The Andhra Pradesh High Court has refused to cancel the bail granted to a man accused of being the mastermind behind an alleged fake input tax credit (ITC) network, holding that the expansion of an investigation and the seriousness of an economic offence do not, by themselves, justify taking away liberty already granted.
The bench of Justice Y. Lakshmana Rao dismissed a petition filed by the Directorate General of GST Intelligence (DGGI), Vijayawada challenging the bail order passed by the Special Judge for Economic Offences at Visakhapatnam on May 27, 2026.
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The DGGI alleged that the network involved 92 fictitious firms across Andhra Pradesh and Telangana, with fraudulent ITC availment of approximately ₹264.87 crore and fraudulent passing on of credit of approximately ₹260.54 crore. The agency said its subsequent investigation had identified 16 more linked GST registrations.
The High Court found no perversity or illegality in the Special Judge’s order and held that the DGGI had not established any sufficiently serious post-release circumstance warranting cancellation of bail. The allegations remain subject to investigation and have not been adjudicated at trial.
The DGGI alleged that the accused was the principal beneficiary and mastermind of a syndicate that procured identity documents, created shell entities, opened bank accounts, obtained GST registrations and generated bogus invoices.
According to the agency, the network operated through WhatsApp groups and used associates to run the alleged scheme. It relied on statements recorded during the investigation, forensic extraction of seized devices and the alleged recovery of cheque books, passbooks and mobile phones from the accused’s residence.
The agency submitted that the amount involved exceeded ₹5 crore and that the alleged offence was cognisable and non-bailable under Section 132(5) of the Central Goods and Services Tax Act, 2017.
It also alleged that the accused had failed to respond to four summonses issued between April 1 and May 7, 2026, and appeared before the authorities only after his anticipatory bail application was dismissed. The DGGI argued that his appearance could not be treated as voluntary cooperation.
The accused was arrested on May 14, 2026, and was granted regular bail by the Special Judge on May 27.
Seeking cancellation of bail, the DGGI argued that the investigation was continuing and that seizure of devices was only the starting point. Verification of firms, tracing of beneficiaries, analysis of digital data and reconstruction of financial transactions remained incomplete, it said.
The agency submitted that analysis after the bail order revealed 16 additional entities, taking the number of linked GST registrations from 92 to 108. It also referred to another 106 firm or trade names appearing in chats without GST registration details.
The DGGI further alleged that the accused had not supplied details of firms, bank accounts, suppliers, recipients and transporters that he had undertaken to provide during statements recorded after his release.
On witness interference, the agency said several proprietors and recipient firms had not appeared despite summonses. It also alleged that an associate of the accused had told one proprietor not to appear before DGGI officers.
The agency additionally relied on a statement dated May 14, 2026, in which the accused was said to have admitted destroying physical and electronic evidence after learning of the investigation.
The accused’s counsel argued that he was neither a proprietor nor an employee of the alleged firms and that his name did not appear in their GST registrations. The description of him as the mastermind was the department’s allegation, counsel submitted.
The defence said the evidence was largely documentary and electronic and that records and devices were already in the DGGI’s custody. It also pointed out that the prosecution had not argued before the Special Judge that custodial interrogation was required.
Counsel submitted that the accused had appeared before the investigating authorities and given statements on June 5, June 9 and June 15 after his release. There was no evidence that he had breached a bail condition or personally threatened or contacted a witness, the defence argued.
The High Court drew a distinction between a challenge to a bail order on the ground that it is perverse, illegal or unjust and an application to cancel bail because of events after release.
In the first situation, the court examines whether relevant material was ignored or irrelevant considerations were taken into account. In the second, it considers whether the accused’s post-release conduct demonstrates misuse of liberty.
The court said the power to cancel bail must be exercised sparingly because it results in the loss of liberty already enjoyed.
Justice Rao observed that the Special Judge had considered the gravity of the allegations along with the prescribed punishment, period of custody, stage of investigation and nature of the evidence. The Special Judge had also recorded that the prosecution did not seek custodial interrogation.
The High Court held that although economic offences require serious consideration, the precedents cited by the DGGI did not mean bail must be refused in every such case. The object of bail, it observed, is to secure the accused’s presence, not to impose punishment before trial.
The court rejected the DGGI’s argument that the Special Judge had wrongly treated the entire investigation as complete. It said the lower court’s finding was confined to the seizure of records and collection of material.
The court noted that devices, bank records and GST data had been seized and forensic extraction had been completed. Verification of remaining firms, identification of beneficiaries and analysis of data could continue without the accused’s custody, it held.
The identification of additional entities and trade names was a development in the ordinary course of an expanding investigation, the court said. It was not, by itself, a circumstance requiring cancellation of bail.
As for the alleged destruction of evidence, the court noted that the statement relied on by the DGGI was made before the bail order and was available to the Special Judge. It therefore could not be treated as a new post-release circumstance.
The High Court described witness intimidation as the most serious allegation but found that the material placed before it rested on inference rather than proof of a specific act by the accused.
The court noted that some proprietors had not appeared, some summonses had been returned undelivered and one proprietor had said that another person instructed her not to appear. None of that material attributed a specific threat, inducement or contact to the accused after his release, it held.
The court said non-appearance could have several explanations and that no complaint or sworn material had been placed before it to show that the accused contacted or influenced a witness.
On the allegation of non-cooperation, the court noted his post-release appearances and said failure to produce records within the time sought did not by itself justify cancellation. It added that an accused cannot be compelled to furnish self-incriminating material and that the department could pursue records through lawful process.
Dismissing the DGGI’s petition, the High Court directed that the conditions imposed by the Special Judge would continue. The accused must attend before the investigating officer whenever required and cooperate with the investigation.
The court left it open to the DGGI to seek cancellation of bail afresh before the competent court if it obtains material showing a breach of bail conditions, tampering with evidence or influence over witnesses.
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