Allahabad High Court Upholds Rs 273.5 Crore GST Penalty on Patanjali Ayurved
The Allahabad High Court dismissed Patanjali Ayurved Limited's petition challenging a Rs 273.5 crore GST penalty. The court affirmed that tax authorities can impose penalties under Section 122 of the GST Act through civil proceedings, without requiring criminal trials. The Directorate General of GST Intelligence (DGGI) had accused Patanjali of "circular trading of tax invoices only on paper without actual supply of goods," leading to the substantial penalty.
Unpacked:
Circular trading refers to the practice of creating fake invoices to show movement of goods on paper, without any actual supply. This artificially inflates turnover and allows businesses to claim input tax credits fraudulently. It undermines the integrity of the GST system and leads to significant tax revenue loss.
Section 122 of the GST Act outlines penalties for various offenses such as issuing invoices without supplying goods, wrongful input tax credit claims, or evading tax. Penalties can include a monetary fine equal to the tax evaded or a fixed amount, depending on the offense, and are imposed through civil proceedings by tax authorities.
Authorities began investigating Patanjali after identifying transactions with firms that had high input tax credit utilization but lacked any income tax credentials. This pattern raised red flags, prompting the Directorate General of GST Intelligence to probe deeper, leading to the discovery of alleged circular trading.
After the Allahabad High Court's dismissal, Patanjali can appeal the decision to the Supreme Court of India. The company may also seek to resolve the matter with GST authorities or comply with the penalty if legal options are exhausted.