Punjab & Haryana HC Grants Bail in ₹53 Crore GST ITC Evasion Matter, Reaffirms "Bail is Rule, Jail is Exception" in Economic Offenses

The intersection of economic offenses and personal liberty has always been a subject of intense judicial scrutiny. In a significant judicial pronouncement, the Punjab and Haryana High Court in the matter of Shivam Gupta Vs State of Punjab and others has reinforced the fundamental criminal jurisprudence that pre-trial detention should not be used as a punitive measure, even in cases involving substantial revenue implications.

The Court granted regular bail to two individuals accused of orchestrating a massive Input Tax Credit (ITC) fraud under the Central Goods & Service Tax Act, 2017. The ruling serves as a critical precedent for any assessee facing coercive actions by the GST department, particularly when the underlying evidence is primarily documentary and formal tax assessments are yet to be concluded.

Factual Matrix of the Case

The genesis of the dispute traces back to an extensive investigation initiated by the CGST Commissionerate, Ludhiana. The department targeted three distinct business entities operating from Ludhiana:

  • M/s Vasu Multimetals Pvt. Ltd.
  • M/s SVM Multimetals Pvt. Ltd.
  • M/s Ingottastic LLP

The Core Allegations
According to the prosecution's narrative, these firms, which were primarily engaged in scrap trading and the manufacturing of ingots by melting scrap, had wrongfully claimed ITC. The department alleged that the assessee entities utilized bogus invoices issued by suppliers whose GST registrations were either suspended, canceled suo motu, or entirely non-existent at their declared principal places of business. The initial estimate of the fraudulent ITC availment stood at approximately ₹53 crores.

Search, Seizure, and Arrest
Following a search warrant authorized by the Joint Commissioner on 15.09.2025, the investigative authorities executed search operations under Section 67(2) of the CGST Act on 16.09.2025 across five different residential and business premises connected to the firms.

During the investigation, it was established that the petitioners held key directorial and partnership roles in these entities. Subsequently, their statements were recorded under Section 70 of the CGST Act. Following this procedural step, the authorities formally arrested the petitioners on 17.09.2025.

After the completion of the investigation, a formal complaint was lodged under Section 132(1)(c)(i) of the CGST Act and the Punjab Goods and Services Tax, 2017, read with Section 132(1)(i) and Section 20 of the Integrated Goods and Services Tax, 2017. Prior to approaching the High Court under Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023, the petitioners had their bail applications dismissed by the Chief Judicial Magistrate on 29.10.2025 and subsequently by the Additional Sessions Judge on 22.12.2025 and 06.01.2026.

Submissions by the Assessee

The legal counsel representing the petitioners mounted a robust defense, challenging both the substantive allegations and the procedural validity of the arrests. The primary arguments advanced on behalf of the assessee included:

Legitimate Business Operations

The defense vehemently argued that the companies in question were legitimate, duly incorporated entities conducting lawful commercial operations in the scrap melting and trading sector. They contended that the transactions were executed in the ordinary course of business.