Allahabad HC dismisses Patanjali's plea against ₹273.5 cr GST penalty
The Allahabad high court has dismissed Patanjali Ayurved Limited's petition challenging ₹273.5 crore goods and service tax (GST) penalty. Dismissing the writ petition, a division bench comprising Justice Shekhar B Saraf and Justice Vipin Chandra Dixit on May 29 rejected Patanjali's argument that such penalties constitute criminal liability and can be imposed only after a criminal trial.
The court ruled that tax authorities can impose penalties under Section 122 of the GST Act through civil proceedings without requiring criminal court trials. The judgment clarified that GST penalty proceedings are civil in nature and can be adjudicated by proper officers.
'After detailed analysis, it is clear that the proceeding under Section 122 of the CGST Act is to be adjudicated by the adjudicating officer and is not required to undergo prosecution,' the court said.
Patanjali Ayurved Ltd operates three manufacturing units at Haridwar (Uttarakhand), Sonipat (Haryana) and Ahmednagar (Maharashtra). The company came under investigation following information received by authorities about suspicious transactions involving firms with high Input Tax Credit (ITC) utilisation but no income tax credentials.
The investigation led to allegations that Patanjali 'acting as a main person, indulged in circular trading of tax invoices only on paper without actual supply of goods.'
The directorate general of goods and services tax Intelligence (DGGI), Ghaziabad, issued a show cause notice on April 19, 2024 proposing a penalty of ₹273.51 crore under Section 122(1), clauses (ii) and (vii) of the Central Goods and Service Tax Act 2017. The petitioner – Patanjali Ayurved Limited challenged it before the high court.
However, in a significant development, the department subsequently dropped tax demands under Section 74 through an adjudication order dated January 10, 2025.
The department found that 'for all the commodities, the quantities sold were always more than the quantities purchased from the suppliers, thereby making the observation that all the ITC which was availed in the impugned goods was further passed on by the petitioner.'
Despite dropping the tax demand, authorities decided to continue with penalty proceedings under Section 122, prompting Patanjali to challenge it before the high court.
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