The Allahabad High Court recently dismissed a petition filed by Patanjali Ayurved Limited challenging a ₹273.5 crore GST penalty. The Court clarified that such penalties are civil in nature and do not necessitate a criminal court trial.
Patanjali Ayurved Ltd., operating units in Haridwar, Sonipat, and Ahmednagar, came under scrutiny after authorities flagged suspicious transactions involving entities with high Input Tax Credit (ITC) usage but no income tax records. The company was accused of circular trading—issuing tax invoices without actual supply of goods. A ₹273.51 crore penalty was proposed under Section 122(1)(ii) and (vii) of the CGST Act. However, the tax demand was later dropped through an adjudication order, which acknowledged that Patanjali had passed on all availed ITC. Despite this, penalty proceedings under Section 122 continued, prompting Patanjali to challenge the action before the High Court.
The Bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit observed, “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 and also abatement of proceedings under Section 74 of the CGST Act does not ipso facto abate the proceedings under Section 122 which are for completely different offences.”
The Court clarified that Section 122 of the CGST Act specifically deals with the imposition of penalties through adjudication by a proper officer, while Sections 132 to 138 pertain to criminal prosecution. It held that the conclusion of proceedings under Section 74 does not automatically nullify penalty proceedings under Section 122.
The Court rejected Patanjali’s arguments, stating that accepting them would undermine the objective of the CGST Act. Thus, the petition was dismissed.
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