17 Crore GST Fraud: Court Grants Bail After CGST Messes Up Arrest Procedure

On May 17, 2025, the applicant submitted a bail application before Special Judge, after the Chief Judicial Magistrate (CJM) had denied it. He accused the CGST office of unlawfully detaining him for more than 24 hours before his formal arrest, claiming that his arrest was arbitrary and unlawful. He insisted that he operated a lawful business, had no criminal history, and had provided complete cooperation throughout the investigation. He maintained that all of the documents were already in the department and that there was no chance of tampering if they were made public, and that he was wrongfully implicated based on statements made by third parties.

According to the CGST department, the applicant was the mastermind of a network of phoney companies that over Rs. 17.41 crore in ITC was fraudulently claimed, resulting in over Rs. 5 crore of tax evasion. They asserted that he controlled these businesses through family members based on statements, documents that were recovered, and digital proof. Under Section 132(1)(b) & (c) of the CGST Act, the revenue argued against the bail application, pointing to non-cooperation, several recovered IDs, and the seriousness of the offence.

Main issue: Whether the applicant should be granted bail in light of the department’s grave accusations of widespread tax evasion and non-cooperation and the applicant’s claims of procedural irregularities in his arrest and detention.

Court’s Decision: The court acknowledged the grave accusations made against the applicant, which included the establishment of bogus companies and the false claim of input tax credit, which resulted in a loss of Rs. 17,41,37,269. It did, however, uncover glaring errors in the arrest procedure, pointing out that the arrest memo was timed at 3:03 PM but the DIN number was only generated at 3:08 PM, casting doubt on the order of events. Additionally, the court enquired as to how the arrest memo would have been included in the Jama Talashi (search memo) if the search had been conducted before the arrest.

The department failed to explain this or how the applicant posed a risk to the investigation. Considering these irregularities, the court granted him bail on a Rs. 2 lakh bond with conditions like appearing before authorities, not tampering with evidence, and not leaving the country without prior notice.

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