The Telangana High Court has reiterated that the power to arrest under the Central Goods and Services Tax (CGST) Act cannot be exercised mechanically merely because allegations involve a large-scale economic offence. 

Granting anticipatory bail to the partners of a Hyderabad-based LLP accused of fraudulently availing nearly ₹95 crore of Input Tax Credit (ITC), the bench of Justice N.Tukaramji held that custodial interrogation must be shown to be genuinely indispensable and cannot be justified solely by the seriousness of the allegations.

The petitioners, partners of M/s Vijay Industrial Needs LLP, were under investigation by the GST Anti-Evasion Wing of the Secunderabad GST Commissionerate for alleged wrongful availment of Input Tax Credit during the period between May 2019 and June 2024. The Department alleged that the firm had claimed ITC on the strength of invoices issued by fake or non-existent suppliers without actual receipt of goods, causing substantial loss to the Government revenue. 

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According to the Department, searches conducted under Section 67 of the CGST Act uncovered significant discrepancies. Investigators alleged that the LLP had fraudulently availed approximately ₹94.96 crore in ITC, including nearly ₹70.93 crore over and above the credit reflected in GSTR-2A and GSTR-2B. The Department also claimed that ITC had been availed on invoices issued by suppliers whose GST registrations had been retrospectively cancelled and that several invoices lacked corresponding movement of goods or e-way bills. 

The Department further contended that repeated summons issued between June 2024 and June 2026 were not properly complied with and that custodial interrogation was essential to trace the money trail, identify fake suppliers, determine the beneficiaries and unravel the larger conspiracy. 

The petitioners argued that they had cooperated with the investigation, with one of them having already appeared before the authorities and recorded statements pursuant to earlier summons. They also pointed out that an Order-in-Original confirming the tax demand had already been passed, against which they intended to file a statutory appeal under Section 107 of the CGST Act. 

They further submitted that most of the evidence, including books of account, invoices, banking records, computers and electronic records, had already been examined or seized by the authorities, leaving little justification for custodial interrogation. The petitioners also highlighted that one partner was suffering from serious medical complications following a brain stroke while the other held only a 1% partnership interest and played no active role in day-to-day business affairs. 

The High Court acknowledged that proceedings under Section 73 and Section 74 of the GST law operate in different fields and that criminal prosecution under Section 132 is independent of tax adjudication. Nevertheless, the Court noted that substantial documentary and electronic evidence had already been secured by the investigating agency, making the investigation primarily document-driven. 

The Court also observed that although the Department maintained that custodial interrogation was necessary, it had simultaneously stated in its counter affidavit that arrest was not immediately contemplated, while reserving liberty to arrest if circumstances warranted in future. This indicated that the immediate objective remained securing the petitioners’ participation in the investigation rather than effecting their arrest. 

Justice Tukaramji emphasized that economic offences undoubtedly deserve serious consideration, but constitutional protections of personal liberty continue to apply.

The Court observed that the existence of statutory power to arrest under Section 69 of the CGST Act does not automatically justify its exercise. Arrest, it said, is an investigative tool rather than a punitive measure and should only be resorted to where it is necessary to prevent absconding, tampering with evidence, influencing witnesses or otherwise ensuring a fair investigation. 

Relying upon several Supreme Court judgments, including Joginder Kumar, Arnesh Kumar, Siddharth, Satender Kumar Antil, P. Chidambaram and Arvind Kejriwal, the Court reiterated that deprivation of liberty must satisfy the constitutional tests of legality, necessity and reasonableness. It further referred to earlier GST decisions of the Delhi, Karnataka and Bombay High Courts holding that anticipatory bail is maintainable in appropriate GST prosecutions where custodial interrogation is unnecessary. 

A key factor influencing the Court was that the investigation substantially revolved around documentary, financial and electronic evidence already in the possession of the authorities.

The Court observed that the petitioners were permanent residents, their identities and business establishments were known, there was no material indicating any attempt to abscond or destroy evidence, and they had undertaken to cooperate with the investigation whenever required. Under such circumstances, the Court found no compelling material demonstrating that custodial interrogation was indispensable at this stage. 

Allowing the criminal petition, the High Court directed the petitioners to surrender before the investigating authority on or before 30 July 2026. Upon surrender or arrest, they are to be released on anticipatory bail on execution of personal bonds of ₹5 lakh each with two sureties of the like amount. 

The Court imposed several conditions, including mandatory appearance before the investigating officer whenever required. Full cooperation with the ongoing investigation. Furnishing complete residential and contact details. Restriction on leaving India without prior permission of the jurisdictional court. Prohibition against influencing witnesses or tampering with evidence. Compliance with all statutory conditions under the BNSS. 

The Court clarified that its observations were confined solely to deciding the anticipatory bail application and would not affect the merits of the pending criminal investigation or any subsequent proceedings.

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