Professionals Not Liable for GST Fraud Without Active Role Gujarat HC

GST Arrests, Bail and Blame on Professionals – What the Gujarat High Court’s Sanghani Judgment Really Says

In the last few years, we have seen a new and disturbing trend in GST administration: tax officers treating advocates, accountants and return filers as if they are the main fraudsters, even where their role is only clerical or advisory. Many honest professionals have been called, threatened, and even arrested only because their names appear as authorised signatories or consultants for clients who later turned out to be problematic.

The Gujarat High Court decision in Rohitkumar Parsotambhai Sanghani v. State of Gujarat & Anr. is an important signal against this attitude. The Court drew a clear line between a “major conspirator” in a fake ITC racket and a person whose role is primarily compliance‑oriented. This case, along with other High Court decisions on arrest, bail, and procedural lapses, shows that courts are not willing to accept the mechanical and aggressive style of GST enforcement.

This article explains the Sanghani case in simple terms, places it in the larger context of GST arrests and demands, and compares the GST culture with the more mature practice under Income‑tax law. The purpose is to educate taxpayers, professionals and citizens about their rights and also about the limits of departmental power.

1. Rohitkumar P. Sanghani – facts and bail reasoning

(a) Basic facts

• Case title: Rohitkumar Parsotambhai Sanghani v. State of Gujarat & Anr. – Criminal Misc. Application for regular bail before Gujarat High Court.
• Court: Gujarat High Court, order dated 2 March 2026 (reported as 2026 LLBiz HC(GUJ) 30; Tax Guru summary dated 8 March 2026).
• Applicant: An advocate/tax consultant accused of participating in a fake ITC racket by filing GST returns for non‑existent firms.
• Offences alleged: Sections 132(1)(b) and 132(1)(c) of the CGST/GGST Act – issuing invoices without supply and wrongful availment/passing of input tax credit.
• Investigation: DGGI, Surat Zonal Unit, in a case involving bogus ITC of about ₹30 crore and multiple entities.

The allegation was that the advocate had filed returns for some companies which were later found to be non‑existent, and that he knew about this or at least should have known.

(b) What the Court actually looked at

From the available reports and extracts, some very clear principles emerge:

1. Role‑based assessment:

The Court did not look only at the total fraud amount (₹30 crore, big number). It carefully examined the specific role of the applicant. It found that his work was mainly related to filing returns and compliance, not to controlling bank accounts, not to operating the fake firms, and not to directly enjoying the funds.

2. No material to treat him as kingpin:

The Court noted that the investigation material did not show him as a mastermind or major conspirator. Even though there was a statement under section 70 where he admitted he knew some entities were non‑functional, there was still no strong proof that he had created the racket or controlled the flow of money.

3. Bail principles in economic offences:

The High Court applied settled bail principles in economic offences:

• Maximum sentence under section 132 is up to 5 years.
• Offence is compoundable under the Act.
• Investigation is largely documentary, not requiring indefinite custodial interrogation.
• Charge‑sheet had been filed, so further custody was not justified.

4. No flight risk, no tampering risk shown:

There was no material to show that the applicant would abscond or tamper with evidence if released. Conditions like personal bond, surety, appearance before IO, and travel restrictions could protect the investigation.

On this basis, the Gujarat High Court granted regular bail, with conditions, holding that continued detention was not necessary only to “send a message” in GST fraud cases.

2. Why Sanghani matters for professionals and small taxpayers

The Sanghani order is important because it directly addresses the fear that anyone linked to returns or registration – advocate, accountant, GST practitioner – can be treated as main accused in a fake ITC racket.

From this judgment, we can draw some propositions that you can use in future bail and defence work:

1. Professionals are not automatic conspirators:

Merely filing returns, uploading data or handling portal work does not, by itself, make a person a key conspirator. The department must show that the professional had control, benefit and active role in planning the fraud.

2. Mens rea and benefit must be proved:

For sections 132(1)(b)/(c), there must be clear evidence that the person knowingly and fraudulently issued invoices without supply or availed ITC. Courts will not assume guilty mind only from mechanical statements or presence of name in records.

3. Bail is the rule, jail is the exception:

High Courts (including Gujarat and Karnataka) have repeatedly said that in documentary/economic offences, where records are with the department and maximum punishment is 5 years, indefinite custody is not justified. The Karnataka High Court in Akram Pasha v. DGGI (2025) granted anticipatory bail in a ₹31 crore fake ITC case on similar grounds.

4. Civil machinery exists for recovery:

Courts recognise that GST law already has a complete system for assessment, attachment, and recovery of tax and penalty. Arrest and jail are not the default tools for every suspected short‑payment.

For honest professionals and small businessmen, this judgment is a reminder that role, intention and benefit matter. It is also a message to the department that you cannot arrest first and think later, especially in cases where the alleged “fraud” is built only on portal mismatches and assumptions.

3. Officers targeting professionals without proper material – a larger pattern

Your concern that GST officers are misusing sections 69 and 70 and acting on assumption and imagination is sadly supported by many reported cases and commentaries.

• Section 69 allows the Commissioner to authorise arrest when there is “reason to believe” that a person has committed offences under section 132.
• Section 70 allows officers to summon any person and record statements, which are often used as the main basis for arrest.

CBIC’s own Instruction No. 02/2022‑23 (Investigation) cautions that approval to arrest should be given only when there is clear intent to evade tax, fraudulent availment of ITC, or creation of dummy entities, and that arrest is an extreme measure. Yet, in practice, many arrests and threats of arrest are used as leverage in routine disputes.

Articles and case notes have documented situations where:

• Professionals are named only because they filed returns or appeared as authorised representatives.
• Quantification of alleged ITC fraud is done in a rough, exaggerated way without matching records.
• Officers rely only on one un‑corroborated statement under section 70 and ignore other statements or documents that favour the accused.
• Arrest is used even before finalising show cause notice or giving proper hearing.

Under the Income‑tax Act, although sections relating to prosecution and arrest exist, the culture has generally been more mature: action is based on documentary evidence, reasons are recorded, and harassment of practitioners is not common in routine compliance matters. In GST, the combination of criminal sections, poor training and portal‑driven suspicion has created a much more aggressive environment.

4. Courts pushing back on arbitrary GST procedure and demands

There is now a growing line of High Court decisions striking down GST orders for procedural lapses, excess demand and lack of application of mind. These show that the judiciary is aware of the problem.

(a) Wrong GSTIN, inflated demand and no service of SCN – Allahabad HC

In a 2026 judgment, the Allahabad High Court quashed a GST adjudication order under section 73 where:

• The show cause notice was issued to one wrong GSTIN,
• The order was passed against another wrong GSTIN,
• The demand in the order exceeded the amount proposed in the SCN, and
• There were serious doubts about proper service of SCN and order.

The Court held that statutory discipline is non‑negotiable. If basic things like correct GSTIN, proper service, and demand within SCN are not followed, the order cannot stand, irrespective of revenue impact. This is exactly the type of casual approach you are criticising.

(b) Non‑existent suppliers and denial of ITC – Madras HC

In another case, the Madras High Court dealt with a situation where ITC was denied only because the supplier was labelled “non‑existent” and the department tried to shift everything on the buyer without giving proper opportunity to verify suppliers or to cross‑examine. The Court stressed that principles of natural justice must be followed; buyers cannot be punished mechanically without giving them a fair chance.

(c) Arbitrary registration cancellation – Allahabad HC line

A series of Allahabad High Court decisions (2024–25) have treated GST registration as part of fundamental right to carry on business, and have struck down cancellations done without clear reasons, without hearing, or on vague allegations. These decisions insist that officers cannot override Act and Rules by issuing one‑line SCNs and mechanical orders.

Together, these rulings give a strong message: procedural shortcuts, inflated demands, and casual use of power will not survive judicial review.

5. GST vs Sales Tax / VAT culture – what has gone wrong

You have long experience under Sales Tax and VAT. Compared to that era; GST has two big differences:

1. National, fully networked system (GSTN) – huge volume of data, cross‑matching, analytics.

2. Criminalisation built into the Act – section 132 with arrest power under section 69.

Because of this, many officers have started to act as if every mismatch, every technical error or every non‑traceable supplier is proof of conspiracy. In VAT days, officers usually visited premises, checked books and stock, and then made an assessment. Now, they sit behind the portal and issue demands based on GSTR‑1 vs 3B vs 2A differences, often without even calling for proper records.

Common issues reported:

• Demands created without onsite verification of books or stock.
• Use of template SCNs and orders, often cut‑paste, without dealing with replies.
• Over‑reliance on system‑generated “mismatch reports” instead of actual evidence.
• Threats of arrest or bank attachment to force payment before adjudication.

Under Sales Tax/VAT, while there were also excesses, the officer was at least trained in that law, knew local trade practices, and usually understood the difference between deliberate suppression and genuine dispute. In GST, due to rapid rollout, many officers were posted without adequate training, and the pressure to show “fraud detection” numbers has led to “arrest and attach first, understand later” style in some zones.

6. Lessons from bail and arrest jurisprudence under GST

Several analysis pieces and instructions have drawn out common themes from High Court orders on arrest and bail in GST:

• Arrest is not a revenue tool – It is meant for serious, clear fraud with strong evidence of mens rea and risk of flight or tampering.
• Mastermind / main beneficiary focus – Arrest should normally target the kingpin, not small employees or consultants, unless there is clear proof of active participation.
• Documentary offences – In cases based mainly on documents already seized and data already available, custodial interrogation has very limited value.
• Bail should not be routinely opposed once investigation is almost complete and charge‑sheet is filed.

In fact, CBIC Instruction No. 02/2022‑23 itself lists guiding questions officers must ask before approving arrest, including:

• Is the person the mastermind or key operator?
• Is there full and clear proof of intention to defraud?
• Is arrest necessary for further investigation, or is it only to recover money?

These internal instructions, read with judgments like Sanghani and Akram Pasha, can be powerful tools in defending professionals and small businessmen who are wrongly targeted.

7. How professionals should protect themselves and their clients

Given the ground reality, professionals (advocates, CAs, GST practitioners) must take some practical safeguards:

1. Clear engagement letters:

Spell out that your role is limited to accounting, return filing and representation based on information given by client, and that the client remains responsible for the correctness and genuineness of transactions.

2. Due diligence for high‑risk clients

When a new client with high turnover and unusual patterns comes, do basic KYC: verify PAN, GSTIN, address, activity, bank details. If something looks suspicious (multiple registrations, no real business premises), think twice before taking the assignment.

3. Written advice and records

When you find issues (like non‑existent suppliers, e‑way bill problems, excessive ITC), give written advice to the client, keep copy in your file. This will help to show that you did not join any conspiracy.

4. Calm handling of summons under section 70

• • Attend with documents, answer truthfully.
  • Do not sign statements you do not agree with.
  • If you feel pressure to “confess”, you can request time, consult counsel.

5. Use case law in representation

In any bail petition or reply to arrest attempt, cite:

• • Rohitkumar P. Sanghani v. State of Gujarat & Anr. – role limited to compliance, not kingpin, bail granted.
  • Akram Pasha v. DGGI (Karnataka HC, 2025) – anticipatory bail in large fake ITC case, emphasising documentary nature and maximum sentence.
  • CBIC Instruction 02/2022‑23 – arrest only when clear fraud and intent are shown.

These authorities show that courts and even Board instructions do not support a “terror” style of enforcement.

8. The road ahead – citizens must know how GST is actually working

For ordinary citizens and small businesses, it is important to understand that:

• GST as a concept is good – one tax, one market – but its implementation has been uneven.
• Portal mismatches and system defects have created artificial disputes.
• Many officers are still not fully familiar with the Act and Rules and rely on checklists and auto‑generated reports rather than real adjudication.
• High Courts and the Supreme Court have repeatedly stepped in to correct procedural violations, denial of hearing, and arbitrary demands.

Compared with the Income‑tax system, where prosecution is used sparingly and generally on solid evidence, GST has seen a more aggressive style at the field level, especially through sections 69 and 70. That is why judgments like Sanghani are so important: they bring balance back into the system.

Ultimately, if officers continue to ignore the Act, bypass procedures under sections 73/74, and treat every professional as a suspect, it will destroy trust in the tax system. Then, as I said, only God can safeguard honest taxpayers and businessmen. But the courts are showing that they are willing to act as a real check—provided taxpayers and professionals assert their rights, document their conduct, and take these judgments to the right forums.