GST Fraud Accused Gets Bail — Court Rules Custody No Longer Needed After Complaint Filed

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Case Name

Bharat Gordhandas Patel Versus State of Gujarat

Case No.: R/Criminal Misc. Application No. 14154 of 2022

Court Name: High Court of Gujarat at Ahmedabad

Date of Order: 08th September 2022

Judge: Hon’ble Mr. Justice Ilesh J. Vora

Key Takeaways

1. Role Matters in Bail Decisions: The court carefully distinguished between the role of the principal accused (Mr. A.A. Shah) and the secondary accused (Bharat Patel, the alleged accountant/commission agent). Since the principal accused was already on bail, denying bail to a lesser-role accused was hard to justify.

2. Filing of Complaint Weakens Custody Argument: Once the complaint is filed before the Magistrate’s Court, the department’s argument that custody is needed for investigation loses much of its force.

3. Documentary Evidence Already Secured: Since all evidence in this case was documentary and already in the department’s custody, there was no risk of evidence tampering that would justify continued detention.

4. Economic Offences Don’t Automatically Mean No Bail: The court reaffirmed that even in serious economic offence cases, bail is not automatically denied — it must be decided on a case-by-case basis.

5. Conditional Bail with Financial Deposit: The court imposed a condition of depositing ₹10 lakhs in 6 equal monthly installments as a sign of good faith, with automatic cancellation of bail if any installment is missed.

Issue

The Central Question: Should Bharat Gordhandas Patel, accused of being part of a GST fraud scheme involving fake ITC claims worth crores, be granted regular bail under Section 439 of the Cr.P.C., given that the principal accused has already been granted bail and the complaint has already been filed?

Facts

• The Business: M/s JK Traders is a scrap business. During a search operation, tax authorities discovered something alarming — the administrator, Mr. A.A. Shah, had been claiming fake Input Tax Credit (ITC) by showing fictitious inward transactions and creating bogus firms.

• The Scale of Fraud:
• Illicit ITC claimed and availed: ₹36.05 crore
• ITC passed on to three other firms: ₹36.35 crore
• Total monetary loss to the government exchequer: ₹37.95 crore
• Where Does Bharat Come In? During the search of JK Traders, investigators found that the billing activities were being carried out from a residential premises at A-4, Bhaktinagar Coop. Society, Memnagar, Ahmedabad — which is Bharat’s home! Incriminating documents and materials were seized from there.

• His Alleged Role: Bharat was allegedly acting as an accountant/facilitator for the scheme, charging a commission of 4% to 5% for issuing fake invoices without actual movement of goods.

• The Arrest: Bharat was arrested on 23rd March 2022 and produced before the Metropolitan Magistrate the same day. He has been in judicial custody since then.

• Sessions Court Rejection: His bail application before the City Sessions Court, Ahmedabad was rejected on 15th July 2022.

• High Court Application: He then filed this application before the Gujarat High Court seeking regular bail.

Arguments

Applicant’s Side (Bharat Gordhandas Patel) — argued by Mr. N.D. Nanavaty, Senior Advocate:

1. False Allegations: The allegations are false and frivolous. He never availed or utilized any ITC fraudulently.

2. Arrest Against Guidelines: The arrest was made against the guidelines issued by the Finance Department. He argued that prosecution should normally be launched only after adjudication is completed.

3. No Connection to JK Traders: He is not the proprietor of M/s JK Traders, nor is he connected to Mr. A.A. Shah in any significant way.

4. Minor Role — Just an Accountant: As per the department’s own case, he was merely an accountant charging commission — not the mastermind.

5. Principal Accused Already on Bail: The main accused, Mr. A.A. Shah, was already granted bail by the High Court subject to depositing ₹2 crore. So it would be unfair to keep a lesser-role accused in custody.

6. Willing to Deposit ₹10 Lakhs: Without prejudice to his rights, he offered to deposit ₹10 lakhs within 6 months of release as a gesture of good faith.

7. Complaint Already Filed: Since the complaint has already been filed before the court, his further custody serves no investigative purpose.

State’s Side (Respondent) — argued by Mr. Manan Mehta, APP:

1. Massive Fraud: The applicant, in connivance with Mr. A.A. Shah, defrauded the State Exchequer to the tune of ₹37.95 crores.

2. Risk of Evidence Tampering: There is a potential risk that the applicant may manipulate or attempt to destroy evidence.

3. Grave Economic Offence: The offence is a serious economic crime, detrimental to the national economy. Economic offences constitute a class apart and need to be viewed with a different approach when it comes to bail.

4. Bail Should Be Denied: To ensure proper investigation, the applicant should not be released.

Key Legal Precedents

1. P. Chidambaram Vs. Directorate of Enforcement, (2020) 13 SCC 791

This is the most important case cited by the court. The Supreme Court in this landmark judgment held that:

“Even allegations of grave economic offence, it is not a rule that bail should be denied in every case and whether bail is granted or not, will have to be on the case to case basis of the facts involved therein and securing the presence of the accused to stand trial.”

How it was applied here: The Gujarat High Court used this precedent to push back against the State’s argument that because this is a serious economic offence, bail must be denied. The court said — no, that’s not the law. Each case must be judged on its own facts. And on the facts here (complaint filed, evidence secured, principal accused on bail), bail was justified.

Key Statutory Provisions Referenced:

Section 439 of Cr.P.C.

Power of High Court to grant bail — the basis of this application

Section 132(1)(A) of GGST Act, 2017

Offence related to GST fraud

Section 132(1)(B) of GGST Act, 2017

Offence related to GST fraud

Section 132(1)© of GGST Act, 2017

Offence related to GST fraud

Section 132 of CGST Act, 2017

Central GST fraud offences

Section 21 of IPC

Read with GST offences

Section 120B of IPC

Criminal conspiracy

Judgment

Winner: Bharat Gordhandas Patel (Applicant)

Reasoning:

• The applicant was working for and on behalf of the principal accused Mr. A.A. Shah and was merely charging a commission amount.
• Since the principal accused Mr. A.A. Shah was already granted bail (subject to depositing ₹2 crore), it was only fair to consider bail for this lesser-role accused too.
• The department failed to show why further custody of the applicant was necessary.
• The entire case is based on documentary evidence, which is already in the department’s custody — so no tampering risk.
• After the complaint is filed before the Magistrate, there is no realistic chance of concluding the trial in a reasonable time, making prolonged custody unjustified.
• Relying on P. Chidambaram Vs. Directorate of Enforcement, (2020) 13 SCC 791, the court exercised its discretion in favour of the applicant.

Bail Conditions:

(a) Must not misuse liberty

(b)Must not act against the interest of the prosecution

(C) Must surrender passport (if any) to the lower court within one week

(d) Must not leave India without prior permission of the Sessions Judge

(e) Must furnish latest residential address to the Investigating Officer and the Court; cannot change residence without prior permission of the Trial Court

(f) Must deposit ₹10 lakhs before the Office of the Assistant Commissioner of State Tax, Unit-5, 11th Floor, B-Block, Multi-storied Building, Lal Darwaja, Ahmedabad — in 6 equal monthly installments within 6 months. Missing even one installment = automatic cancellation of bail

• Personal Bond: ₹10,000 with one surety of the same amount.
• The applicant must file an undertaking before the trial court and the High Court within 15 days of release.
• If the applicant is not required in any other case, authorities must release him.
• The Sessions Judge can modify, delete, or relax any condition in accordance with law.

FAQs

Q1: Who is Bharat Gordhandas Patel and what was his role in the alleged fraud?

Bharat was allegedly an accountant who allowed his residential premises to be used for billing activities related to a GST fraud scheme. He allegedly charged a commission of 4-5% for facilitating fake invoice transactions. He was not the main accused — that was Mr. A.A. Shah of M/s JK Traders.

Q2: Why did the High Court grant bail when the Sessions Court had rejected it?

The High Court took a broader view. It noted that: (a) the principal accused was already on bail, (b) the complaint had already been filed, © all evidence was documentary and already secured, and (d) the Supreme Court’s ruling in P. Chidambaram Vs. Directorate of Enforcement, (2020) 13 SCC 791 makes it clear that bail cannot be automatically denied just because it’s an economic offence.

Q3: What happens if Bharat misses even one installment of the ₹10 lakh deposit?

His bail will be automatically cancelled — no further hearing needed. This is a strict condition built into the bail order itself.

Q4: Does this judgment mean Bharat is innocent?

Absolutely not. The court was very clear: “Nothing stated hereinabove, shall tantamount to the expression of any opinion on the merits of this case.” Bail is just about whether someone should remain in custody during trial — it has nothing to do with guilt or innocence.

Q5: What is the significance of the principal accused (Mr. A.A. Shah) already being on bail?

It’s a very important factor. Courts generally apply a principle of parity — if the main accused (who played a bigger role) is out on bail, it becomes very difficult to justify keeping a lesser-role accused in custody. The court used this reasoning here.

Q6: What are the offences Bharat was charged with?

He was charged under Sections 132(1)(A), 132(1)(B), and 132(1)© of the Gujarat GST Act, 2017 and the CGST Act, 2017, read with Section 21 and Section 120B of the IPC (criminal conspiracy).

Q7: Can the bail conditions be changed later?

Yes! The Sessions Judge concerned has the power to delete, modify, or relax any of the bail conditions in accordance with law.

1. The applicant, presently in custody, has filed regular bail application under Section 439of the Cr.P.C., in connection with File No. ACST/U-5/J K Traders/2021-22, registered with office of Assistant Commissioner of State Tax, Ahmedabad, for the offences punishable under Sections 132(1)(A), 132(1)(B) and 132(1)(C) of the Gujarat Goods and Services Tax Act, 2017 (herein after referred to as ‘the GST Act’.) and Central Goods and Services Tax Act, 2017 (hereinafter referred to as ‘CGST Act’), ready with Section 21

and 120B of the IPC.

2. The applicant arrested on 23.03.2022 and was produced

before the learned Metropolitan Magistrate on the same day,

and since then he is in judicial custody. His bail application

filed before the City Sessions Court, Ahmedabad came to be

rejected vide order dated 15.07.2022. Respondent authority

filed complaint before the Court concerned as contemplated

under the Act. Feeling aggrieved by the same, the applicant

preferred present application seeking regular bail.

3. This Court has heard Mr. N.D. Nanavaty, learned Senior

Advocate assisted by Mr. R.J.Vyas, learned counsel for and on

behalf of the applicant and Mr. Manan Mehta, learned APP for

the respondents.

4. Brief facts leading to filing of present application are that,

search proceedings were conducted at the business place of

M/s JK Traders, who is in the scrap business. During the search

proceedings, it was revealed that, the administrator of M/s JK

Traders Mr. A.A.Shah has wrongly claimed and availed input

tax credit by showing fake inward transactions and have

created fictitous firms/companies, whereby, had claimed illicit

ITC of Rs.36.05 crore and passed on three other firms to the

tune of Rs.36.35 crore and have made cash transactions

without invoices, which resulted into monetary loss to the

Government exchequer to the tune of Rs.37.95 crore.

5. During the search proceedings of M/s JK Traders, it was

revealed that, the billing activities was undertaken from one

residential premises situated at A-4, Bhaktinagar Coop.

Society, Memnagar, Ahmedabad, which is the residence of

present applicant. The raiding officer has searched the

premises and seized the incriminating documents /materials.

The investigation further revealed that, by creating bogus

firms, huge amount of ITC was claimed, availed and passed on

fraudulently, by issuing fake invoices without actual

movement of the goods for which the applicant was charging

commission 4 % to 5%.

6. In such circumstances, it is alleged that the applicant in

connivance with the co-accused have planned, arranged and

executed the whole scam for monetary benefits and caused

huge financial loss to the public exchequer.

7. Mr. N.D.Nanavaty, learned Senior Counsel urged that the

allegations leveled against the applicant are false and

frivolous and he has not at all availed and utilized the ITC as

being alleged fraudulently. It is in this context, he submitted

that the arrest of the applicant is being made against the

guidelines issued by the finance department and considering

the scheme and object of the Act, prosecution should normally

be launched only after adjudication is completed. On factual

aspect, it is urged that the applicant is not the proprietor of M/

s JK Traders nor in any way connected with Mr. A.A.Shah,

against whom serious allegations of availing ITC have been

made. He would further submits that, as per the case of the

department, the applicant being accountant was charging

commission amount for the alleged transaction. In such

circumstances, he urged that, principal accused Mr. A.A.Shah

has been granted bail by this court subject to deposition of Rs.

2 crore. Thus, therefore, considering the role attributed to the

applicant herein, without prejudice to the rights and

contentions, is willing to deposit Rs.10 lacs within six months

from his release. It is submitted that, the applicant is in

custody since 23.03.2022 and now his further custody is not

necessary as complaint has already been filed before the

Court concerned.

8. Mr. Manan Mehta, learned APP reiterating the contents of the

sworn affidavit, contended that the applicant in connivance

with the principal accused Mr. A.A.Shah defrauded the State

Exchequer to the tune of Rs.37.95 crores and there exists

potential risk that the applicant may manipulate or attempt to

destroy the evidences. He further submitted that the offence

committed is grave economic offence, and detrimental to the

nation economy as economic offense constitute a class apart

and need to be viewed with different approach in the matter

of bail and therefore, he prays that the applicant should not

be enlarged so as to ensure proper investigation.

9. Having considered the rival contention of respective parties

and having regard to the material on record, it appears that,

the applicant is working for and on behalf of the principal

accused Mr. A.A.Shah and was charging commission amount.

In such circumstances, when principal accused Mr. A.A.Shah

granted bail by this court, subject to deposition of Rs.2 crore,

the present application also deserves consideration. The

department failed to point out the facts that the further

custody of the applicant is necessary. The entire case is based

on documentary evidence and same are in the custody of the

department. After filing the complaint before the learned

Metropolitan Magistrate Court, there is no chances to

conclude the trial in a reasonable time. In such circumstances,

considering the bonafide shown by the applicant herein and

bearing in mind the observations made by the Apex Court in

case of P. Chidambaram Vs. Directorate of Enforcement,

(2020) 13 SCC 791, i.e. “even allegations of grave economic

offence, it is not a rule that bail should be denied in every

case and whether bail is granted or not, will have to be on the

case to case basis of the facts involved therein and securing

the presence of the accused to stand trial.”, I deem it fit to

exercise the discretion in favour of the applicant and

accordingly, I inclined to release the applicant on bail with a

condition that the applicant shall deposit Rs.10 lacs before the

Office of the respondent no. 2 i.e Assistant Commissioner of

State Tax, Unit-5, 11th Floor, B-Block, Multi-storied Building, Lal

Darwaja, Ahmedabad within a period of 6 months in equal six

installments. The department is directed to accept the

amount. It is clarified that, if the applicant fails to deposit the

amount as aforesaid or missed any installment, the bail

granted shall stands automatically cancelled. The applicant is

directed to file undertaking to this effect before the court

concerned and this court within 15 days from his release.

10. Hence, the applicant is ordered to be released on regular bail

in connection with the File No. ACST/U-5/J K Traders/2021-

22, registered with office of Assistant Commissioner of

State Tax, Ahmedabad, on executing a personal bond of

Rs.10,000/- (Rupees Ten thousands only), with one surety of

the like amount to the satisfaction of the learned Trial Court

and subject to the conditions that he shall:

11. The authorities shall release the applicant if he is not required

in connection with the any other offence. If breach of any

above condition is committed, the Sessions Judge concerned

shall take appropriate action or issue warrant against the

applicant. The bail bond to be executed before the learned

trial Court having jurisdiction to try the case. It will be open for

the sessions judge concerned to delete, modify and/or relax

any of the above conditions, in accordance with law. Nothing

stated hereinabove, shall tantamount to the expression of any

opinion on the merits of this case. Rule is made absolute to

the aforesaid extent. Direct service permitted.

(ILESH J. VORA,J)