Intro:
The GST penalty under Section 122(1A) has raised concern among businesses due to its harsh implications. But courts have granted interim relief from retrospective application of this GST penalty before January 1, 2021 — offering hope to many taxpayers under scrutiny.
What Is Section 122(1A) of the CGST Act?
Section 122(1A) was inserted into the CGST Act, 2017 via Finance Act, 2020, and came into force on January 1, 2021. It penalises persons involved in fake invoicing or wrongful ITC without proper supply of goods or services — even if they are not the main taxable person.
Key Highlights of Section 122(1A):
- Targets persons aiding offences under Section 122(1)
- Penalty: Same as applicable to the main offender (up to ₹1 lakh per offence)
- Covers brokers, transporters, accountants, and even buyers/sellers if collusion is proven
Focus: Retrospective GST Penalty Disputes
Though the provision came into effect from 01.01.2021, tax officers have initiated penalties for periods before that date. This retrospective application is now being challenged in multiple High Courts.
Courts Offer Interim Relief from Retrospective GST Penalty
Several High Courts have stayed coercive actions under Section 122(1A) when the alleged offence occurred prior to 01.01.2021.
Key Judgments:
| Court | Case | Relief |
|---|---|---|
| Delhi HC | Vinod Kumar Bansal vs. UOI (W.P. 18406/2023) | Stayed recovery of penalty under 122(1A) for pre-2021 period |
| Calcutta HC | Sanjay Agarwal vs. UOI | Interim protection granted where demand related to FY 2019–20 |
| Rajasthan HC | M/s Gajraj Petrochemicals | Held that Section 122(1A) can’t apply for actions before 01.01.2021 |
| Allahabad HC | Multiple petitions | Similar stay orders issued in favour of taxpayers |
These interim orders are based on the legal principle that a penal provision must operate prospectively unless explicitly stated.
Legal Basis for Relief
- Section 122(1A) does not contain any clause for retrospective operation
- Article 20(1) of the Constitution bars ex post facto penal laws
- SC in Keshavan Madhava Menon case laid down that criminal/penal provisions must be prospective
- CBIC has not issued any circular allowing retrospective penalty under this provision
Practical Implication for Taxpayers
If you’re facing a GST penalty under Section 122(1A) for a period before 01.01.2021, you may consider:
What You Can Do:
- File a Writ Petition in your jurisdictional High Court
- Seek interim relief if your case involves past years
- Document the timeline clearly showing offence was pre-2021
- Avoid making voluntary payment without legal opinion
Expert View
“Section 122(1A) drastically expands penal liability, but cannot apply to actions taken when the law didn’t exist. Courts are rightly applying constitutional safeguards.”
— CA Arvind Kumar, GST Practitioner
Frequently Asked Questions
Q1. Is Section 122(1A) retrospective in nature?
No. There is no indication in the statute or notification that it is retrospective. Courts are treating it as prospective.
Q2. Can I claim refund of penalty already paid for pre-2021 period?
It may be possible through legal remedy if you prove the amount was collected without authority of law.
Q3. Is CBIC expected to clarify on this?
As of now, CBIC has remained silent. Taxpayers may need to rely on court protection until clarity emerges.
Summary
Courts have granted interim relief against retrospective GST penalty under Section 122(1A) of the CGST Act for actions before 01.01.2021. The provision lacks retrospective force, and taxpayers can challenge pre-2021 penalties through High Court writs.
Final Thoughts & CTA
Retrospective penalties can severely impact MSMEs and honest businesses. If you’re facing a demand under Section 122(1A) for FY 2020–21 or earlier, don’t panic. Efiletax can help you evaluate your case and file appropriate legal responses or writs through our expert network.