Section 122(3A) CGST: Are GST Professionals at Risk?

lipped from: https://taxguru.in/goods-and-service-tax/section-1223a-cgst-gst-professionals-risk.html

Section 122(3A) CGST: A Harsh Net Around Tax Professionals – Need for Intent‑Based Safeguards

Section 122(3A) (inserted as 122(1A) and then re‑numbered) is the provision that now exposes “any person” – including external professionals – to penalty where they knowingly assist or benefit from specified GST frauds (fake invoices, bogus ITC, etc.). Because of the breadth of “any person” and the revenue’s tendency to assume collusion without proof, this operates as a harsh and unsafe measure for bona fide practitioners who only render compliance services for a professional fee.

I. Introduction – From taxable person to ‘any person’

• Briefly trace section 122 structure (122(1), 122(3), 122(1A)/3A) and show how the law has moved from penalising only the taxable person to penalising “any person” who facilitates or benefits from fraud.taxinformation.cbic.gov+2
• Pose the core issue: whether this expansion, when applied to CAs/CMAs/CS/accountants giving routine compliance advice, is compatible with principles of intent, natural justice and professional independence.

II. Statutory text and its over‑breadth

• Quote/paraphrase the current section 122 text and explain:
  • “Any person” – includes professionals;
  • “Retains the benefit” – risk of mis‑reading professional fee as “benefit of fraud”;
  • “In any manner facilitates” – extremely open‑ended.
• Use the TaxGuru article on fake invoices and 122(1A) plus the ₹285‑crore consultant case to illustrate how revenue is actually using this breadth against advisors.

III. Judicial strands relevant to professionals

• Summarise decisions on:
  • Section 122 penalties as civil and separately adjudicable; dropping 73/74 does not automatically drop 122, underscoring that the officer must independently establish ingredients of the 122 offence.
  • Case where SCN against an employee was quashed: court held 122(1A)/137 designed for persons directly responsible for fraud, not mere compliance employees. Argue that this ratio should extend to external professionals unless collusion is proved.
  • Delhi HC decision summarised as “Taxpayer cannot escape liability by blaming CA”: while it burdens the taxpayer, it also confirms that the statute sees the taxpayer as primary liable person and does not create automatic vicarious liability on the professional.

IV. Why blanket 122(3A) exposure is harsh for bona fide professionals

• Explain the typical role of GST practitioners: advice, compliance, portal filings; they neither control business decisions nor share in fraudulent benefit.
• Rely on professional and academic commentary:
  • Over‑broad reading of “any person” creates chilling effect on legitimate advisory work and may drive experienced professionals away from GST practice.
  • Due process concerns: professionals rely on facts given by clients, cannot independently verify every physical movement of goods, and should not be penalised absent proof of wilful connivance.

V. Practical safeguards and risk‑mitigation for professionals

• Suggest internal safeguards (this is where your practitioner experience adds value):
  • Strong KYC and engagement letters expressly prohibiting sham entities and circular trading.
  • Documented advice discouraging aggressive/fraudulent structures, confirmation that client is responsible for factual accuracy.
  • Refusal to lend login credentials/bank accounts; maintaining full e‑mail trail of instructions and clarifications (which later demonstrates lack of collusion).
• Tie this to commentary from 122(1A)/1(3A) blogs which recommend due diligence, verification of GSTINs, and avoidance of back‑dated entries as ways to stay outside the “facilitation”

VI. Law reform and administrative clarifications – what should change

• Draw heavily from the TaxGuru “₹285‑crore consultant” article’s recommendations:
  • Insert an explicit good‑faith/intent clause in 122(3A): liability attaches only where the professional acted with wilful intent, active collusion, or gross negligence.
  • CBIC to issue clarificatory guidelines stating that routine professional services, without evidence of collusion or share in the fraudulent benefit, will not by themselves invite 122(3A) penalty.
• Suggest that professional bodies (ICAI/ICMAI/ICSI) intervene as amicus/representatives in appropriate constitutional challenges, arguing that the present drafting violates proportionality and legal certainty.

Author’s conclusion

Section 122(3A) of the CGST Act represents a sharp doctrinal shift from taxing the taxable person to potentially penalising any person who is perceived to have facilitated a GST offence or retained its benefit. In practice, this has emboldened the department to issue show cause notices and even tax‑equivalent penalties against GST consultants and other professionals, sometimes on nothing more than the fact that they handled filings or advisory work for an errant taxpayer. Such an approach ignores both the statutory scheme—which treats section 122 as a civil penalty requiring proof of specific contraventions—and the economic reality that most practitioners neither design fraudulent schemes nor share in their fruits.

Emerging case law provides important correctives. Courts have recognised that provisions like section 122(1A)/3A and section 137 are intended for persons directly responsible for evasion or fraud, not for employees or support‑functionaries performing routine compliance roles; where this distinction is ignored, show cause notices have been quashed. At the same time, decisions such as the Delhi High Court’s ruling in M/s Fone Zone NXT v. Commissioner of DGST reaffirm that primary responsibility for GST compliance lies with the registered person and cannot simply be shifted onto the Chartered Accountant when things go wrong. These strands, read together, support a principled position: professional liability under section 122(3A) must rest on clear evidence of wilful collusion, active facilitation, or gross negligence—not on mere engagement or the receipt of a professional fee.

For the tax profession, however, relying on judicial correction after the event is not enough. There is an urgent need for legislative and administrative recalibration: Parliament should expressly incorporate an intent‑based safeguard into section 122(3A), and CBIC should clarify that good‑faith advisory and compliance work does not, by itself, attract this penalty. Until then, professionals must protect themselves through rigorous KYC, clear engagement terms, and contemporaneous documentation of advice and client representations, so that, if allegations do arise, the factual record speaks against any presumption of collusion. A GST regime that treats honest advisers as potential accomplices in every disputed case will not only erode professional independence but also weaken tax administration itself by driving competence out of the system. A calibrated, intent‑driven reading of section 122(3A) is therefore essential—not merely for the protection of practitioners, but for the long‑term legitimacy and stability of GST enforcement.