₹40 Crore Fake GST ITC Allegation: Allahabad HC Releases Accused on Bail [Read Order]

The Allahabad High Court granted bail to an accused alleged to have fraudulently availed Input Tax Credit ( ITC ) worth over ₹40 crore based on fake GST ( Goods and Services Tax ) invoices.

Justice Sameer Jain allowed the bail application while stating that the case rested primarily on documentary evidence and the trial was progressing at a slow pace.

The Directorate General of GST Intelligence (DGGI), Ghaziabad Regional Unit, had arrested accused Manoj Kumar Garg of availing fake ITC without actual supply of goods and claiming fraudulent tax refunds exceeding ₹40 crore.

It was further alleged that several supplier firms linked to the transactions were non-existent. The accused was charged under Sections 132(1)(c) and 132(1)(i) of the Central Goods and Services Tax (CGST) Act, 2017, offences that are non-bailable and cognizable, with a maximum punishment of five years’ imprisonment and fine.

The applicant had previously filed two bail applications, one was dismissed as not pressed, and another was rejected because he was not in custody at the time. After the Supreme Court dismissed his SLP, Garg surrendered on July 29, 2025, and remained in jail since then.

The applicant, argued that the allegations against Manoj Kumar Garg were entirely false, baseless, and unsupported by any substantive evidence. It was submitted that the GST Department had failed to establish any direct or tangible connection between the applicant and the fifteen firms alleged to be fake.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The defense pointed out that all these entities were duly registered under the CGST Act and had been allotted valid GSTIN numbers by the Department itself, thereby undermining the prosecution’s claim that the suppliers were fictitious.

It was further contended that, as per Section 73 of the CGST Act, 2017, the determination of any evaded tax or wrongly availed input tax credit (ITC) can only be made through proper adjudication proceedings.

Consequently, invoking penal provisions under Section 132 which deals with punishment for tax evasion without prior adjudication was premature and legally unsustainable. The defense submitted that the Department had acted hastily in treating the matter as a criminal offence even before any conclusive assessment of liability was made.

The counsel also stated that the entire prosecution case was founded solely on documentary and electronic evidence, with witnesses being public officials. In such a scenario, there existed no likelihood of the accused tampering with evidence or influencing witnesses if granted bail.

Furthermore, it was submitted that the investigation had been concluded long ago and a formal complaint had been filed as early as 2021. Despite this, the trial had not progressed beyond the pre-charge evidence stage, reflecting an undue delay in judicial proceedings.

Lastly, the applicant’s counsel stressed that Garg had already undergone more than four and a half months of incarceration in total, including over three months before his release on short-term bail, and had consistently cooperated with the investigation and trial.

While submitting the documentary nature of the case, completion of the investigation, and prolonged pendency of trial, the defense asserted that continued detention of the applicant would serve no useful purpose and that he deserved to be enlarged on bail.

The counsel representing the GST Department vehemently opposed the bail plea, asserting that the applicant had committed a serious economic offence involving the fraudulent availment of Input Tax Credit (ITC) worth over ₹40 crore, causing loss to the public exchequer.

It was argued that such offences strike at the very foundation of the country’s economic system and undermine the integrity of the GST. The counsel submitted that economic offences constitute a distinct class of crimes that must be dealt with stringently and not treated on par with ordinary criminal offences, given their far-reaching impact on public revenue and the national economy.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

Further, it was submitted that the arrest of the applicant had been carried out in strict compliance with the law. The Commissioner of GST, after a thorough evaluation of the material on record, had formed a “reason to believe” that the arrest of the accused was necessary to prevent further evasion and to ensure the integrity of the investigation.

The counsel argued that the Directorate General of GST Intelligence (DGGI) had followed due procedure, and the arrest was made only after the Commissioner’s authorization in accordance with statutory requirements under the CGST Act, 2017.

In view of the gravity of the allegations and the magnitude of the fraud, the Department contended that the applicant was not entitled to bail, and his release at this stage would send a wrong signal in cases of large-scale tax evasion.

Justice Jain, while granting bail to the applicant, observed that the case was purely documentary in nature, the investigation had been completed, and the complaint had already been filed by the GST Department.

The Court noted that the trial was still at the pre-charge evidence stage and was likely to take a considerable amount of time for completion. In such circumstances, the continued detention of the accused was found to be unwarranted and unnecessary.

The High Court also took note of the fact that applicant had earlier been released on short-term bail and there had been no allegation of misuse of liberty during that period. Furthermore, the applicant was found to have no criminal antecedents and had been cooperating with the proceedings.

The Court concluded that the applicant was entitled to bail.

Accordingly, without expressing any opinion on the merits of the case, the bench directed Garg’s release on bail upon furnishing a personal bond and two sureties of equal amount, subject to specific conditions he must appear before the trial court on scheduled dates unless exempted, abstain from influencing witnesses or tampering with evidence, and refrain from any criminal or anti-social activity.

The Court made it clear that the observations made were limited to the determination of the bail application and would not prejudice the merits of the trial.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates