Protecting Tax Professionals CA, CMA, CS, Advocate from Penal Provisions Under Section 122(1A) of the CGST Act: A Critical Analysis and Call for Reform
Introduction
The recent judgment of the Delhi High Court in Bhupender Kumar vs. Additional Commissioner (Adjudication), CGST Delhi North & Others, W.P.(C) 9141/2025, has significant implications for tax professionals across India. The Court’s decision to uphold a ₹285 crore penalty against a GST consultant for alleged fake input tax credit (ITC) transactions under Section 122(1A) of the Central Goods and Services Tax Act, 2017 (CGST Act), has triggered wide-spread concern within the tax community.
Background: Section 122(1A) – The Core Issue
Section 122(1A) of the CGST Act extends liability to “any person who retains the benefit of a transaction” involving fraudulent availment or utilization of ITC, among other contraventions. Notably, the phrase “any person” is broad, leaving open the possibility of penal action against individuals who are not the actual “taxable person,” such as external tax consultants, advisors, accountants, or even third parties with a peripheral role.
In the aforementioned matter, the Court interpreted Section 122(1A) retrospectively from July 2020 (the date of the Show Cause Notice), applying penal provisions to the GST consultant, despite the absence of direct tax liability as a “taxable person” under the Act.
Concerns for the Tax Professional Community
- Over-Broad Interpretation: The statutory language “any person” in Section 122(1A), as currently drafted and interpreted, creates the risk of extending criminal or civil liability to professionals merely for rendering advice or compliance support—even without any intent or direct involvement in tax evasion.
- Chilling Effect on Professional Services: Fear of disproportionate penalties may deter qualified professionals CA, CMA ,CS, from providing essential tax consulting and advocacy, ultimately hurting taxpayers and the GST system itself.
- Due Process Concerns:
- Tax professionals often act on information provided by clients and are not the “beneficiaries” of alleged fake ITC or fraudulent transactions.
- Imposing penalties without proof of willful collusion, intent, or actual benefit undermines the principles of natural justice.
- Retrospective Application: The retrospective invocation of penal provisions (i.e., for SCNs prior to the introduction of Section 122(1A)) raises serious legal issues regarding fairness and legitimate expectation.
Suggested Reforms: Protecting the Integrity and Fairness of Tax Administration
To correct these anomalies and safeguard the interests of legitimate tax professionals, the following measures are suggested:
- Amend Section 122(1A) to Clarify Scope:
- Reword the provision so that “any person” is limited to the “taxable person” who is the actual beneficiary or participant in the alleged fraud.
- Add explicit statutory protection for professionals acting in their representative or advisory capacity without direct personal benefit or willful intent.
- Insert a Good Faith/Intent Clause: Penal liability should only attach to professionals if it can be demonstrated that they acted with willful intent, active collusion, or gross negligence—not merely on account of professional engagement.
- Issue Administrative Guidelines or Clarifications: The Central Board of Indirect Taxes and Customs (CBIC) should issue guidance specifying that routine professional advice or compliance work, absent clear evidence of fraud or benefit, does not attract penalties under Section 122(1A).
- Strengthen Disciplinary Processes: Professional misconduct by tax advisors should be addressed under their respective professional disciplinary frameworks (e.g., ICAI, ICMAI, ICSI), not by penal action under GST law alone, unless clear criminal intent is established.
- Engage Stakeholders: Professional bodies representing Chartered Accountants, Cost Accountants, and Company Secretaries should be actively consulted in discussions regarding the redrafting and interpretation of penal provisions impacting their members.
Conclusion
The Delhi High Court’s decision upholding penal action against a GST consultant under Section 122(1A) serves as a watershed moment and “wake-up call” for legislative reform. While combating tax fraud is essential, it must not come at the cost of punishing professionals who act in good faith and whose only role is facilitating compliance. A balanced approach must be legislated to ensure the integrity of India’s GST system, respect due process, and maintain the crucial role of tax professionals in nation building. Legislative and administrative intervention is urgently required to redraft Section 122(1A) and protect the professional community from unintended and undue penal consequences.
Author Bio
Abolish ITC concept.
simplify GST
GST 5 to 10%.
only GSTR1 & Annual return.