SC Freezes Patanjali’s ₹273.5 Cr GST Penalty
•DGGI’s ITC Fraud Case Faces Apex Court Pause
•Section 122 vs Section 74: Legal Clash in GST Law
•Patanjali Wins Interim Relief in ₹273.5 Cr Tax Row
Unmesh Gujarathi
Sprouts News Exclusive
Contact: +91 9322755098
Sprouts News Exclusive
Contact: +91 9322755098
The Supreme Court has stayed recovery of a ₹273.5 crore GST penalty against Patanjali Ayurved, imposed by the DGGI over alleged circular trading and wrongful ITC claims. The case challenges the scope of Section 122 CGST penalties, despite tax demands under Section 74 being dropped earlier, and awaits final adjudication.
In a significant relief to Patanjali Ayurved, the Supreme Court has stayed recovery of a ₹273.5 crore penalty imposed by the Directorate General of GST Intelligence (DGGI) over alleged irregularities in input tax credit (ITC) transactions. The case raises critical questions on the scope of penalty provisions under the Central Goods and Services Tax Act, 2017, and the adjudication powers of GST officers.
DGGI Probe: Circular Trading and ITC Fraud Allegations
The penalty proceedings originated from a DGGI investigation into suspected dealings between Patanjali and entities with high ITC utilisation but no corresponding income tax records. Officials alleged that Patanjali acted as the “main person” in a network engaged in circular trading of tax invoices without any actual supply of goods, enabling wrongful availment and passing of ITC.
A show cause notice dated April 19, 2024, proposed a penalty of ₹273.51 crore under Section 122(1)(ii) and 122(1)(vii) of the CGST Act. The allegations, according to SIT sources, were part of a broader national crackdown on fraudulent tax credit claims that cost the exchequer thousands of crores annually.
Adjudication and Partial Relief
On January 10, 2025, the adjudicating authority dropped tax demands raised under Section 74 of the CGST Act, citing that quantities sold by Patanjali consistently exceeded quantities purchased and that all availed ITC was passed on to buyers. Despite this, the department proceeded with penalty action under Section 122, asserting that it is a standalone provision addressing contraventions separate from tax evasion under Section 74.
Industry experts told the Sprouts News Investigation Team (SIT) that such parallel proceedings often create prolonged compliance uncertainty for corporates, especially in high-profile sectors like FMCG and Ayurveda-based consumer products.
Allahabad High Court Upholds Department’s Stand
Patanjali approached the Allahabad High Court, arguing that penalties under Section 122 were criminal in nature and should only be imposed after a criminal court trial. The company also claimed that dropping the Section 74 proceedings nullified the penalty’s basis.
However, on May 29, 2025, a Bench of Justices Shekhar B Saraf and Vipin Chandra Dixit dismissed the plea. The Court ruled that Section 122 penalties are civil liabilities, adjudicable by GST officers, citing the Supreme Court’s precedent in Gujarat Travancore Agency. The High Court further clarified that the termination of Section 74 proceedings does not affect Section 122 actions since the provisions deal with distinct types of violations.
Supreme Court’s Interim Stay and Legal Implications
Challenging the High Court verdict, Patanjali filed an appeal before the Supreme Court, raising jurisdictional and procedural questions, including whether quashing tax demands under Section 74 should automatically halt connected penalties under Section 122.
During the hearing, the Supreme Court issued notices to the respondents and stayed the penalty recovery until further orders. Senior Advocate Arvind P Datar and Advocate Raj Kishor Choudhary appeared for Patanjali.
Tax law analysts note that the Supreme Court’s final ruling could have far-reaching implications for GST enforcement frameworks, particularly on the independence of penalty provisions and departmental adjudication powers. The Sprouts News Investigation Team (SIT) will continue monitoring developments closely.
Controversies of Patanjali
Advertising and Misleading Claims
Patanjali Ayurved has repeatedly faced criticism and regulatory action over alleged misleading advertisements. The Advertising Standards Council of India (ASCI) and the Ministry of AYUSH have pulled up the company for making unsubstantiated claims about the medicinal efficacy of certain products, including cures for chronic illnesses without scientific backing. Several court cases have been filed alleging violation of consumer protection laws and the Drugs and Magic Remedies Act.
Quality and Product Compliance Issues
Over the years, Patanjali products have been flagged by various state food safety departments for quality concerns. In 2023, a batch of Patanjali’s Divya Swasari Coronil tablets was found to contain ingredients beyond permissible limits, prompting show cause notices from regulators. Earlier, in 2016, Nepal’s Department of Drug Administration banned some Patanjali products over labelling and content irregularities, highlighting persistent compliance challenges in the company’s manufacturing standards.
Legal Battles and Regulatory Investigations
Apart from the ongoing ₹273.5 crore GST penalty dispute, Patanjali has been embroiled in multiple legal battles with the Competition Commission of India (CCI), the Food Safety and Standards Authority of India (FSSAI), and state-level authorities. These include allegations of tax evasion, improper licensing, and monopolistic practices in Ayurvedic product distribution. Such recurring controversies have raised questions about the company’s governance practices and its aggressive business expansion model.
