GST: Bail granted to businessmen arrested for fraudulent ITC claim of Rs. 37.29 Cr:

GST: Bail granted to businessmen arrested for fraudulent ITC claim of Rs. 37.29 Cr Petitioner, Santosh Kumar Sah, is the authorized signatory and managing partner of M/S Buddhu Sha and Co., a GST-registered distributor of ITC Ltd. in Jaigaon, dealing in FMCG (mainly tobacco). He was arrested on 31.03.2025 by CGST officials based on allegations of fraudulent Input Tax Credit (ITC) claims of Rs. 37.29 crores under Section 132(1)(c) and (i) read with Section 132(5) of the CGST Act, 2017. His Arrest was made without warrant before filing of any formal complaint. His Arrest relied on e-way bill data alleging non-movement of goods, as the vehicles did not cross all toll plazas along the designated routes.

Search & Panchanama:

A search conducted on 29 to 30 March 2025 concluded with no unaccounted goods, cash, or incriminating material found. Batch numbers on stock matched invoice records, CCTV footage corroborated delivery, and voluntary cooperation was provided by the petitioner. Attempt was made by officials to retrieve and replace the original panchanama on 31.03.2025.

Issues Framed

Whether the arrest was in violation of the statutory and constitutional safeguards under Section 69 of the CGST Act and personal liberty under Article 21 of the Constitution. Whether the absence of toll records in e-way bills is sufficient “material” to justify arrest for fraudulent ITC claims. Whether the High Court can grant bail despite a parallel application pending before the Sessions Court. Petitioner’s Counsel argued that the Arrest was made without judicial warrant and before any adjudication under Section 74 CGST Act. Evidence such as invoices, e-way bills, batch numbers, and CCTV footage corroborated actual receipt of goods. Panchanama of 30.03.2025 supports petitioner’s case. Also no discrepancy in stock was found. In this case petitioner also Challenged the reliance of department on toll data, which is not a statutory requirement. Respondent however Claimed that petitioner fraudulently availed ITC based on e-way bills from ITC Ltd. with no toll crossing records. Vehicles in 232 invoices failed to cross required toll plazas also 150 consignments had no toll data. Department believed that constituted sufficient material for suspicion and action under Section 132(1)(c) CGST Act.

Court’s Decision & Rationale

• Despite a pending bail application in the Sessions Court, the High Court accepted maintainability of petition due to miscommunication and lack of informed consent by the petitioner.
• The Court held that "reasons to believe" must be based on credible, not speculative, material.
• The Court quoted Arvind Kejriwal and Pankaj Bansal decisions on the necessity to furnish the "reasons to believe" to the arrestee.
• Further, the Court added that the panchanama contradicted the basis of arrest, as it verified physical presence of goods with matching batch numbers and corroborated transport via CCTV.

With this, court concluded that the arrest was premature and disproportionate, particularly in light of the cooperative conduct of the petitioner and absence of incriminating material. Finally, bail was granted to the petitioner.