITC availed by the 03 firms is summarized as follows:-

He submits that it has been found during investigation that the petitioner is proprietor of Firm-M/s Sarthak Enterprises and proprietor of M/s Disha Enterprises along with his wife. He has further drawn attention of this Court to the reply filed and submitted that the petitioner is the mastermind in committing the offence and with his malafide actions has actively commissioned the offence and he defrauded the govt. exchequer to the tune of Rs.8.36 crores. He submits that in the facts and circumstances, wife of the petitioner-Disha Jain has not joined the investigation so far. He thus, submits that no case for grant of bail to the petitioner, is made out.

5. The Court has heard counsel for the parties and perused the record. It is deciphered that the petitioner has been prosecuted for the offence under Section 132(1)(b) & 132(1)(c) of Central Goods and Services Tax Act. The allegation against the petitioner is that he has illegally evaded paying of tax. As per the reply filed, the petitioner has availed an amount of Rs.2,75,23,442/- as per GST Returns pertaining to Firm-M/s Sarthak Enterprises. So far, M/s Disha Enterprises is concerned, he along with his wife has availed the ITC Returns of Rs.3,98,33,986/-. The investigation already stands completed as the complaint has been filed. The allegations and counter allegations made are entirely the matter of trial. Custody certificate of the petitioner has been filed which would show that he has no criminal antecedents. He is behind bars since the date of his arrest and thus, has completed an incarceration of about 05 months. The judgments relied upon by the learned Senior counsel for the petitioner are relevant for the appreciation of the bail petition filed by the petitioner.

6. In view of the facts and circumstances of the case and on the anvil of the law settled, finds that the learned Senior counsel for the petitioner succeeds in making out a case for bail.

7. The veracity of the allegations would be assessed only after conclusion of the trial and on the appreciation of evidence to be led by both the parties before the trial Court. The trial of the case will take sufficiently long time. Accordingly, the present petition is allowed and the petitioner is ordered to be released on bail on his furnishing bail/surety bonds to the satisfaction of the concerned trial Court/Duty Magistrate. Nothing said herein shall be treated as an expression of opinion on the merits of the case.