Last week, when the news broke that Patanjali Foods Limited had received a fresh GST order from Rajasthan's tax department, three clients messaged me within the same evening. The question was more or less identical: if a company that size can get an ITC notice, what chance do smaller traders have? Fair question. So let's go through the case properly.
On July 29, 2026, Patanjali Foods filed a disclosure with the stock exchanges. The company said it had received an order from the Office of the Deputy Commissioner, State Tax Department, Circle-H, Jaipur-1, Rajasthan, dated July 28, 2026. The order covers three things:
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Reversal of Input Tax Credit (ITC)
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Alleged excess or wrongly availed ITC
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A penalty totalling Rs 80,37,898
Patanjali Foods has stated it does not accept the findings and will file an appeal before the appellate authority. It has also told investors that it doesn't expect any financial liability beyond the penalty amount, and that the order will not affect its operations.
This isn't the company's first brush with a GST order either. In March 2026, it received a separate order from the Kutch (Gandhidham) Commissioner's office for roughly Rs 3.87 crore, again over excess ITC claims and non-payment under the Reverse Charge Mechanism, relating to FY 2019-23. And an older January 2025 order, worth about Rs 89.64 lakh in demand and matching penalty, was upheld by the appellate authority in Meerut after both the company and the CGST department appealed it separately.
So this pattern isn't new. It's playing out across different states and different periods, all circling back to ITC.
What ITC Reversal and Wrongful Availment Actually Mean
Whenever a client brings me this kind of question, the first thing I explain is that ITC under GST isn't an automatic entitlement. It comes with conditions attached. Under Section 16, claiming ITC requires that the supplier has actually deposited the tax, the invoice is valid, the goods or services were genuinely received, and the return was filed within the prescribed time.
When the department finds during audit or scrutiny that any of these conditions weren't met, or that a taxpayer claimed more credit than they were entitled to, it passes an ITC reversal order. Along with that comes a penalty, either under Section 73 for non-fraud cases or Section 74 where fraud or wilful misstatement is alleged.
In Patanjali's case, the public filing doesn't spell out the exact nature of the discrepancy, whether it's a supplier-side mismatch, credit claimed on an ineligible category, or a documentation gap. The company has said it disagrees with the findings, so this is still a contested matter, not a settled one.
This is also where regular ITC reconciliation earns its keep. Catching a mismatch during a monthly reconciliation costs you an hour. Catching it two years later, in a departmental order, costs you a penalty on top of the reversal.
What Smaller Businesses Should Take From This
I keep thinking of a textile trader client from Sanganer. Last year he got a notice over an ITC mismatch between GSTR-2A and GSTR-3B. The reason was simple: two of his suppliers hadn't filed their returns on time, so his credit never showed up in 2B. Whether it's a company the size of Patanjali or a small trading unit, the underlying principle is the same. ITC is only safe when it reconciles with the system.
A few practical habits I recommend to every client:
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Reconcile your purchase register against GSTR-2B every month, not just once a year
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Track ineligible ITC separately (blocked credits under Section 17(5), like motor vehicles or food and beverages) so it doesn't get claimed by mistake
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Pay tax under Reverse Charge Mechanism (RCM) on time; this is one of the most commonly missed items
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Follow up with suppliers when a discrepancy shows up; keeping your own filings clean isn't enough on its own
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Don't miss appeal timelines once a notice arrives; the window is fixed
If you've already got a notice sitting in your inbox and aren't sure how to respond, this is exactly where a structured GST notice reply service helps, since the draft, the supporting documents, and the timeline all need to line up.
The Bigger Picture for FY26
This case isn't isolated. The government recently told Parliament that GST fraud claims touched Rs 74,782 crore in FY26, with Maharashtra topping the list of CGST detections. That tells you ITC scrutiny is widening across company sizes, listed or not.
Patanjali Foods says it will appeal before the appellate authority. Under Section 107 of the CGST Act, a taxpayer generally has three months from the date of the order to file an appeal, with a possible one-month extension under certain conditions. Filing the appeal also requires depositing a portion of the disputed tax amount upfront, and documentation matters a great deal through this process.
For now, Patanjali Foods has reassured investors that this penalty won't materially affect its overall financials. Rs 80.37 lakh might look small next to a company of that size, but the case is a reminder of how closely the GST department is watching ITC claims these days.
FAQs
1. How much penalty has Patanjali Foods been asked to pay?
Rajasthan's State Tax Department has imposed a penalty of Rs 80,37,898 (about Rs 80.37 lakh) on Patanjali Foods, linked to ITC reversal and alleged wrongful availment.
2. Which office issued the order?
The order was issued by the Office of the Deputy Commissioner, State Tax Department, Circle-H, Jaipur-1, Rajasthan, dated July 28, 2026.
3. Is this the first GST case against Patanjali Foods?
No. In March 2026, the Kutch Commissioner's office passed an order for about Rs 3.87 crore, and a January 2025 order worth about Rs 89.64 lakh in demand was upheld by the appellate authority.
4. What does ITC reversal mean?
When the department finds that a taxpayer claimed Input Tax Credit that wasn't eligible due to unmet conditions, it orders the credit to be reversed.
5. What causes wrongful ITC availment?
Common causes include invoice mismatches, suppliers not filing their returns, claiming blocked credit under Section 17(5), or claiming credit beyond the prescribed time limit.
6. Can the company challenge this order?
Yes. Patanjali Foods has said it will file an appeal before the appellate authority, an option available under Section 107 of the CGST Act.
7. What's the time limit to file a GST appeal?
Generally, an appeal must be filed within three months of the order date, with a possible one-month extension in certain circumstances.
8. Will this penalty affect Patanjali Foods' financials?
According to the company, it doesn't expect any liability beyond this penalty amount, and it won't impact its operations.
9. What should smaller businesses learn from this case?
Reconcile your purchase register with GSTR-2B monthly, track blocked credits separately, and pay RCM liabilities on time.
10. What should you do first if you get a GST notice?
Read the notice carefully for the date, section, and demand details, gather the related invoices and returns, and prepare your response within the given time limit. Delaying only increases the risk of a higher penalty.
11. What's the difference between Section 73 and Section 74?
Section 73 applies to non-fraud cases with lower penalties, while Section 74 applies to fraud or wilful misstatement cases and carries stricter penalties.
12. Does ITC mismatch only happen to large companies?
No, it can happen to businesses of any size. GST fraud claims touched Rs 74,782 crore in FY26, which shows scrutiny now extends across every kind of taxpayer.
13. Is RCM payment connected to ITC as well?
Yes. Tax paid under Reverse Charge Mechanism can be claimed as ITC if eligible, but it must first be paid on time.
Author: This article was researched and published by Sanju Meena, Digital Marketer and SEO Executive at LegalDev Tax India Pvt. Ltd., who works on GST compliance content and search strategy for gstfilling.co.
