# M/s Patanjali Ayurved Ltd v. Union Of India & Ors. 714 INDIAN LAW REPORTS ALLAHABAD SERIES

- **Citation:** (2025) 5 ILRA 713
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2025-05-29
- **Case number:** Writ Tax No. 1603 of 2024
- **Bench:** Shekhar B Saraf, Vipin Chandra Dixit
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-patanjali-ayurved-ltd-v-union-of-india-ors-714-indian-law-reports-allahabad-53437
- **Pages:** 50

## Headnote

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

A.
Criminal
Law
-
Constitution
of
India,1950-Article 226-CGST Act-Sections
122 & 73/74-Petitioner challenged a show
cause notice proposing a penalty of Rs.
2,735,113,681 u/s 122 (ii) and (vii) of
CGST Act for alleged issuance of fake
invoices and availing ITC without actual
supply
of
goods-Proceedings
under
section 74 against the petitioner were
dropped based on lack of evidence of tax
evasion-Petitioner argued that section
122 is penal in nature and requires a
criminal
trial
not
departmental
adjudication-Held, proceedings u/s 122
are independent and need not abate
merely because proceedings u/s 74 are
dropped because penalty u/s 122 is civil in
nature, distinct from criminal prosecution
u/s 132 of the Act-Mens rea (intention) in
tax statutes does not necessarily convert
proceedings into criminal trials-Hence, the
writ petition was dismissed, and the
penalty proceedings u/s 122 were allowed
to continue.(Para 1 to 56)

The writ petition is allowed. (E-6)

List of Cases cited:

## Text

_Characters 0–39,864 of 158,837. This is a partial read: ask again with offset=39864 for what follows._

5 All. M/s Patanjali Ayurved Ltd. Vs. Union of India & Ors.
713
and the children. We are here concerned
with the exclusion of children born from a
second marriage. By excluding a class of
beneficiaries who have been deemed
legitimate by the operation of law, the
condition imposed is disproportionate to
the object sought to be achieved. Having
regard to the purpose and object of a
scheme of compassionate appointment,
once the law has treated such children as
legitimate, it would be impermissible to
exclude them from being considered for
compassionate appointment. Children do
not choose their parents. To deny
compassionate appointment though the
law treats a child of a void marriage as
legitimate is deeply offensive to their
dignity
and
is
offensive
to
the
constitutional
guarantee
against
discrimination.

The order dated 12.6.2020 passed
by respondent no.2 is hereby quashed in so
far as it directs the petitioner to obtain
succession certificate for consideration of
his
claim
for
appointment
on
compassionate grounds. " (emphasis added)

6. The Supreme Court judgment that
has been considered by the Co-ordinate
Bench deals with the situation where the
rivals claims were set up by more than one
heirs of the deceased employee and the
issue was as to the legitimacy of their
respective claims. The Court observed that
compassionate appointment cannot be
denied to a child even if born out of void
marriage. The said judgment has been
followed by another co-ordinate Bench in
the case of Prachi Tripathi v. State of U.P.
through Principal Secretary Appointment
and two others Writ A No. 1706 of 2024.

7. Learned Standing Counsel could not
dispute that the children born out of void
marriage are also having ligitimate claim to
the property, succession or heirship of their
parents.

8. In these circumstances, therefore,
the order passed by the authority namely
the Superintendent of Police, Mirzapur
dated 03.01.2025 is rendered unsustainable
the order is accordingly quashed.

9. The competent authority in the
matter namely, Superintendent of Police,
Mirzapur is directed to consider the rival
claims set up by the heirs of the deceased
employee Shiv Shankar Singh giving them
opportunity of hearing under Rule l7 of
U.P. Dying in Harness Rules, 1974. The
competent authority will evaluate and
assess the rival claims and will offer
appointment to the most deserving and
suitable person who was dependent-heir of
deceased employee Shiv Shankar Singh at
the time of his death.

10. Appropriate reason and speaking
order shall accordingly be passed within a
maximum period of two months from the
production of certified copy of this order.

11. Petition thus, stands allowed with
no order as to cost.
----------
(2025) 5 ILRA 713
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 29.05.2025

BEFORE

THE HON'BLE SHEKHAR B SARAF, J.
THE HON'BLE VIPIN CHANDRA DIXIT, J.

Writ Tax No. 1603 of 2024

M/s Patanjali Ayurved Ltd. ...Petitioner
Versus
Union Of India & Ors. ...Respondents
714 INDIAN LAW REPORTS ALLAHABAD SERIES
Counsel for the Petitioner:
Mr.
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 the Respondents:
Mr. N. Venkatraman, learned Additional
Solicitor General of India assisted by Sri
Parv Agarwal, Mr. N.C. Gupta and Mr.
Gaurav Mahajan, Advocates

A.
Criminal
Law
-
Constitution
of
India,1950-Article 226-CGST Act-Sections
122 & 73/74-Petitioner challenged a show
cause notice proposing a penalty of Rs.
2,735,113,681 u/s 122 (ii) and (vii) of
CGST Act for alleged issuance of fake
invoices and availing ITC without actual
supply
of
goods-Proceedings
under
section 74 against the petitioner were
dropped based on lack of evidence of tax
evasion-Petitioner argued that section
122 is penal in nature and requires a
criminal
trial
not
departmental
adjudication-Held, proceedings u/s 122
are independent and need not abate
merely because proceedings u/s 74 are
dropped because penalty u/s 122 is civil in
nature, distinct from criminal prosecution
u/s 132 of the Act-Mens rea (intention) in
tax statutes does not necessarily convert
proceedings into criminal trials-Hence, the
writ petition was dismissed, and the
penalty proceedings u/s 122 were allowed
to continue.(Para 1 to 56)

The writ petition is allowed. (E-6)

List of Cases cited:

1. NC Dhondial Vs U.O.I. (2004) AIR SC 1272

2. Ramanna Dayaram Shetty Vs I.AA.I (1979) 3
SCC 489

3. Pradeep S. Wodeyar Vs St. of Kar.(2021) 19
SCC 62

4. Shiv Dutt Rai Fateh Chand & ors. Vs U.O.I. &
anr. (1983) 3 SCC 529

5. Guj. Tranvancore Agency, Cochin Vs Commr.
of Income Tax, Ker. Ernakulam (1989) 3 SCC 52

6. E.D. Vs MCTM Corp. Pvt. Ltd. (1996) 2 SCC
471

7. Chairman, SEBI Vs Shriram Mutual Funds &
anr. (2006) 5 SCC 361

8. U.O.I. Vs Dharmendra Textile Processors &
ors. (2008) 13 SCC 369

9. Tata Power Co. Ltd. & ors. Vs Mah. Electricity
Regulatory
Commission
&
ors.
,
MANU/SC/0932/2009

10. Standard Chartered Bank Vs E.D. (2006) 4
SCC 278

11. St. of UP Vs Sukhpal Singh Bal , 7 SCC
615,622

12. Asso. Cement Co. Ltd. Vs Commercial Tax
Officer (1981) 4 SCC 578

13. Pratibha Processors Vs U.O.I. (1997) AIR SC
138

14. Nalinakhya Bysack Vs Shyam Sundar Haldar
(1953) AIR SC 148

15. Whitney Vs Inland Rev. Commr. (1926) AC
37

16. Cape Brandy Syndicate Vs Commr. of Inland
Rev.(1921) 2 KB 403

17. Film Exhibitors, Guild Vs St. of A.P. (1987)
AIR AP 110

18. CST Vs Shri Krishna Engg. Co. (2005) 2 SCC
692

19. St. of T.N. Vs M.K. Kandaswami (1975) 4
SCC 745

20. Sheffield City Council Vs Yorkshire Water
Services Ltd(1979) 2 All ER 91
5 All. M/s Patanjali Ayurved Ltd. Vs. Union of India & Ors.
715
21. Sanjeev Coke Mfg. Vs Bharat Coking Coal
Ltd.(1983) 1 SCC 147

22. M/s Hindustan Herbal Cosmetics Vs St. of
UP (Neutral Citation No.-2024: AHC:209)

23.
CST Vs Satyam Shivam Papers (P)
Ltd.(2022) 14 SCC 157

24. Veena Estate(P) Ltd. Vs Commr. of Income
Tax (2024) 461 ITR 483 Bom.

25. Chemmabcherry Estate Co. Vs Income Tax
Officer Ward VIII (2) (2020) 268 Taxmann 29
(Mad)

(Delivered by Hon'ble Shekhar B. Saraf, J.)

INDEX

Serial
No.
Contents
Page
No.
1.
RELIEF SOUGHT
3
2.
FACTUAL
BACKGROUND
3-10
3.
CONTENTIONS OF
THE PETITIONER
10-18
4.
CONTENTIONS OF
THE RESPONDENTS
18-25
5.
ISSUES
25
6.
RELEVANT
PROVISIONS
25-34
7.
ANALYSIS
34-71

MEANING
OF
'OFFENCE'
AND
'PENALTY'
35-45

INTERPRETATION
OF STATUTES
45-51

PENALTY IN TAX
DELINQUENCY
CASES
51-61

DEALING
WITH
SUBMISSIONS
OF
THE PETITIONER
61-70
8.
CONCLUSION
70-71

Relief Sought

1. This is a writ petition under Article
226 of the Constitution of India wherein the
petitioner has prayed for the issuance of a
writ of certiorari quashing the impugned
Show Cause Notice No.02/2024-25 issued
on April 19, 2024 vide Form GST DRC-01
reference
No.DGGI/
INV/
GST/2179
/2020/GRU/634(S/L)
by
Directorate
General of Goods and Services Tax
Intelligence (DGGI), Ghaziabad Regional
Unit, (hereinafter referred to as 'respondent
no.2')
bearing
CBIC
DIN202404DNN40000555A8B, to the extent of
exorbitant unexplained penalty of Rs.
2,735,113,681/- proposed to be levied
against the petitioner firm under Section
122 (1), clause (ii) and (vii) of the Central
Goods
and
Service
Tax,
Act
2017
(hereinafter referred to as 'CGST Act') and
respective
State
Statutes
namely
Uttarakhand Goods and Services Tax Act,
2017, Haryana Goods and Services Tax
Act, 2017 and the Maharastra Goods and
Services Tax, 2017 read with Integrated
Goods and Services Tax Act, 2017.

Factual Background

2. Factual matrix giving rise to the
instant petition is delineated below:

a. In the present lis, M/s Patanjali
Ayurved limited (hereinafter referred to as
'petitioner') is a private limited company
engaged in the manufacturing of FastMoving 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)
716 INDIAN LAW REPORTS ALLAHABAD SERIES
and Ahmednagar (Maharashtra), which are
part of the investigation in the demandcum-show cause notice. Its principal place
of business is in Haridwar, Uttarakhand.
Three units of the petitioner are registered
at three different locations with 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
impugned
demand-cum-show
cause notice dated April 19, 2024 for the
tax period April 2018 to March 2022.

b. An information was received by the
respondent authorities relating to M/s S.G
Agro India Industry situated at Delhi with
GSTIN number (07ASQPG3746B1ZT),
that it was having an aggregate liability
greater than two crore and Input Tax Credit
(ITC) utilization over 99% with no income
tax credential. Furthermore, information
was also received relating to M/s Magic
Traders situated at Delhi with GSTIN
number (07MGNPS1227A1ZB), that it had
taken recent registration and had issued eway bills of more than Rs.50 lakhs to
various firms.

c. The aforementioned information
created a suspicion which resulted in an
investigation conducted against various
firms/companies
including
the
three
aforementioned units of the petitioner
which led to the issuance of the impugned
demand-cum-show cause notice dated
April 19, 2024 under Sections 74, 122 of
CGST Act and Section 20 of Integrated
Goods and Services Tax Act, 2017 for the
tax period April 2018 to March 2022 by the
respondent no.2 wherein it was alleged that
the petitioner, acting as a main person,
indulged in circular trading of tax invoices
only on paper without actual supply of
goods.

d. A perusal of the impugned show
cause notice shows that the three units of
petitioner situated at Uttarakhand, Haryana
and Maharastra were issued notices under
Sections 74 and 122 of the CGST Act. It is to
be noted that the show cause notice was
cumulatively issued under both the provisions
of the CGST Act and jurisdiction of the same
lies before the respondent no. 2 in view of
Circular No.169/01/2022-GST dated March
12, 2022, wherein the Additional/Joint
Commissioners
of
Central
Tax
Commissionerate
Lucknow
has
been
empowered with All India jurisdiction vide
Notification No. 02/2022-Central Tax dated
March 11, 2022 to further adjudicate the
matter. As this writ petition is in respect of
the petitioner, only the relevant portion of the
said show cause notice which runs into more
than 150 pages wherein the penalty is
imposed upon the petitioner is extracted
below:

"13. Now, therefore M/s Patanjali
Ayurved
Ltd.
(05AAECP4424C1ZX),
Patanjali Food & Herbal Park Pvt. Ltd.,
Laksar
Road,
Padartha,
Haridwar,
Uttarakhand, 249404 is hereby required to
show
cause
to
the
Additional/Joint
Commissioner,
Central
GST
Commissionerate, Office of the Commissioner,
7-A Ashok Marg, Block-E, Hazratganj,
Lucknow, Uttar Pradesh-226001 as to why:

i.
The
IGST
amounting
to
₹9,08,15,881/- (Rupees Nine Crore Eight
Lakh Fifteen Thousand Eight Hundred and
Eighty-one only) should not be demanded
and recovered under the provision of
Section 74(1) of the CGST Act, 2017 read
with Section 20 of the IGST Act, 2017, as
detailed in para 11.4.2;

ii. Interest under the provision of
Section 50(3) of the CGST Act, 2017 read
5 All. M/s Patanjali Ayurved Ltd. Vs. Union of India & Ors.
717
with Section 20 of the IGST Act, 2017
should not be demanded and recovered
from them on the GST amount demanded at
Sl.No. i;

iii. Penalty should not be imposed
upon them in terms of Section 74(1) of the
CGST Act, 2017 read with Section 20 of the
IGST Act, 2017 for wilful suppression of
facts with intent to evade payment of GST
on the amount demanded at Sl. No. i;

iv. Penalty should not be imposed
upon them in terms of Section 122(1)(ii) of
the CGST Act, 2017 read with Section 20 of
the IGST Act, 2017 for issuance of tax
invoices or bills for passing on irregular
ITC amounting to ₹38,57,21,402/- (IGST
₹38,57,21,402/-)
without
concomitant
supply of goods as detailed in para 11.4.2;

v. Penalty should not be imposed
upon them in terms of Section 122(1)(vii) of
the CGST Act, 2017 read with Section 20 of
the IGST Act, 2017 for taking or utilizing
Input
Tax
Credit
amounting
to
₹38,57,21,402/-
(IGST ₹38,57,21,402/-)
without actual receipt of goods as detailed
in para 11.4.2;

vi. Penalty should not be imposed
upon them in terms of Section 122(1)(x)
and (xvi) of the CGST Act, 2017 read with
Section 20 of the IGST Act, 2017.

13.1 Now, therefore M/s Patanjali
Ayurved Ltd. (06AAECP4424C1ZV), G.T.
Road, Unit-6, Rice Plant, 42-43 Km,
Bahalgarh, Sonipat, Haryana, 131001 is
hereby required to show cause to the
Additional/Joint Commissioner, Central GST
Commissionerate,
Office
of
the
Commissioner, 7-A Ashok Marg, Block-E,
Hazratganj, Lucknow, Uttar Pradesh-226001
as to why:

i. Penalty should not be imposed
upon them in terms of Section 122(1)(ii) of
the CGST Act, 2017 read with Section 20 of
the IGST Act, 2017 for issuance of tax
invoices or bills for passing on irregular
ITC amounting to ₹88,77,08,723/- (IGST
₹88,77,08,723/-)
without
concomitant
supply of goods as detailed in para 11.4.3:

ii. Penalty should not be imposed
upon them in terms of Section 122(1)(vii) of
the CGST Act, 2017 read with Section 20 of
the IGST Act, 2017 for taking or utilizing
Input
Tax
Credit
amounting
to
₹86,26,05,155/- (IGST ₹86,26,05,155/-).
without actual receipt of goods as detailed
in para 11.4.3:

iii. Penalty should not be imposed
upon them in terms of Section 122(1)(x)
and (xvi) of the CGST Act, 2017 read with
Section 20 of the IGST Act, 2017.

13.2
Now,
therefore
M/s
Patanjali
Ayurved
Ltd.
(27AAECP4424C1ZR), G.N.5. Khadaka,
Tal, Newasa, Ahmednagar, Maharashtra,
414603 is hereby required to show cause to
the Additional/Joint Commissioner, Central
GST Commissionerate, Office of the
Commissioner, 7-A Ashok Marg, Block-E.
Hazratganj, Lucknow, Uttar Pradesh226001 as to why:

i. Penalty should not be imposed
upon them in terms of Section 122(1)(ii) of
the CGST Act, 2017 read with Section 20 of
the IGST Act, 2017 for issuance of tax
invoices or bills for passing on irregular
ITC amounting to ₹11,26,67,999/- (IGST
₹11,26,67,999/-)
without
concomitant
supply of goods as detailed in para 11.4.4;

ii. Penalty should not be imposed
upon them in terms of Section 122(1)(vii) of
718 INDIAN LAW REPORTS ALLAHABAD SERIES
the CGST Act, 2017 read with Section 20 of
the IGST Act, 2017 for taking or utilizing
Input
Tax
Credit
amounting
to
₹10,06,89,000/-
(IGST ₹10,06,89,000/-)
without actual receipt of goods as detailed
in para 11.4.4;

iii. Penalty should not be imposed
upon them in terms of Section 122(1)(x)
and (xvi) of the CGST Act, 2017 read with
Section 20 of the IGST Act, 2017."

e. With regard to the show cause
notice, the petitioner is aggrieved in the
present
writ
petition
only
with
the
imposition
of
exorbitant
penalty
of
Rs.2,735,113,681/- under Section 122 (1),
clause (ii) and (vii) of the CGST Act.

f. This Court on October 18, 2024
had granted an interim stay to proceedings
under Section 122 of the CGST Act and
had given time to the petitioner to file its
reply with regard to impugned show cause
notice issued under Section 74 of the CGST
Act.

g. In the meantime, respondent
authority vide adjudication order dated
January 10, 2025 has set aside the demands
and dropped the proceedings under Section
74 of the CGST Act against the petitioner.
The department vide adjudication order
dated January 10, 2025, at the very outset,
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.

h. 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
department, with regard to show cause
notice issued under Section 74 of the CGST
Act,
has
decided
to
exonerate
the
petitioner's unit situated at Uttarakhand on
various other grounds such as:

i. Show cause notice did not
specify consignment of particular suppliers
as fake, therefore, in absence of any
physical verification report of particular
stocks and the said irregular ITC cannot be
attributed to a particular supplier in absence
of which a demand of differential ITC is
not legally sustainable.

ii. All goods received from the
suppliers have been accounted for by the
petitioner and supplied in payment of GST
thereby implying the passing on irregular
ITC and the department has relied on a
circular no. 171/03/2022-GST dated July 6,
5 All. M/s Patanjali Ayurved Ltd. Vs. Union of India & Ors.
719
2022
wherein
it
was
clarified
that
proceedings under Section 74 cannot be
initiated against taxpayers, if it has merely
passed on irregular ITC on the outward
supply and only penalty under Section 122
of the CGST Act, if any, could be imposed.

iii. There is no any shortage and
mismatch in stock of packing materials and
the actual physical quantity of stocks in
addition to the raw materials available.
Furthermore, there is no adverse remark on
any shortage or excess of stock packing
materials found at the premises of the
petitioner.

iv. This is not a case of receiving
supplies from a non-existent suppliers as if
this would have been the case, the
department ought to have cancelled the
registration of such fake firms and blocked
the ITC immediately.

v. Show cause notice has placed
reliance on third party data like RTO
records which is not in conformity with the
mandatory procedure prescribed under
Section 145 of the CGST Act, which
requires a certificate to authenticate the
documents which are to be relied upon in
departmental proceedings thereby making
the said evidence as inadmissible.

vi. On the issue of transportation,
it was observed that it is not a requirement
under the law that the vehicles should take
only a fixed toll route and any route may be
chosen to reach a destination.

vii. Upon a request of cross
examination by the petitioner, of persons
on whose testimony reliance was placed
upon in the show cause notice, all the
suppliers have clearly declared on affidavit
that they have made supplies to the
petitioner based on genuine business
transactions.

i. The relevant concluding part of
the adjudication order dated January 10,
2025 is provided herein below:

"6.21 As already discussed in the
earlier part of this order, the facts are
going in favor of the Noticee, in as much
as, no findings as to the shortage of raw
materials are there, proper consumption
of packing materials is shown, CA has
furnished certificate regarding further
supply of goods on payment of taxes,
favourable
declaration
of
the
L1
suppliers in favor of the Noticee,
payment of tax in cash portion on value
addition during the relevant period and
quantitative co-relation between the
inputs received and inputs supplied,
evidencing that ITC has not been
retained but passed on further. In view
of this, I am left with no option except to
hold that there can be no demand
against the Main Noticee under Section
74(1) of the Act. Since demand of tax is
not sustainable, question of charging of
interest and imposition of penalty also
does not arise.

****

6.26 Accordingly, I pass the
following order:

ORDER

(1) I drop the demand of
₹9,08,15,881/-
proposed
under
the
provision of Section 74(1) of the CGST Act,
2017 read with Section 20 of the IGST Act,
2017 against M/s Patanjali Ayurved Ltd,
Uttarakhand."

Contentions of The Petitioner
720 INDIAN LAW REPORTS ALLAHABAD SERIES

3. Mr. Arvind Datar, Senior Advocate
appearing on behalf of the petitioner has
made the following submissions:

a. There are various indicia to
point out that Section 122 of the CGST Act
is criminal in nature and accordingly
attracts criminal liability.

b. Penalty for offences under
Section 122 of the CGST Act states that a
taxable person who commits any of the
offences mentioned in its clause (i) to (xxi)
shall be liable to penalty of ten thousand
rupees or an amount equivalent to the tax
evaded or ITC availed of or passed on or
distributed irregularly whichever is higher.
This imputes that first there has to be
determination of tax under Section 73/74 of
the CGST Act prior to invoking penal
provision under Section 122 of the CGST
Act. Moreover, heading to Section 122 of
the CGST Act itself states 'Penalty for
certain offences' that implies that there has
to be a predicate offence of tax evasion for
which demand of tax had to be made under
Section 73/74 of the CGST Act. In this
regard, reliance has been placed upon NC
Dhondial v. Union of India reported in
AIR 2004 SC 1272 and
Ramanna
Dayaram Shetty v. International Airport
Authority of India reported in (1979) 3
SCC 489.

c. Heading to Section 122 of the
CGST Act reads as 'Penalty for certain
offences'. The word 'offence' has not been
defined in CGST Act, 2017 or under any
other GST laws, therefore, General Clauses
Act, 1897 should be looked into. The word
'offence' is defined under Section 2(38) of
the General Clauses Act, 1897 as "any act or
omission made punishable by any law for the
time being in force". Moreover, 'offence' has
also been defined in Section 2(n) of the Code
of Criminal Procedure, 1973 (hereinafter
referred to as 'CrPC') and under Section 2(q)
of Bharatiya Nagarik Suraksha Sanhita, 2023
(hereinafter referred to as 'BNSS') as "any
act or omission made punishable by any law
for the time being in force." Section 4(2) of
the CrPC/BNSS states that all offences under
any other law shall be investigated, inquired
into, tried, and otherwise dealt with according
to the provisions under the CrPC, if no
separate provisions are envisaged in such
other laws. Therefore, the offences under the
CGST Act also necessarily need to be
governed by Section 4(2) of the CrPC. In this
regard, reliance has been placed on Pradeep
S. Wodeyar v. State of Karnataka reported in
(2021) 19 SCC 62.

d. The mere fact that the fine is
termed as 'penalty' will not ipso facto
indicate that it is a civil wrong as even in IPC
as well as CrPC, the word penalty had often
been interchangeably used as fine which can
be illustrated from the following examples:

i. Section 136 of CrPC prescribes
that if a person fails to obey or show cause in
response to an order under Section 135,
he/she shall be liable to 'penalty' prescribed
under Section 188 of the IPC. Section 188
IPC, however, imposes a fine.

ii. Section 141 of the CrPC uses the
word 'penalty' while describing fine under
Section 188 of the IPC.

iii. The interchangeable use of
penalty and fine is also evident from a perusal
of Section 136 and Section 137 of the IPC.

iv. Even a perusal of prescribed
acts under Section 122 of the CGST Act
indicate that penalty is envisaged to be
levied for actions which are criminal in
nature; and therefore, to arrive at a
5 All. M/s Patanjali Ayurved Ltd. Vs. Union of India & Ors.
721
determination of whether or not the
constituent elements of such provisions has
occurred, a trial and due application of
judicial mind is needed. This is most
evident from the following sub-sections
which indicate that prescribed acts are
criminal in nature. A comparison is also
drawn with similar sections in other penal
legislations which further indicates that the
prescribed acts under Section 122 of the
CGST Act are identical to penal provisions
under other statues further necessitating a
trial.

e. Section 74 of the CGST Act is
already there to compensate for the loss of
revenue under the head 'Demands and
Recovery' which also contains reference to
'penalty' which is adjudicated by the
proper officer and states that penalty
payable is equivalent to tax payable under
the notice. The purpose of framing Section
122 of the CGST Act by Parliament would
not have been the same as for Section 74 of
the CGST Act. It is contended that since
penalty has already been dealt by the
Parliament in Section 74 of the CGST Act
there was no need to bring Section 122 of
the CGST Act in the Statute for imposing
penalty once again. Therefore, Section 122
of the CGST Act is for more serious
offences and attracts criminal proceedings.

f. A comparison between Section
122 (Penalty for certain offences) and 132
(Punishment for certain offences) of the
CGST Act would reveal that several subsections are identical, which implies that a
penalty under Section 122 can only be
imposed after a conviction under Section
132. In relation to Section 132(6) which
provides for sanction to be taken from
Commissioner
prior
to
prosecution
(whereas there is no such reference in
Section 122 as to who will adjudicate the
matter under the said provision), it is
submitted that the absence of a similar
provision such as Section 132(6) in Section
122 will not convert Section 122 into a
civil liability due to the presence of Section
134 that acts as a safeguard which applies
to the whole Act, and therefore, also to
Section 122.

g. Sections 122 and 132 of the
CGST Act are kept in the same chapter,
that is, 'Chapter XIX: Offences and
Penalties'. Before proceeding for the
offences mentioned under Sections 122,
132 and 134 of the CGST Act has to be
followed being in the same chapter that
requires
prior
sanction
from
the
Commissioner and states that the same will
be triable by a Court not inferior to that of a
Magistrate of the First Class. Hence, it is
submitted that a penalty envisaged under
Section 122 of the CGST Act can only be
imposed pursuant to a trial under Section
134 of the CGST Act.

h. Notes on clause of Section 122
of the CGST Act also makes it clear that
this clause provides for a list of 'offences'
and the definition of word 'offences' has to
be as provided in General Clauses Act,
1897 and CrPC/BNSS. The notes on clause
of Section 122 of the CGST Act is
reproduced herein below:

"This clause provides for a list of
offences such as supply of goods without
invoice, issue of invoice without supply etc.
which shall be liable to penalty. The clause
also provides for offences such as aiding or
abetting offences specified, fails to appear
on a summons etc will be liable of a penalty
of twenty-five thousand rupees."

i. The use of the phrase 'wilful
misstatement or suppression of facts to
722 INDIAN LAW REPORTS ALLAHABAD SERIES
evade tax' is clearly indicative of existence
of mens rea requirement which implies that
the proceedings ought to undergo a process
of criminal trial. The doctrine of Mens rea
serves as a crucial factor in establishing
criminal culpability and indispensable in
criminal
law
jurisprudence.
Wilful
misstatement has also been used in Section
122 and therefore, this proceeding has to
undergo a criminal trial. Though Section 74
also requires mens rea but that is
adjudicated by proper officer.

j.
In
the
CBIC
Circular
No.3/3/2017-GST dated July 7, 2017, the
Board, assigns the proper officers for
adjudication in relation to the various
sections of the CGST Act but has
intentionally excluded the proceedings
under Section 122 for prosecution by
criminal courts. Moreover, Section 122 of
the CGST Act also does not contain any
reference to proper officer; therefore it is
implied that these proceedings ought to
undergo prosecution by criminal courts.

k. Petitioner's argument does not
solely hinge on heading to Section 122 but
also its substantive and operative part.
Word 'aiding and abetting' is only found in
criminal statutes. Sub-section 3 of Section
122 of the CGST Act explicitly uses the
word 'aiding and abetting', for offences
therefore, these words used in the section
makes the provision criminal in nature.

l. The word 'penalty' has been
used in the context of offence, even in the
IPC and CrPC and does not automatically
indicate that it is in the nature of civil
liability.
There
is
nothing
in
"tax
jurisprudence" or any case law which
specifically states, as a rule of law, that
'penalty' must necessarily relate to a civil
liability. The character of the penalty,
whether civil or criminal, will depend on
the context, language, legislative intent and
statutory structure. Penalty also has been
defined in sixth edition of Pramanatha
Aiyar's Law Lexicon which states that
penalty can be punishment in taxation
matters as it may attract civil liability or
criminal liability. It is open to Parliament to
prescribe
punishment
by
way
of
imprisonment or fine or even a penalty, but
whether its levy is in consequence either of
a prescribed offence or of breach of other
provisions that are not characterized as
offences. A breach of law can attract both
penalty by the adjudicated mechanism, that
is, the department and imposition by the
prosecution mechanism, that is, criminal
courts. Learned Senior Advocate submitted
that penalty means punishment and also
drew the attention of this Court towards the
definition of 'Penalty' as cited in Corpus
Juris Secundum (Volume 85, para 580,
para 1023) which is reproduced herein
below as:

"A penalty imposed for a tax
delinquency is a civil obligation, remedial
and coercive in its nature, and is far
different from the penalty for a crime or a
fine or forfeiture provided as punishment
for the violation of criminal or penal
laws."

m. There are 21 types of offences
mentioned in Section 122 of the CGST Act
that provide for 100% penalty and out of
the same 11 attract punishment by way of
imprisonment and fine under Section 132.
This overlap is irrelevant, as the department
has the option to launch prosecution under
Sections 122 or 132, depending on the facts
of each case. The exclusion of proceedings
under Section 132 of the CGST Act cannot
lead to an inference that proceedings under
Section 122 of the CGST Act are relatable
5 All. M/s Patanjali Ayurved Ltd. Vs. Union of India & Ors.
723
to civil penalty. Parliament could have
intended that some of the offences
mentioned under Section 122 need harsh
punishment, and therefore, the punishment
can
be
a
traditional
method
of
imprisonment subsequent to a criminal
trial.

n. Explanation 1(ii) to Section 74
of the CGST Act provides that if penalty
proceedings
under
Section
74
stand
concluded against the 'main person',
criminal penalty under Section 122 and the
general civil penalty under Sections 125 of
the CGST Act should also stand concluded
against 'all the persons'. Furthermore,
closure of civil proceedings automatically
results
in
closure
of
the
criminal
proceedings
initiated
for
the
same
violation. Explanation 1(i) to Section 74
marks a departure from this general rule, by
stating that closure of penalty under
Section 74 will not result in abatement of
the
proceedings
under
Section
132.
However, proceedings under Section 122
even though criminal, will stand concluded
in consonance with the general rule.
Proceedings under Sections 73 and 74 are
different from Sections 122 and 132 of the
CGST Act and, therefore, can never be
clubbed together.

o. There are 17 provisions in
chapter XIX titled as 'Offences and Penalty'
and there is reference to a proper officer in
some of the provisions. Section 124 of the
CGST Act is also a "criminal" provision, as it
provides for punishment and refers to a
continuing offence. Section 126 gives general
guidelines relating to penalty and is intended
to ensure that the penalty imposed by the
Department officers is not disproportionate
and unduly harsh. Section 127 also refers to
'proper officers'. Only Section 125 does not
refer to 'proper officer' and is titled 'General
Penalty'. It applies only where no specific
penalty is provided for in the Act. However,
it does not relate to any "offence" but only
refers to "contravention" under the Act. The
absence of any reference to 'proper officer' in
Section 122 is deliberate, because the levy of
penalty by way of "punishment" can only be
done by the jurisdictional magistrate. Thus,
Section 122 and Section 132 also do not refer
to a 'proper officer' as these are criminal
provisions. On the other hand, other sections
like Section 129 (seizure of goods), Section
130 (confiscation) refer to 'officer' or 'proper
officer'.

p. It is also essential that the civil
and criminal jurisdictions are to be kept
separate under the principle of separation of
powers, which are set out in Article 50 of the
Constitution of India and also construed to be
part of the basic structure of our Constitution.

q.
There
is
a
constitutional
convention that all offences are tried only by
the established criminal courts which are part
of the judiciary whereas the adjudication of
penalty will be part of quasi-judicial
proceedings. Thus penalty under Section 74
and other provisions can be levied by the
appropriate officer. However, any penalty for
offences can only be levied by the criminal
courts.

r. To buttress his arguments,
counsel
has
placed
reliance
on
the
following cases:

i. Shiv Dutt Rai Fateh Chand &
Others v. Union of India & Another
reported in (1983) 3 SCC 529 [para 34].

ii. Gujarat Travancore Agency,
Coachin v. Commissioner of Income Tax,
Kerela, Ernakulam reported in (1989) 3
SCC 52 [para 4].
724 INDIAN LAW REPORTS ALLAHABAD SERIES

iii. Directorate of Enforcement v.
MCTM Corporation Pvt. Ltd. reported in
(1996) 2 SCC 471 [para 7,8,13]

iv. Chairman SEBI v. Shriram
Mutual funds and Another reported in
(2006) 5 SCC 361. [para 17, 19, 29, 33,
35].

v.
Union
of
India
v.
Dharmendra Textile Processors & Others
reported in (2008) 13 SCC 369 [para
15,17,19].

vi. Tata Power Company Ltd. &
Ors
Vs
Maharashtra
Electricity
Regulatory Commission & Ors. reported in
MANU/SC/0932/2009
[para
122,123]
regarding interpretation of headings to
section.

vii. N.C. Dhoundial Vs UoI &
Ors. reported in MANU/SC/1027/2003
[para 15]

viii. Standard Chartered Bank v.
Directorate of Enforcement reported in
(2006) 4 SCC 278 [para 29]

Contentions of Respondents

4. Mr. N. Venkatraman, learned
Additional Solicitor General of India
appearing on behalf of department has
made the following submissions:

a. Section 122(1) is for offences
committed by a taxable person, and the
penalty prescribed in Section 122(1) are
different from the penalty prescribed under
the Chapter XV Demands and Recovery
that is Sections 73/74. Section 74 of the
CGST Act deals with the determination of
tax
on
account
of
fraud,
wilful
misstatement, or suppression of facts. On
the other hand, Section 122(1) enumerates
specific offences and penalties for various
violations.

b. Section 74 of the CGST Act
are the outcomes resulting from the
commission of the offences listed under
Section 122 of the CGST Act. Therefore,
the offences listed under Section 122 of the
CGST Act need not necessarily cover the
cases as those are covered under Sections
73, or 74 of the CGST Act.

c.
Tax
Demand
of
Rs.9,08,15,881/- was issued under the
provisions of Section 74 of the CGST Act
as petitioner had wrongly availed or
utilized ITC and penalty amounting to
Rs.2,735,113,681/- under Section 122(i)(ii)
and (vii) of CGST Act proposed in the
notice, is not related with this demand but
for issuing tax invoices without any actual
supply
of
goods,
and
also
for
taxing/utilizing input tax credit without
actual receipt of goods. Therefore, the
demand invoked in the notice under the
provisions of Section 74 of the CGST Act
and penalty proposed under the provisions
of Section 122 is for two separate offences
and not interrelated.

d. Penalty in taxation matters is
only a civil liability and not a criminal
liability and heading of section alone can
not control the whole section. Section 122
of the CGST Act purports to preventing
loss of revenue and imposes penalty
whereas Section 132 of the CGST Act
purports to impose punishment as a
criminal offence. Mere addition of mens
rea would not make the provision criminal
in nature. If the Parliament chooses to add
mens rea to the penalty in tax law, it will
still be a civil liability read with mens rea.
For criminal trial prosecution, there is no
5 All. M/s Patanjali Ayurved Ltd. Vs. Union of India & Ors.
725
dilution in law, mens rea is indispensable.
Therefore, Section 122 is a basket of both
mens rea and non-mens rea contraventions.

e. This is an anti-evasion section
and
should
not
be
pushed
to
an
interpretation to make it difficult to
implement and promote evasion. This
provision provides for 100% penalty as it
aims to curb the practice of illegal trading
by creation of fake invoices without actual
and physical supply of goods.

f. Jurisprudence in tax law says
that penalty is nothing but civil liability.
Sections 121, 122 and 132 are parallel
provisions that talk about civil liability. The
burden of proof as required in Section 122
is preponderance of probability and not
beyond reasonable doubt. Whereas in
Section 132 of the CGST Act for the
criminal offence it has to be beyond
reasonable doubt. Therefore, the texture of
the whole case under Section 122 of the
CGST Act is proving a civil liability based
on the evidence, burden of which is
preponderance of probability. In criminal
courts for prosecution, the criminal court
will put the benchmark beyond reasonable
doubt. A criminal court in a criminal
offence as set in criminal law would always
requires proof of evidence that proves the
guilt beyond reasonable doubt.

g. Section 122 has twenty-one
sub-clauses, wherein eleven sub-clauses
have intention and ten sub-clauses do not
have
intention.
Even
for
a
civil
liability/penalty
one
can
require
intention/mens rea. But sub-sections which
do not contain elements of intention/mens
rea cannot be given criminal motive to it
(the vice-versa is also not applicable).
Section 132 contains eleven offences,
wherein mens rea is present which is a
permanent and indispensable feature under
criminal law. Whereas, mens rea is not
always needed when it comes to civil
liability under tax law. Consequently,
Section 122 does not suffer from any
unconstitutionality, it can have ten offences
without mens rea and eleven with mens rea,
it will still amount to penalty as a civil
liability. Therefore, Section 122 and its
sub-sections, is a basket which is a mixture
of non-mens rea and mens rea offences.
Mens rea is permissible under tax statute
for penalty, but it is impermissible for
criminal trial wherein all sub-sections
require mens rea. It is settled law in taxing
statue
that
one
can
have
civil
liability/penalty with mens rea, it will still
be considered as a penalty.

h. Attention is drawn to the
Explanation 1 to Section 74 of the CGST
Act.