The Supreme Court recently issued notices and stayed the judgment of the Allahabad High Court, whereby it was held that the penalty proceedings against Patanjali under Section 122 of the CGST Act were maintainable despite the dropping of proceedings under Section 74 of the CGST Act. Even though under the present GST regime, persons who are not liable to pay tax under Sections 73/74 of the CGST Act may very well be liable for penalties as described in the twenty-one sub-sections of Section 122(1) and under sub-sections 122(2) and 122(3), the Apex Court kept the scenario open where a proceeding under Section 73/74 of the CGST Act may get concluded against the main person but the penalty proceedings under Section 122 of the CGST Act for issue of fake invoices by the main person may stand independent of the proceedings under Section 74.
The Division Bench comprising Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar did not discuss the observations by the High Court that an offence is the transgression/ infringement of law meant for the protection of the public, whereas a penalty is the consequence that comes as a result of the transgression/ infringement of law. The word ‘offence’ does not necessarily under all circumstances mean a crime that is required to be tried by the criminal court.
The Bench also refused to discuss whether a contravention of a rule/law wherein criminal proceedings are not initiated but only a penalty is imposed for the purpose of deterrence, would also amount to an offence, or not. Similarly, ‘penalty’ is a slippery word, and the same has to be understood in the context in which it is used in a given statute, and in ordinary parlance, the proceedings may cover penalties for avoidance of civil liabilities, which do not constitute offences against the State, was also not discussed.
Briefly, the Petitioner in this case has manufacturing units in Haridwar (Uttarakhand), Sonipat (Haryana), and Ahmednagar (Maharashtra), registered in different locations with the same PAN numbers and different GST Numbers. As suspicion arose against one S.G Agro India Industry regarding tax liabilities of over 2 crores and wrongful utilization of input tax credit, investigation was conducted where the demand and show cause notice was issued against the petitioner, culminating in issuance of SCN and demand under Sections 74, 122 of CGST Act and Section 20 of IGST Act, 2017 for the tax period April 2018 to March 2022 alleging that petitioner was involved in circular trading where invoices were being generated but there was no actual supply of goods. Meanwhile, proceedings under Section 74 were dropped against the Sonipat and Ahmednagar plants of the petitioner, but proceedings against the Haridwar plant under Section 74 were continued. However, the petitioner’s Haridwar plant was eventually exonerated, but penal proceedings against all plants continued. This led the petitioner to approach the Allahabad High Court, which maintained the penalty proceedings against Patanjali under Section 122 of the CGST Act.
Appearances:
Senior Advocate Arvind P. Datar, AOR Raj Kishor Choudhary, and Advocates Aishwarya Sharma, Shakeel Ahmed, Devansh Srivastava, Vaibhav Vyas, Vikram Patralekh, Pratibha Singh, Shalini Tripathi, Himanshu Gupta, & Amir Kaleem, for the Petitioner
NA, for the Respondent
