No. The Hon’ble Allahabad High Court in M/s Patanjali Ayurved Ltd. v. Union of India & Ors. [2025 TAXONATION 1285 (ALLAHABAD)] held that penalty proceedings initiated under Section 122 of the CGST Act, 2017, stand independent of adjudication proceedings under Section 74. The petitioner contended that once the proceedings under Section 74 had been concluded in favour of the main person, the penalty proceedings under Section 122 ought to abate ipso facto. However, the Court rejected this proposition, observing that Sections 74 and 122 are distinct charging provisions, operating within different legislative frameworks and objectives. The Court emphasized that while Section 74 addresses determination of tax liability in cases involving fraud, suppression, or willful misstatement, Section 122 separately deals with imposition of penalty for contraventions such as issuance of fake invoices.
The Hon’ble Court relied on precedents from the Supreme Court, including Sukhpal Singh Bal, and Sanjeev Coke Mfg. Co, to elaborate that the concept of “offence” and “penalty” under tax laws can include civil and deterrent actions without necessarily implying criminal prosecution. It held that a statute may permit penalties to be imposed without mens rea, and such a construction would be valid as long as it harmonizes with the legislative intent and does not render the statute unworkable. The Hon’ble Court further explained that Explanation 1(ii) to Section 74, which refers to abatement of penalty proceedings, does not apply to penalty proceedings under Section 122 when the offence relates to fake invoicing or similar contraventions. Thus, the Hon’ble High Court concluded that penalty under Section 122 is to be adjudicated independently by the proper officer, and merely because proceedings under Section 74 are concluded or dropped, the penalty proceedings do not abate by default. The writ petition was accordingly dismissed.
Author’s Comments:
The term penalty, much like offence, is not defined under the CGST Act, yet it carries significant legal and procedural implications. Penalty under tax law is not merely compensatory; it can also be deterrent in nature—levied for breach of statutory obligations even without mens rea, unless the statute specifically provides otherwise. Section 122 of the CGST Act is one such self-contained provision that empowers proper officers to impose penalties independent of adjudication proceedings under Section 73 or 74.
In the present case, the Hon’ble High Court has rightly held that both the sections 74 and 122 of CGST Act operate in distinct spheres: Section 74 governs determination of tax liability in fraud-related cases, while Section 122 targets contraventions like issuance of fake invoices or aiding such frauds, even if tax evasion is not finally determined under Section 74.
In the author's view, this distinction is critical in understanding the legislative scheme of GST enforcement. Explanation 1(ii) to Section 74 only covers situations where a common SCN is issued invoking both Section 74 and penalty under Section 122(1). In such cases, if proceedings under Section 74 are dropped, the penalty component tagged to that very notice would also abate. However, where independent proceedings under Section 122 are initiated based on a separate cause of action—such as aiding fake invoicing, those do not automatically abate just because Section 74 proceedings are concluded.
Therefore, penalty proceedings under Section 122 must be tested on their own merits, independent of the fate of any adjudication proceedings.
GST Case Law Patanjali Ayurved Ltd. v. Union of India & Ors.
Citation-2025 TAXONATION 1285 (ALLAHABAD)
CA Ritesh Arora
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