Purchaser Who Paid Invoice Value and GST Through Banking Channels Cannot Be Arrested Merely Because Suppliers Turned Out to Be Fictitious — Karnataka HC Grants Anticipatory Bail, Holds Custodial Interrogation Not Warranted Absent Collusion

The Karnataka High Court has granted anticipatory bail to three purchasers apprehending arrest under Section 70/132 of the CGST Act in connection with an investigation into their suppliers who were found to be fictitious firms that had issued invoices without actual supply of goods. The ruling by Justice S. Vishwajith Shetty in Criminal Petition Nos. 9260, 9244 and 9306 of 2026 (Abdul Majid and others, decided 05.08.2026) holds that where a purchaser is a registered person who possesses tax invoices, has paid the invoice value and GST through bank transactions, has filed returns periodically, and is ready and willing to produce documentary evidence to prove actual receipt of goods, custodial interrogation is not warranted in normal circumstances unless there is prima facie material showing collusion with the supplier.

The prosecution’s case was that the petitioners’ suppliers (M/s KH E-Waste Recyclers and M/s SKS Traders) had availed ITC of Rs. 231.70 crores and Rs. 567 crores respectively and had passed part of the money in cash to the petitioners through hawala transactions. The suppliers had been arrested but were granted regular bail. The SPP argued that custodial interrogation was necessary to unearth the full racket. The court however observed that the principal offender under Section 132 would be the supplier, not the purchaser; that subsequent cancellation of GST registration of suppliers or their non-existence after the transactions is not by itself sufficient to deny ITC or justify arrest of purchasers; and that whether there was actual receipt of goods is a question that can be resolved through documentary evidence (e-way bills, transport receipts, weigh bridge receipts, stock and sale records) without custodial interrogation. The court placed reliance on the Co-ordinate Bench ruling in Akram Pasha (affirmed by the Supreme Court dismissing SLP) and the Delhi HC’s Tarun Jain, and directed release with conditions including surrender of passports, cooperation with investigation, and liberty for the authorities to seek cancellation of bail if conditions are breached.

- 2026-juristway.com-2494-HC(Karnataka)-GST  |  High Court of Karnataka  |  Criminal Petition Nos. 9260, 9244 & 9306 of 2026  |  05.08.2026