Vikash Gupta vs. Union Of INDIA

Held

The Court dismissed the bail application. It held that at the bail stage, it could not undertake a detailed adjudication regarding actual production, utilization, or exact duty liability, as these are disputed factual issues requiring evidence and trial. The Court rejected the applicant's contention that one machine was non-functional, noting that no declaration of breakdown was made to the competent Commissioner as per the statutory scheme. The Court found that the prosecution case is based on newly introduced Rules of 2026 and a notification prescribing duty levy based on installed packing machines and their notified capacity. Prima facie material, including statements under Section 70 of the CGST Act, seizure of machines, raw materials, and finished products, supported the prosecution's allegations of violating Rule 6 and Rule 22 of the Rules, 2026, through concealment of machines and clandestine manufacturing. The Court emphasized that economic offenses constitute a class apart and need a different approach in bail matters, citing Supreme Court judgments. It also noted that the investigation is ongoing regarding the procurement of machinery, supply chain, purchasers, suppliers, and involvement of other persons, and that the applicant's alleged non-cooperation during interrogation raises apprehension of tampering with evidence and influencing witnesses. The Court concluded that considering the gravity and nature of allegations, the huge alleged tax evasion, the statutory scheme, the continuing investigation, the non-bailable nature of the offense, and the possibility of tampering, bail could not be extended at this stage.

Facts

The petitioner, Vikash Gupta, was arrested in connection with a GST and Central Excise offense. Acting on intelligence, CGST officers searched his business premises, M/s Hunka Traders, on March 19, 2026. The search revealed that the petitioner was allegedly engaged in the illegal manufacture and packing of chewing tobacco, zarda, and scented tobacco pouches using two packing machines. One machine was operational, and the other, though claimed to be non-functional, was allegedly capable of significant production. The petitioner had a Central Excise registration since 2020 but allegedly failed to pay duty as per a notification and rules effective from February 1, 2026. The department assessed a duty liability of approximately Rs. 3.32 Crores for February and March 2026, alleging deliberate evasion of duty and cess through non-disclosure of machines and clandestine manufacture. The petitioner has been in custody since March 21, 2026.

Key Issues

1. Whether the applicant is entitled to bail in an economic offense involving alleged evasion of Central Excise duty and cess, considering the gravity of the offense and the alleged amount of evasion (Section 9(1)(B) of the Central Excise Act, 1944, Section 174(2) of the Central Goods and Services Tax Act, 2017, and Rule 22 of the Chewing Tobacco, Zarda, Scented Tobacco and Gutkha Packing Machines (Determination and Collection of Duty) Rules, 2006)? Petitioner's Arguments: The applicant argued that the duty liability is hypothetical and inflated, based on presumed machine capacity rather than actual production. He contended that only one machine was operational during the inspection, and the second was non-functional, a fact recorded in the Panchnama. The applicant asserted his innocence, claimed false implication, and highlighted that the duty liability is a disputed question of fact requiring adjudication. He also raised concerns about illegal detention prior to formal arrest and argued that custodial interrogation is unnecessary as documents and machinery have been seized. The applicant relied on several Supreme Court and High Court judgments emphasizing that bail is the rule, especially when the maximum punishment is seven years, and that personal liberty must be protected, with gravity of the offense being only one factor among the 'triple test' (flight risk, tampering with evidence, influencing witnesses). Respondent's Arguments: The respondent department opposed the bail application, stating that the applicant was illegally manufacturing and packing tobacco products using undeclared packing machines in violation of rules, intentionally concealing their existence and use, and evading duty and cess of approximately Rs. 3.32 Crores. The department relied on judgments that emphasize the distinct nature of economic offenses and the need for a different approach in bail matters, considering the deliberate design affecting the community and national economy.