Patanjali Ayurved’s plea against a Rs 273.5 crore GST penalty was dismissed by the Allahabad High Court. The Court ruled that such penalties are civil in nature and don’t need a criminal trial.
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UTTAR PRADESH: The Allahabad High Court on May 29 rejected a petition by Patanjali Ayurved Limited, where the company had challenged a Rs 273.5 crore GST penalty. The Court made it clear that such penalties are not criminal and don’t require a criminal court trial.
A Bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit gave this decision, stating that tax officers can impose penalties under Section 122 of the CGST Act through civil processes, and no criminal trial is needed.
The Court said that the penalty process under GST laws is civil in nature, and a proper officer has full authority to conduct such proceedings.
“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 explained.
Patanjali, which runs its factories in Haridwar (Uttarakhand), Sonipat (Haryana), and Ahmednagar (Maharashtra), came under the scanner after authorities found some suspicious transactions. These involved companies using high Input Tax Credit (ITC) without proper income tax records.
Investigators claimed that Patanjali was the key player in a scheme where fake invoices were created just on paper, without real goods being supplied.
As a result, the Directorate General of GST Intelligence (DGGI) issued a show cause notice on April 19, 2024, asking Patanjali to explain why a penalty of Rs 273.51 crore under Section 122(1)(ii) and (vii) of the CGST Act should not be imposed.
Later, the tax department dropped the tax demand under Section 74 through an official order on January 10, 2025.
They said,
“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.”
Still, even after dropping the tax demand, the department continued with penalty action under Section 122, which Patanjali challenged in court.
The company argued that since Section 122 is about penalties, and penalties are criminal, they can only be imposed after a criminal court trial, not by tax officers. That’s why Patanjali took the case to the Allahabad High Court.
The Court studied the entire section carefully and ruled that these penalties are civil in nature, not criminal.
“The term ‘penalty’ has also been given a broad definition by the law dictionaries and the Supreme Court judgments wherein it is stated that the term ‘penalty’ is used very loosely in statutes in some cases and may be held to embrace all the consequences visited by law for an infringement of the law,”
-Justice Saraf noted.
The Court took reference from the Supreme Court’s Gujarat Travancore Agency case to show that civil and criminal penalties are very different.
“A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws,”
-the Bench said.
The Court also rejected the idea that since Section 122 doesn’t mention ‘proper officer’, only a criminal court can look into it.
“Explanation 1(ii) to Section 74 of the CGST Act clearly indicates that it is the proper officer who initiates the proceedings under Sections 73 and 74 is also the person who is initiating the proceedings under Sections 122 and 125,”
-the Bench clarified.
It further pointed to Rule 142(1)(a) of the CGST Rules that clearly lays out that the proper officer shall issue a summary notice in form GST DRC-01 electronically along with notices under various sections including 122.
“The above clearly indicates the intention of the legislature that the proper officer is required to issue show cause and thereafter adjudicate and pass order under Section 122 of the CGST Act and nothing further remains in doubt.”
The Court also looked into whether dropping the Section 74 tax demand meant the penalty under Section 122 also ends. The judges made it clear these are separate things.
“The contravention under Section 73/74 need not necessarily be a contravention covered under Section 122 of the CGST Act and the proceedings are with respect to contravention of two different offences,”
-the Court clarified.
The Court explained that Section 122 is specially made to stop tax frauds and invoice-related offences, including selling goods without bills, making fake invoices, not paying taxes after collecting them, and wrongly claiming ITC or refunds.
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The Court concluded that Section 122 is a tool for deterrence, meaning it’s meant to stop people from breaking tax laws. So, this law does not violate constitutional rights under Articles 14 and 19(1)(g).
In the end, the High Court dismissed Patanjali’s plea.
Patanjali was represented by Senior Advocate Arvind Datar, along with Ashwarya Sharma, Nishant Mishra, Devansh Srivastava, Kinjal Shrivastava, Vedika Nath, and Yashonidhi Shukla.
The CGST department was represented by Additional Solicitor General N. Venkataraman with Parv Agarwal, N.C. Gupta, and Gaurav Mahajan.
CASE TITLE:
M/S PATANJALI AYURVED LTD. vs UNION OF INDIA AND OTHERS
WRIT-TAX NO. 1603 OF 2024
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