Supreme Court Halts ₹273.5 Crore GST Penalty Recovery from Patanjali Ayurved
The Supreme Court has issued a stay order on the recovery of a ₹273.5 crore GST penalty imposed on Patanjali Ayurved Limited. Justices PS Narasimha and AS Chandurkar have directed that the penalty not be enforced until further orders and issued a notice to the Union government and the Directorate General of GST Intelligence. The penalty stems from allegations of circular trading through paper invoices. Patanjali's legal team, led by Senior Advocate Arvind P Datar, is challenging the continuation of penalty proceedings under Section 122 after the withdrawal of the main tax demand. The case raises questions about the interpretation and application of GST laws.
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In a significant development for Patanjali Ayurved Limited, the Supreme Court has issued a stay order on the recovery of a ₹273.5 crore Goods and Services Tax (GST) penalty imposed on the company. The decision comes as a temporary relief for the ayurvedic products giant amidst an ongoing legal battle over alleged GST violations.
Supreme Court's Intervention
Justices PS Narasimha and AS Chandurkar, presiding over the case, have issued a notice to the Union government and the Directorate General of GST Intelligence (DGGI). The court has directed that the penalty not be enforced until further orders, effectively putting the recovery process on hold.
Background of the Penalty
The controversy stems from allegations made by the DGGI that Patanjali engaged in transactions with entities exhibiting high Input Tax Credit (ITC) utilisation but lacking corresponding income tax records. This pattern raised suspicions of possible circular trading through paper invoices, prompting the GST authorities to take action.
Chronology of Events
| Date | Event |
|---|---|
| April 19 | DGGI issued a show-cause notice to Patanjali for ₹273.51 crore under Section 122(1) of the Central GST Act, 2017. |
| January | The department dropped tax demands under Section 74, acknowledging that Patanjali's sales exceeded purchases and all ITC had been passed on. |
| May 29 | The Allahabad High Court dismissed Patanjali's challenge, ruling that Section 122 proceedings are civil in nature and can continue independently. |
Legal Contentions
The case has brought to light several legal points of contention:
- The continuation of penalty proceedings under Section 122, despite the withdrawal of the main tax demand.
- The interpretation of Section 122 proceedings as civil in nature by the Allahabad High Court.
- The jurisdiction of GST officers to impose penalties after withdrawing the main tax demand.
Patanjali's Legal Challenge
Senior Advocate Arvind P Datar, representing Patanjali Ayurved, has challenged the High Court's interpretation. The core of their argument questions the GST officers' authority to impose penalties after the withdrawal of the primary tax demand.
Implications and Next Steps
This stay order from the Supreme Court provides temporary relief to Patanjali Ayurved, preventing the immediate recovery of the substantial penalty. However, it is important to note that this is not a final decision on the merits of the case. The notice issued to the Union government and DGGI indicates that the court will hear arguments from all parties before making a final judgment.
The case raises important questions about the interpretation and application of GST laws, particularly concerning the continuation of penalty proceedings after the withdrawal of primary tax demands. The final verdict could have significant implications for how GST penalties are handled in similar cases across the country.
As the legal proceedings continue, all eyes will be on the Supreme Court for its final decision, which could set a precedent for future GST-related disputes and clarify the scope of GST officers' powers in imposing penalties.
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