The Supreme Court Today (Aug 14) stopped the recovery of a Rs 273.5 crore GST penalty on Patanjali Ayurved, agreeing to hear the company’s challenge against the Allahabad High Court order upholding it. The penalty relates to alleged circular trading and wrongful ITC claims.
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NEW DELHI: The Supreme Court today gave a big relief to Patanjali Ayurved Limited by putting a stay on the recovery of a Rs 273.5 crore Goods and Services Tax (GST) penalty.
A Bench of Justices PS Narasimha and AS Chandurkar issued notice to the Union government and the Directorate General of Goods and Services Tax Intelligence (DGGI) on Patanjali’s appeal. The court made it clear that the penalty will remain stayed until further orders.
This penalty matter started after an investigation by the DGGI into alleged irregularities in Patanjali’s business transactions. According to the department, they had received information about suspicious dealings with some entities that had very high Input Tax Credit (ITC) use but no income tax records.
The investigators claimed that Patanjali, acting as the “main person”, was involved in circular trading of tax invoices without any actual supply of goods. This, as per the department, led to wrongful taking and passing on of ITC.
On April 19, 2024, the DGGI issued a show cause notice proposing a penalty of Rs 273.51 crore under Section 122(1), clauses (ii) and (vii) of the Central Goods and Services Tax Act, 2017 (CGST Act).
Later, in an order dated January 10, 2025, the department dropped tax demands under Section 74 of the CGST Act. It was recorded that for all commodities, the quantities sold were always more than the quantities purchased from suppliers, and all ITC availed was further passed on by Patanjali.
However, the authorities decided to go ahead with the penalty under Section 122, saying that these penalty proceedings are separate and independent from the tax demand that had been dropped.
Patanjali took the matter to the Allahabad High Court, arguing that penalties under Section 122 were criminal in nature and should only be imposed after a trial before a criminal court, not by departmental officers. The company also said that since the Section 74 proceedings were dropped, the penalty could not continue.
The court also referred to Explanation 1(ii) to Section 74 and Rule 142(1)(a) of the CGST Rules, saying that proper officers have the power to issue show cause notices and decide penalties under Section 122.
It further ruled that the dropping of Section 74 proceedings does not automatically end Section 122 proceedings because they are about different types of violations.
Not satisfied, Patanjali went to the Supreme Court against the High Court’s order. The appeal raised important questions about the scope and nature of penalties under Section 122, the powers of GST officers to impose them, and what happens to such penalties if related tax demands under Section 74 are quashed.
During the hearing today, the top court issued notice to the respondents and gave an interim stay on the recovery of the Rs 273.5 crore penalty.
- Patanjali was represented by Senior Advocate Arvind P Datar and advocate Raj Kishor Choudhary.
CASE TTILE:
Patanjali Ayurved vs Union of India.
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