Introduction:
In Arun Garg v. State of Kerala (CRM-M-25342-2025), the Punjab and Haryana High Court delivered an important ruling reiterating the constitutional primacy of personal liberty even in prosecutions involving alleged economic offences under the Central Goods and Services Tax Act, 2017. Justice Aaradhna Sawhney emphatically held that courts must not proceed on an assumption that in economic offences “denial of bail is the rule and grant the exception.” The case arose from allegations that the petitioner–assessee had orchestrated a syndicate of nine taxpayer firms to fraudulently pass on fake Input Tax Credit (ITC) amounting to ₹23.66 crore through goods-less invoices. Arrested on 28 January 2025 and in continuous custody thereafter, the petitioner sought bail after the Additional Sessions Judge, Faridabad rejected his application. While acknowledging the seriousness of the allegations and the statutory framework under Section 132 of the CGST Act, the High Court underscored that seriousness alone cannot eclipse the fundamental rights guaranteed under Article 21 of the Constitution. The judgment carefully balances the object of fiscal legislation with settled principles of criminal jurisprudence, reaffirming that bail remains the general rule and incarceration the exception, particularly where the evidence is documentary and the maximum punishment prescribed is limited.
Arguments on Behalf of the Petitioner / Assessee:
The petitioner contended that his continued incarceration was wholly unjustified, disproportionate, and violative of his fundamental rights under Article 21 of the Constitution of India. It was argued that although serious allegations had been levelled by the department, the same were yet to be proved and could not, at the bail stage, be treated as established facts. The petitioner emphasised that Section 132 of the CGST Act prescribes a maximum punishment of five years’ imprisonment for the offences alleged, thereby placing the case in a category where prolonged pre-trial detention would be manifestly excessive.
It was further submitted that the petitioner had been in custody since 28.01.2025 and that the investigation was substantially complete. According to the petitioner, the prosecution case rested primarily on documentary and electronic evidence, including GST returns, invoices, bank statements, and digital records, all of which were already in the possession of the department. There was no possibility of tampering with such evidence, nor any realistic apprehension of the petitioner influencing witnesses, as the case did not involve vulnerable oral testimony.
The petitioner also argued that the alleged role attributed to him as a “mastermind” was a matter of inference and interpretation by the department and could only be tested during trial. Merely labelling an accused as the kingpin of a syndicate, it was urged, could not justify denial of bail in the absence of exceptional circumstances. The defence highlighted that the CGST Act does not create a special embargo on the grant of bail akin to statutes such as the NDPS Act or the UAPA, and therefore ordinary principles governing bail under the Code of Criminal Procedure must apply.
Placing reliance on established jurisprudence, the petitioner contended that economic offences cannot be treated as a homogenous class where liberty is routinely curtailed. Courts are required to assess factors such as the nature of the accusation, the severity of punishment, the likelihood of the accused fleeing justice, and the necessity of custodial interrogation. Since the petitioner was a resident within the jurisdiction, had cooperated with the investigation, and posed no flight risk, denial of bail would amount to punitive detention.
Lastly, the petitioner stressed the constitutional mandate of a speedy trial, arguing that given the volume of records and multiplicity of transactions involved, the trial was likely to take considerable time. Continued incarceration pending such a trial would render the presumption of innocence illusory and convert pre-trial detention into a form of punishment, which the law strongly disfavors.
Arguments on Behalf of the Respondent / Department:
The department opposed the bail application by emphasising the gravity and magnitude of the alleged economic offence. It was submitted that the petitioner was not a mere participant but the principal architect of a sophisticated syndicate involving nine taxpayer firms, created and operated with the sole objective of fraudulently availing and passing on Input Tax Credit without any genuine inward supply of goods. According to the department, these firms had either nil or negligible inward supplies, clearly indicating a sham arrangement designed to defraud the State exchequer.
The prosecution asserted that the offence involved fraudulent ITC amounting to ₹23.66 crore, which had wide ramifications not only within the jurisdiction of the CGST Faridabad Commissionerate but also beyond it. Such offences, it was argued, strike at the very foundation of the GST regime, which is premised on trust, self-assessment, and seamless credit flow. The department contended that economic offences of this nature are more serious than conventional crimes as they erode public confidence in fiscal governance and cause significant loss to public revenue.
It was further argued that the petitioner acted with clear mens rea, having full knowledge of the fraudulent nature of the transactions and actively facilitating the issuance of goods-less invoices. The prosecution maintained that custodial detention was necessary to ensure effective investigation, uncover the full extent of the syndicate, and identify other beneficiaries and accomplices.
The department also expressed apprehension that if released on bail, the petitioner could influence co-accused, manipulate financial records, or adopt delaying tactics that would impede the trial. Emphasising the organised nature of the offence, the prosecution urged the Court to treat the case as an exception to the general rule of bail, arguing that economic offences involving large-scale tax evasion warrant a stricter approach.
In response to the argument regarding documentary evidence, the department submitted that economic crimes often involve layered transactions and digital trails, and that custodial presence of the accused can be crucial in deciphering complex financial arrangements. On these grounds, the respondent prayed for dismissal of the bail petition.
Court’s Judgment and Reasoning:
Justice Aaradhna Sawhney, after hearing both sides and examining the statutory framework, allowed the bail petition and granted bail to the assessee, articulating important principles governing bail in economic offences. At the outset, the Court rejected the notion that economic offences under fiscal statutes should automatically invite a more stringent bail regime. It held that courts cannot proceed on a blanket presumption that denial of bail is the rule in such cases. Economic offences, the Court observed, do not constitute a monolithic category and must be assessed on a case-to-case basis.
Referring to Section 132 of the CGST Act, the Bench noted that the offences alleged against the petitioner were punishable with imprisonment which may extend to five years along with fine. The Court emphasised that the maximum prescribed punishment is a critical factor in bail adjudication. Where the upper limit of imprisonment is five years, prolonged pre-trial incarceration would be difficult to justify unless compelling reasons exist.
The Court underscored that the allegations against the petitioner were yet to be proved and that at the bail stage, the Court is not required to conduct a mini-trial or return findings on guilt. The presumption of innocence remains intact until conviction, and bail jurisprudence must respect this foundational principle. The Bench took note of the admitted fact that the petitioner had been in custody since 28.01.2025 and that the evidence proposed to be led by the department was primarily documentary and electronic in nature.
In this context, the Court held that further detention of the petitioner was not necessary for the purposes of investigation or trial. Since the documentary and electronic evidence was already in the custody of the department, the possibility of tampering was minimal. The Court found no specific material to suggest that the petitioner would abscond or interfere with the course of justice if released on bail.
Importantly, the Bench invoked Article 21 of the Constitution, holding that continued incarceration in such circumstances would violate the petitioner’s right to personal liberty and the right to a speedy trial. The Court reiterated the long-settled principle that “bail is the general rule and jail is an exception,” and cautioned that deviation from this principle must be justified by strong and specific reasons, not by the mere label of an offence as “economic.”
Justice Sawhney observed that while the object of the CGST Act is undoubtedly to prevent tax evasion and protect public revenue, enforcement of fiscal laws cannot come at the cost of constitutional guarantees. The criminal process, the Court noted, should not be used as a tool for pre-trial punishment. Balancing the seriousness of the allegations with the rights of the accused, the Bench concluded that no useful purpose would be served by keeping the petitioner behind bars for an indefinite period while the trial proceeds at its own pace.
Accordingly, the High Court allowed the petition and granted bail to the assessee, subject to appropriate conditions, reaffirming that liberty cannot be sacrificed on presumptions and that economic offences do not create a separate, harsher bail jurisprudence unless the statute expressly so provides.