Introduction
The Punjab and Haryana High Court recently declined to grant anticipatory bail to an assessee implicated in a substantial Goods and Services Tax fraud investigation. The case revolved around allegations of systematic fraudulent availment and onward transmission of Input Tax Credit through fictitious entities and bogus invoices. The judicial decision underscores the gravity with which courts view organized tax evasion schemes that result in significant revenue loss to the state exchequer.
Background of the Proceedings
The assessee filed a petition before the Punjab and Haryana High Court invoking the provisions of Section 482 of the Bharatiya Nagarik Suraksha Sanhita, 2023, requesting anticipatory bail in case No. DGGI/INT/625/2025-GR-D. The matter was registered by the Directorate General of GST Intelligence, Chandigarh Zonal Unit, and proceedings were initiated under Sections 132(1)(b), 132(1)(c) read with Section 132(5) of the Central Goods and Services Tax Act, 2017, along with Section 20(xv) of the IGST Act, 2017.
Prior to approaching the High Court, the assessee had moved an application before the Court of Additional Sessions Judge, Chandigarh, which was rejected vide order dated 14.10.2025. This rejection prompted the filing of the present petition under the inherent jurisdiction of the High Court.
Nature of Allegations by DGGI
Core Accusations
The investigative authorities alleged that four entities registered under GST—namely M/s Pukhraj Packaging Solutions, M/s Sun Industries, M/s Pukhraj Packaging Solutions Private Limited, and M/s Pukhraj Packaging Solutions—had engaged in the fraudulent practice of availing, utilizing, and transmitting ineligible Input Tax Credit. These entities allegedly accessed ITC far exceeding what was legitimately reflected in their GSTR-2B returns and generated invoices without any genuine underlying supply of goods or services.
The assessee was identified as a partner or director in two of these entities and was accused of playing a direct role in managing the operations that facilitated this fraudulent circulation of ITC.
Quantification of Fraud
A detailed comparative analysis conducted by the investigating agency examined the data from GSTR-3B, GSTR-2B, and ITC ledger positions. This analysis revealed that ITC amounting to approximately Rs. 9.88 crore was utilized without any corresponding supply of goods or services. The investigation further established that wrongful ITC availment to the tune of Rs. 8.24 crore had been passed on to downstream recipients.
Physical Verification Findings
Physical verification by the investigating officers revealed that several of the implicated firms were non-existent at their registered addresses. This discovery added weight to the allegation that these entities were mere paper companies created solely for the purpose of generating and circulating fake ITC without any actual business operations or infrastructure.
Creation of Fictitious Supplier Network
Establishment of Shell Entities
In what the authorities characterized as a deliberate attempt to conceal the disproportionate circulation of ITC, two new GST registrations were fraudulently obtained—M/s Ram Enterprises (07AXSPA3815A1ZV) and M/s Deva Enterprises (07GOMPB4414K1ZU). These entities allegedly issued invoices showing taxable value aggregating to Rs. 80 crore, with tax component exceeding Rs. 7.88 crore, to the four firms connected with the assessee.
Despite showing such substantial business transactions on paper, both these entities were found to possess no business activity, infrastructure, or capacity to supply goods. Physical verification confirmed that these entities were non-existent at their registered addresses, reinforcing the allegation that they were created solely for generating fictitious documentation.
The Supreme Metal Industries Link
Investigation into the supplier chain revealed that M/s Supreme Metal Industries (07AETFS5433E1ZQ) had transmitted ITC of approximately Rs. 1.77 crore. However, its eligible ITC as per GSTR-2A was merely Rs. 26.14 lakh. Notably, this entity had declared ITC of Rs. 2.92 crore in GSTR-3B, indicating that the majority of ITC availed and passed on by it was fictitious.
Upon verification, this entity was also found non-existent at its registered principal place of business. Instead, another unrelated company—M/s Spring Concept India Pvt. Ltd.—was operating at the premises. The Director of that company confirmed that no such firm had existed at that location for several years, further substantiating the allegations of fictitious supplier creation.
Downstream Circulation Pattern
The investigation revealed that M/s Sun Industries and M/s Pukhraj Packaging Solutions Private Limited had systematically passed on the fraudulently availed ITC of Rs. 7.77 crore, combined with self-generated excess ITC of Rs. 8.24 crore, to various downstream recipients. This created a cascading effect of fake credit circulation throughout the supply chain, multiplying the loss to the government exchequer.
The authorities contended that the assessee, being a key decision-maker in the affairs of these firms, was directly involved in this fraudulent availment and circulation of credit. His role was characterized as central to the operational and financial management of the scheme.
Digital Evidence and Forensic Examination
A significant aspect of the prosecution's case rested on digital evidence. Forensic examination of the mobile phone of another accused, identified as Parveen Kaushal, yielded substantial corroborative material. Communications retrieved from the device evidenced the deliberate passing of ITC without any underlying supply of goods or services.
A 117-page PDF document recovered from the mobile device listed multiple entities to whom invoices had been issued without any real supply. This digital evidence was cited by the investigating authorities as proof of the systematic and organized nature of the fraud, showing conscious creation and circulation of fabricated invoices.