Supreme Court stays ₹273.5 crore GST notice against Patanjali Ayurved
A bench of Justices P.S. Narasimha and A.S. Chandurkar issued notices to the Union government and DGGI on Patanjali's appeal, directing that the penalty be stayed until further orders.
The court also agreed to examine the Allahabad High Court's ruling that had upheld the levy.
The case stems from DGGI receiving information about alleged suspicious tax credit claims and fake invoicing involving companies supplying goods to Patanjali's manufacturing units in Uttarakhand, Haryana, and Maharashtra.
Investigators alleged that Patanjali issued invoices without actually supplying goods and had wrongly claimed input tax credit (ITC), amounting to tax evasion.
On 19 April 2024, DGGI issued a tax show-cause notice proposing penalties of about ₹ 273.5 crore under Section 122 of the Central Goods and Services Tax Act for alleged offences during the tax period of April 2018 to March 2022.
A separate tax demand was raised under Section 74, which deals with recovery of unpaid tax in fraud cases.
In January this year, the department dropped the Section 74 tax demand for Patanjali's Uttarakhand unit after scrutiny revealed that the transactions were genuine, sales exceeded purchases, and input tax credit had been properly passed on. Authorities found no substantial reason to hold that tax was evaded or ITC was wrongly availed.
However, the department continued with the ₹ 273.5 crore penalty under Section 122, which penalises GST violations such as issuing fake invoices, even if no tax is due.
Patanjali challenged the penalty in the Allahabad High Court, arguing that Section 122 penalties were criminal in nature and could only be imposed after a criminal trial, and that the penalties could not stand once the Section 74 proceedings were dropped.
On 29 May 2025, the High Court dismissed the plea, ruling that such penalties are civil in nature, can be imposed by GST officers, and deal with violations different from those under Section 74.
Patanjali then moved the Supreme Court, arguing it was unfair to continue the penalty when the main tax case had been cancelled, and questioning both the scope of Section 122 and the powers of GST officers to impose such penalties.
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