Patanjali Ayurved's plea against Rs 273.5 crore GST penalty rejected by Allahabad HC

The Allahabad High Court has dismissed Patanjali Ayurved Limited's petition challenging Rs 273.50-crore goods and service tax (GST) penalty.

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A division bench comprising Justices Shekhar B Saraf and Justice Vipin Chandra Dixit rejected Patanjali's argument that such penalties constitute criminal liability and can be imposed only after a criminal trial.

The bench was of the view that tax authorities can impose penalties under Section 122 of the GST Act through civil proceedings without requiring criminal court trials.

The court 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 bench said.

Patanjali Ayurved 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 GST Intelligence (DGGI), Ghaziabad, issued a show-cause notice on April 19, 2024, to Patanjali Ayurved, proposing a penalty of Rs 273.51 crore under Section 122(1), clauses (ii) and (vii) of the Central Goods and Service Tax Act 2017.

Later, the DGGI dropped tax demands under Section 74 through an adjudication order dated January 10, 2025.

The department found that "for all 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 this before the high court.

After hearing both sides, the court, in its judgment dated May 29, dismissed the petition.