GST: High Court Denies Bail in Rs. 19.76 Crore Fake ITC Case

Mukesh Kumar was arrested by GST Intelligence for allegedly running fake firms and claiming bogus ITC worth Rs. 19.76 crore. He sought bail, arguing his arrest was illegal and done without proper authorization. The court opposed and found the arrest valid and said the timing issue was only a printing delay. The Court denied bail. However, the investigation is ongoing.

The Appeal has been filed by Mukesh Kumar (Petitioner) in the High Court of Judicature at Madras against the Additional Assistant Director, Directorate General of GST Intelligence (Respondent). The case was heard by the Honourable Mr Justice Rajasekar. The judgement on this case was passed on October 10, 2025. The Petitioner had prayed for the court to grant bail; the arrest was illegal because the required authorizations came after the arrest and the records were fabricated.

Background of the case:

Mukesh Kumar (Petitioner) who was arrested and had been remanded to judicial custody on August 14, 2025, in conclusion to the complaint filed by the Additional Assistant Director, Directorate General of GST Intelligence (respondent) for the alleged offence under Section 132 (1)(b), 132 (1)(c) and 132 (5) of the CGST Act, 2017, is seeking for a bail.

The case started during an investigation against M/s. Naklank Enterprises where investigators found that its supplies were non-existent in entities and passed on bogus Input Tax Credit (ITC) to 25 other units without any real supply of goods. He was accused of managing three fake  firms, M/s Parth Steel Alloys, M/s Jay Enterprises, and M/s Dhanlaxmi Trading, from the premises of another firm, M/s Shri Ram Alloys, where he worked as a manager. The investigation showed that these firms issued fake invoices without actual movement of goods and that their supposed proprietors were only workers at Shri Ram Alloys. Total Fake ITC worth about Rs. 19.76 crore.

Authorized Representative of the assessee explained, the officer who arrested him did not follow the proper legal steps before making the arrest, and the reasons the officer gave for arresting him were not valid or based on proper understanding of the facts.

He also said that the permission to arrest him was received from senior officers after 10:39 a.m., but he was arrested earlier at 10:30 a.m., which means he was taken into custody before the officers officially got approval to do so. A.R. further submitted that the assessee is in custody from August 14, 2025 and considering the suffering of the assessee, he prayed for the grant of bail to the assessee.

The Additional Assistant Director, Directorate General of GST Intelligence (Respondent), opposed giving bail, saying the fraud was over Rs. 5 crore, which makes it a serious crime that doesn’t allow automatic bail. He also said that voluntary statements were recorded from other firms and it was found out that Mukesh Kumar was the main person running the fake companies, one of his partners Shri Ishwar Lal had run away, and if Mukesh was released, he might hide evidence or influence witnesses.

The High Court of Judicature at Madras concluded that the authorisation to arrest was valid, as the officer had received approval before the arrest, and the difference in times on the documents was due to printing delay. The Court found that the reasons to believe were properly recorded and that minor clerical errors in the sections quoted did not invalidate the arrest. Considering that the alleged offence involved a large amount, an ongoing investigation, and an absconding co-accused, The Court believe that giving him bail right now could slow down or disturb the investigation and might give him a chance to hide or change important evidence.