No Relief for Patanjali: Allahabad HC Upholds Rs. 273 Cr GST Penalty

In a major setback to Patanjali Ayurved Ltd, the Allahabad High Court has dismissed its plea challenging the Rs. 2,735 crore penalty proceedings initiated under the Central Goods and Services Tax (CGST) Act, ruling that such penalties are civil in nature and do not require a criminal trial.

A division bench of Justices Shekhar B. Saraf and Vipin Chandra Dixit held that proceedings under Section 122 of the CGST Act, which deals with penalties for specified tax violations, can be adjudicated by designated tax officers and do not need to be tried by criminal courts.

The case arose from a show cause notice issued on April 19, 2024, by the Directorate General of GST Intelligence (DGGI), Ghaziabad, accusing Patanjali of engaging in circular trading and availing ineligible Input Tax Credit (ITC) across its manufacturing units in Haridwar (Uttarakhand), Sonipat (Haryana), and Ahmednagar (Maharashtra) between 2018 and 2022.

The DGGI alleged that Patanjali had issued invoices without actual supply of goods and claimed input tax credit without receiving goods. While a tax demand of Rs. 9.08 crore was raised under Section 74 of the CGST Act, it was later dropped through an adjudication order on January 10, 2025, which cleared Patanjali’s Haridwar unit of all charges, citing proper stock maintenance, documentation, and supplier affidavits.

However, the penalty of Rs. 2,735 crore under Section 122 was still pursued, prompting Patanjali to move the high court. The company, represented by Senior Advocate Arvind Datar, argued that Section 122 was criminal in nature, involving the concept of “offences” and “wilful misstatement,” and therefore, such penalties could only be imposed after a trial by a magistrate under Section 134 of the Act.

The counsel further contended that once the tax demand under Section 74 was dropped, the penalty proceedings under Section 122 should automatically abate, relying on Explanation 1(ii) to Section 74 which deems penalty proceedings concluded if the main demand is resolved.

Rejecting these arguments, Additional Solicitor General N. Venkatraman, appearing for the Union of India, said that penalties under Section 122 and prosecutions under Section 132 are conceptually distinct, and Section 122 operates independently as a civil liability mechanism to deter tax evasion.

The court agreed with the Centre’s position, observing that Section 122 encompasses a mix of contraventions, some involving intent (mens rea) and some not, but all geared toward safeguarding revenue. It ruled that merely using terms like “offence” or “mens rea” does not convert a tax penalty into a criminal offence.

The proper officer is empowered to adjudicate such penalties, and no criminal prosecution or trial is needed to enforce Section 122, the court said, adding that dropping tax demands under Section 74 does not automatically nullify associated penalty proceedings.

"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. In light of the same, the contentions of the petitioner cannot be countenanced and, are accordingly, rejected.," court held.  

Case Title: M/S Patanjali Ayurved Ltd vs UOI and Others

Download judgment here