Karnataka HC: Anticipatory Bail Granted in Rs. 31 Crore Fake ITC Fraud; Custodial Interrogation Not Statutory Mandate

In a significant ruling concerning personal liberty within the realm of economic offences, the Karnataka High Court has granted anticipatory bail to an assessee accused of fraudulently availing Input Tax Credit (ITC) worth over Rs. 31 Crores. The judgment, delivered in the case of Akram Pasha Vs Senior Intelligence Officer, establishes that custodial interrogation is not an automatic statutory requirement for offences under the Central Goods and Services Tax Act, 2017, provided the accused cooperates with the investigation.

The Court emphasized that while economic offences are serious, the power of arrest must be balanced against the fundamental right to liberty, especially when the maximum punishment prescribed is five years and the offence is compoundable.

Factual Matrix of the Case

The petitioner, serving as the Proprietor of M/s. A.R. Steel, approached the High Court seeking relief under Section 482 of the Bharatiya Nagarik Suraksha Sanhita (BNSS). This move was precipitated by an apprehension of arrest following the issuance of summons dated 10.10.2025 under Section 70 of the Central Goods and Services Tax Act, 2017.

The Investigation and Allegations

The Respondent-Department initiated an investigation based on intelligence suggesting the existence of a syndicate involved in creating bogus entities. The primary objective of this alleged syndicate was to avail inadmissible and fraudulent Input Tax Credit without the actual underlying supply of goods or services.

Key factual allegations included:

  • Search Operations: A coordinated search was conducted on 10.09.2025 across 13 locations under Section 67(2) of the CGST Act, 2017, including the residential premises of the petitioner in Mysore.
  • Non-Existent Business: Investigations revealed that the petitioner was not conducting business activities from the declared premises at Lashkar Mohalla, Gandhinagar, Mysore.
  • Fake Invoices: The petitioner allegedly utilized ITC based on bogus invoices from entities that had been suo-moto cancelled by the department.
  • Quantum of Fraud: The investigation claimed the petitioner availed fraudulent ITC amounting to Rs. 11,10,17,359/- from 36 suppliers whose registrations were cancelled/suspended. Furthermore, ITC worth Rs. 20,52,39,822/- was allegedly availed from M/s. N.M.G. Traders, an entity described as having no active business.
  • Total Liability: The total ineligible ITC availed was calculated at Rs. 31,62,57,131/-.

Despite receiving multiple summonses between September and November 2025, the petitioner allegedly failed to appear before the authorities, leading to the apprehension of imminent arrest.