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Gujarat High Court's Discretionary Bail Decision in CGST Input Tax Credit Allegations


In a significant decision, the High Court of Gujarat (‘HC’) in the case of Smit Dipen Shah v. State of Gujarat[i] granted bail to the Applicant, wherein he was alleged of availing ineligible input tax credit (‘ITC’) amounting to Rs. 7.45 Crores based on transactions with purportedly non-existent entities. The judgment sheds light on the intricate balance between protecting individual rights and upholding the integrity of financial regulations. It underscores the importance of concrete evidence rather than presumptions specifically in the application of offences under the Central Goods and Services Act, 2017 (‘CGST Act’).


  • The applicant, proprietor of M/s. Liberty Products, engaged in manufacturing and trading brass products and metal scrap in Jamnagar, was arrested under s. 69 of the CGST Act on the allegation of commission offence punishment under s. 132(1)(c) of the CGST Act, after a vehicle carrying his goods was intercepted by the State Tax Officer on 09.04.2022.

  • The purchase was made with proper tax invoices, and the goods were received and paid for through bank transactions. The applicant had paid a total of Rs.63 lakhs for these goods. The applicant provided all necessary documents to prove the legitimacy of the transactions, including delivery proof.

  • All documents proving the genuineness of the transactions were already in the possession of the complainant, and no further recovery was pending against the applicant.

  • The prosecution alleged that the applicant availed ineligible ITC of Rs. 7.45 Crores based on purchases from six non-existent entities. The arrest memo accused the applicant under s. 132(1)(c) of the GST Act but lacked specific details of the offences.

  • The applicant filed an application under s. 439 of the Code of Criminal Procedure, 1973 (‘CrPC’) for grant of regular bail.


  • The HC allowed the present application under s. 439 of CrPC and ordered the applicant to be released on regular bail, executing a personal bond of Rs. 10,000/-subject to certain conditions laid down by the Trial Court.

  • The HC observed that the allegation against the present applicant pertains to his involvement in wrongfully availing ineligible ITC of Rs. 7.45 crores based on purchases from six registered entities, which according to the revenue were found to be non-existent.

  • The HC considered the punishment prescribed for the offence and noted that the applicant has been in custody since 02.02.2024. Reference was also made to the decision of the Hon’ble Supreme Court in Sanjay Chandra v. Central Bureau of Investigation[ii].

  • Based on the facts and circumstances, the HC deemed it appropriate to exercise discretion and grant regular bail to the applicant, without delving into a detailed discussion of the evidence.

Our Analysis

The HC’s decision to grant discretionary bail in the present case is a notable instance of judicial discretion in the face of allegations under the CGST Act. The court’s decision highlighted the importance of detailed and specific allegations in arrest memos, particularly in offences under the CGST Act. The ruling emphasizes that presumptive and generalized allegations are insufficient to deny bail, ensuring the protection of individual rights against vague accusations.

The HC’s decision to grant bail reflects a careful consideration of the legal framework which also highlights the judiciary’s role in balancing justice and individual rights. Despite serious accusations, the court exercised discretion, considering the circumstances and duration of the applicant’s custody and the gravity of the allegations. This decision holds the importance of judicial discretion in ensuring justice and fairness in the legal process.

End Notes

[i] [2024] 162 109 (Gujarat)

[ii] [2012] 1 SCC 40

Authored by Pratima Ajmera, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion


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