UncategorizedFailure to Establish ‘Reason to Believe’ in GST Investigations: Legal Implications

The Hon’ble High Court of Guwahati in the case of Aniket Sovasaria v. The Union of India and Ors, Bail Application 1140 of 2025 decided on 08.05.2025, held that when procedural requirements are not followed properly and effectively in the GST ITC case, then the bail can be granted.

FACTS

Aniket Sovasaria (hereinafter referred to as “the Petitioner”) filed an application for granting bail under Section 483 of Bharatiya Nagarik Suraksha Sanhita, 2023 (hereinafter referred to as “BNSS”), for the case which is registered under section 132(1)(c) of the Central Goods and Services Tax Act of 2017 (hereinafter referred to as “the CGST Act”), read with Section 20 of the Integrated Goods and Services Tax Act of 2017 (hereinafter referred to as “the IGST Act”) by the Union of India and Others (hereinafter referred to as “the Respondents”).

The Petitioner was a partner in M/s Aadi Enterprises as well as in M/s Trident Consulting, and in his capacity as the partner, it was contended that he was involved and engaged in passing on of ineligible ITC of around Rs. 6.12 crores, even without the actual supply of goods.

Since 23.01.2025, the Petitioner was in the judicial custody. When the bail application was filed before the Hon’ble High Court, the petitioner had already served the judicial custody for a period of 98 days.

ISSUES

1. Whether or not the Petitioner is entitled to bail, when the case is registered under section 132(1) (c) of the CGST Act, read with Section 20 of the IGST Act?
2. Whether or not the Petitioner is entitled to bail, when the proper procedures and statutory requirements are not met?

CONTENTIONS OF THE PARTIES

The Petitioner submitted that, he has been languishing in judicial custody for the period of last 98 days since his arrest on 23.01.2025, and he further submitted that, after completion of the investigation by the authorities, a charge-sheet has been filed and therefore, no question of tampering of evidences and hampering investigation in any manner arises.

Furthermore, the Petitioner submitted that the Respondents arrested him on 23.01.2025 without serving the requisite notice under Section 35 of the BNSS and without fulfilling or satisfying the pre-conditions laid down under Section 69 of the CGST Act.

The Petitioner contended that the Respondents have arrested the Petitioner without conducting any assessment proceeding by the Assessing authority for determining the amount of tax, cess, penalty, as well as interest.

The Petitioner also brought to the notice of the Hon’ble High Court that he was not provided with the “reason to believe”, which is an obligatory and mandatory pre-condition for the authorities before forming the arrest opinion. Therefore, the petitioner is entitled to get bail, as the arrest is illegal, arbitrary and without authority.

The Petitioner also referred to the judgment of Radhika Agarwal v. Union of India and others, WP (C) No.336/2018, and states that, in the present case, since the offence is punishable with imprisonment of up to five years, no summons under Section 35(3) of the BNSS was issued to the Petitioner. Therefore, the respondents have failed to comply with the mandatory requirement of issuing a notice to the person against whom a reasonable complaint has been made or credible information has been received regarding the commission of such an offence.

On the contrary, the Respondents opposed the application for bail and put forth that, the Petitioner is the partner of both M/s Aadi Enterprises as well as M/s Trident Consulting and he is involved in GST evasion.

The Respondents also contended that, the Petitioner has obtained GST registration on the basis of fake and forged documents, and he was also arrested in the past years in a GST evasion case.

Furthermore, the Respondents submitted that, as per section 479(2) of BNSS, if a person is facing investigation, inquiry, or trial of any nature in multiple cases, the Court shall not release such a person on bail.

Moreover, the Respondent also put forth that, since the charge-sheet has already been filed in this case, the Petitioner may now approach the trial court to seek regular bail, in place of filing an application before the Hon’ble High Court.

DECISIONS AND FINDINGS

The Hon’ble High Court observed that the pre-conditions and other requirements under Section 41A of BNSS are mandatory and not merely optional when the offence is punishable with imprisonment of up to seven years. In the present case, the mandatory pre-condition of serving notice has not been complied with. Additionally, the Petitioner was also not provided with proper “reason to believe”, and this is one of the most crucial pre-requisites before forming an arrest opinion.

The Hon’ble High Court also referred to and relied on the case of Satender Kumar Antil v. CBI and another [(2022) 10 SCC 51], in which the hon’ble Supreme Court held that, the investigating agencies are under obligation and mandate to comply with pre-conditions of section 41 as well as 41A of BNSS. If there is any non-compliance on the part of authorities or agencies, then it would result into grant of bail to accused.

As a result, the Hon’ble High Court disposed of the bail application filed by the Petitioner and therefore, granted bail to the Petitioner with several limitations and restrictions, which also includes furnishing bail bond of Rs. 50,000 along with two suitable securities of the similar amount.

AMLEGALS REMARKS

This decision of the Hon’ble High Court is significant in reinforcing the commitment of the judiciary to uphold procedural fairness, especially when the liberty of an individual is at stake. The Hon’ble High Court has rightly emphasised that statutory safeguards, such as those under Section 41A of BNSS, are not mere formalities, but an essential element of arrest procedures in cases involving imprisonment of up to seven years.

Furthermore, the decision also underscores the importance of judicial oversight in several cases where investigating agencies are seen to bypass due process and other formalities of law. The ruling also draws attention to the need and necessity for compliance with authorisation and assessment requirements before proceeding with punitive actions under the tax law regime.

The ruling of the Hon’ble High Court serves as a reminder to investigating authorities that failure to comply with statutory and constitutional safeguards will result in relief and bail to the accused, even in some serious economic offences.

– Team AMLEGALS assisted by Mr. Aditya Raj Pandey (Intern)

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