Patanjali To Face Penalty Proceedings For Allegedly Availing Ineligible IGST ITC: Allahabad High Court 

The Allahabad High Court has dismissed the writ petition filed by the Patanjali Ayurved challenging the GST penalty of Rs. 273.5 crore.

The bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit has observed 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 bench clarified that Section 122 of the CGST Act is a provision specifically for imposition of penalty to be adjudicated by the proper officer while the provisions from Sections 132 to 138 deal with prosecution to be done by the criminal courts.

The bench stated that the scheme of the CGST Act read with CGST Rules lead one to the inescapable conclusion that the arguments raised by the petitioner, though innovative and thought provoking, are fallacious as the interpretation given by the petitioner would lead to obfuscation of the very purpose and objective of the CGST Act.

The petitioner/assessee, Patanjali Ayurved limited is a private limited company engaged in the manufacturing of Fast-Moving Consumer Goods (FMCG) such as Juices, Candies, Flour, Masala, Hair Oil/Conditioner, Detergent, Handwash, Soaps, Digestive Food items etc. It has three manufacturing units situated at Haridwar (Uttarakhand), Sonipat (Haryana) and Ahmednagar (Maharashtra), which are part of the investigation in the demand-cum-show cause notice. Its principal place of business is in Haridwar, Uttarakhand.

Three units of the petitioner are registered at three different locations with the same PAN number and distinct GSTIN number under the CGST Act and their respective State Goods and Services Tax Acts. The three units of the petitioner are covered under the common demand-cum-show cause notice.

The adjudication order has set aside the demands and dropped the proceedings under Section 74 of the CGST Act against the petitioner. The department decided to proceed under Section 74 of the CGST Act only with the unit of the petitioner situated at Uttarakhand for the reason that it had availed total ineligible ITC of IGST to the tune of Rs.47,65,37,283/- out of which it has passed on the ineligible ITC to the tune of Rs.38,57,21,402 and exonerated the other two firms situated at Haryana which has availed ITC of Rs.86,26,05,155 against which it has passed on ITC of Rs.88,77,08,723 and Maharashtra which has availed ITC of Rs.10,06,89,000/- against which it has passed on ITC of Rs.11,26,67,999/-.

Therefore, only penal action was proposed by the department against the two entities situated in Haryana and Maharashtra under Section 122 of the CGST Act.

The department while deciding on the issue of proceedings under Section 74 of the CGST Act for the unit of the petitioner situated at Uttarakhand has taken into consideration the product wise books of accounts of the petitioner showing details of purchased and sold quantities of the goods during the impugned period wherein it was observed by the department that 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.

The issue raised was Whether dropping of proceedings under Section 74 of the CGST Act, 2017 will ipso facto abate the proceedings under Section 122 of the CGST Act?

The court held that Section 122 of the CGST Act is a provision specifically for imposition of penalty to be adjudicated by the proper officer while the provisions from Sections 132 to 138 deal with prosecution to be done by the criminal courts. Moreover, conclusion of proceedings on the main person under Section 74 of the CGST Act shall not ipso facto abate the proceedings under Section 122 of the CGST Act proposed to be imposed on the main person.

The court dismissed the writ petition and directed the department to continue with the proceedings under Section 122 of the CGST Act in line with the show cause notice issued.

Case Details

Case Title: M/S Patanjali Ayurved Ltd. V. Union Of India And Others

Case No.: WRIT-TAX NO. 1603 OF 2024

Date: May 29, 2025

Counsel For Petitioner: Arvind P. Datar, learned Senior Advocate assisted by Mr. Ashwarya Sharma, Mr. Nishant Mishra, Mr. Devansh Srivastava, Mr. Kinjal Shrivastava, Ms. Vedika Nath and Mr. Yashonidhi Shukla, Advocates

Counsel For Respondent: Mr. N. Venkatraman, learned Additional Solicitor General of India assisted by Sri Parv Agarwal, Mr. N.C. Gupta and Mr. Gaurav Mahajan, Advocates

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