Section 73/74 Anti-Evasion Proceedings are Independent of Section 122 Penalty: Allahabad HC

In the recent case of M/S PATANJALI AYURVED LTD v. UNION OF INDIA AND OTHERS, the Allahabad High Court held that proceedings under Section 73/74 stand independent of the proceedings under Section 122. Abatement of proceedings under Section 74 of the CGST Act does not ipso facto abate the proceedings under Section 122, which are for completely different offences.

Facts of the Case:

1. M/s Patanjali Ayurved Limited (Petitioner/ PAL) is engaged in the manufacturing of Fast-Moving Consumer Goods.

2. Information was received by the department that one suspicious dealer had an aggregate liability greater than ₹2 crore and Input Tax Credit (ITC) utilization over 99%, with no income tax credentials. Furthermore, another dealer situated in Delhi had recently registered and had issued e-way bills of more than ₹50 lakhs to various parties.

3. Based on the above information, an investigation was conducted against various firms/companies, including the three manufacturing units of PAL situated at Haridwar (Uttarakhand), Sonipat (Haryana), and Ahmednagar (Maharashtra).

4. An SCN-cum-demand notice was issued alleging that the petitioner, acting as the main person, indulged in circular trading of tax invoices only on paper without the actual supply of goods.

5. A petition was filed for the imposition of a penalty of ₹273.51 crore as per the provisions of Section 122(1)(ii) and (vii). However, proceedings under Section 74 were dropped for Haryana and Maharashtra states, but the penalty was proposed under Section 122. Meanwhile, all proceedings continued for Uttarakhand state, with only penal action for the remaining states.

Issues Before the Court: