Supreme Court Nullifies ₹186 Crore Tax Demand for Patanjali Foods: A Landmark Victory Explained
Supreme Court Quashes ₹186 Crore Tax Liability for Patanjali Foods
The Supreme Court of India has quashed a ₹186 crore tax demand imposed on Patanjali Foods Ltd, providing significant relief to the company. This decision, which came as a result of a Special Leave Petition (SLP) filed by the Principal Commissioner of Income Tax, Central 4, validates the Bombay High Court’s earlier ruling in favor of Patanjali Foods. The Supreme Court dismissed the SLP on January 15, 2025, affirming that the tax demand for the pre-Corporate Insolvency Resolution Process (CIRP) period is nullified.
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This ruling marks a major win for Patanjali Foods, ensuring the company faces no further financial liability on this matter. The initial tax demand, raised by the Income Tax Department for various assessment years, was previously struck down by the National Company Law Tribunal (NCLT), a decision later upheld by the Bombay High Court. Despite the Income Tax Department’s attempt to reinstate the claim, the Supreme Court’s dismissal brings the issue to a conclusive end.
| Information | Details |
|---|---|
| Company Name | Patanjali Foods Ltd (formerly Ruchi Soya Industries Ltd) |
| Industry | Fast-Moving Consumer Goods (FMCG), Food Processing |
| Founded | 1986 |
| Headquarters | Indore, Madhya Pradesh, India |
| Key People | Acharya Balkrishna Ji, Swami Ramdev (Senior Directors) |
| Ruling Date | January 15, 2025 (Supreme Court Dismissal of SLP) |
| Tax Demand Quashed | ₹186 Crore |
| Previous Judgements | NCLT struck down the demand, Bombay High Court upheld NCLT’s decision |
| Brands | Nutrela, Mahakosh, Sunrich, Ruchi Gold, Ruchi No. 1 |
| Manufacturing Capacity | Refining: 3.93 million metric tons annually, Seed Extraction: 3.91 million metric tons annually |
Background of the Tax Dispute.
The tax dispute originated from demands raised by the Income Tax Department for multiple assessment years predating the company’s Corporate Insolvency Resolution Process (CIRP). These demands were initially quashed by the National Company Law Tribunal (NCLT), a decision that was subsequently supported by the Bombay High Court. The Income Tax Department then filed a Special Leave Petition (SLP) to challenge the High Court’s order, but the Supreme Court ultimately dismissed this petition.
Patanjali Foods stated they were unaware of the Supreme Court hearing and only discovered the verdict on February 18, 2025, via a tax-related website. Despite this lack of formal notification, the company has confirmed that the Supreme Court’s ruling eliminates the ₹186 crore tax liability, with no anticipated financial repercussions.
Financial and Market Impact.
The Supreme Court’s decision has had a positive impact on Patanjali Foods’ stock. On February 20, 2025, shares of Patanjali Foods Ltd rose by over one percent to ₹1,847, marking the third consecutive session of gains. This positive market reaction underscores the significance of the ruling for investor confidence and the company’s financial stability.
In the third quarter of FY25, Patanjali Foods reported a robust 71.3 percent increase in net profit, reaching ₹370.9 crore, compared to ₹216.5 crore in the previous year. Revenue from operations also saw a 15.1 percent increase, climbing to ₹9,103 crore from ₹7,110.7 crore in the same period last year. The company’s operating performance improved significantly, with EBITDA surging 57.1 percent to ₹540.5 crore.
The ruling has immediate financial implications for Patanjali Foods:
- Tax Liability Nullified: The ₹186 crore demand is permanently quashed, with no further obligations.
- Stock Market Reaction: Shares rose 0.7% to ₹1,829 on February 19 and climbed further to ₹1,847 on February 20, reflecting investor confidence.
- Q3 FY25 Performance: Net profit surged 71.3% YoY to ₹370.9 crore, while revenue grew 15.1% to ₹9,103 crore.
Strategic Moves and Future Outlook.
Patanjali Foods has been actively expanding its business through strategic acquisitions and a focus on health-oriented products. In November 2024, the company completed the acquisition of its home and personal care (HPC) business, enhancing its presence in the dental, skin, hair, and home care segments. The company is also focusing on increasing its international market presence, with exports accounting for approximately 5% of total revenue in FY23 and a target of 10% in the next two years.
The company’s commitment to quality is demonstrated by its adherence to ISO 9001, ISO 22000, and FSSAI certifications, ensuring that its manufacturing processes meet stringent quality standards. Patanjali Foods also emphasizes local sourcing of raw materials, such as mustard and sunflower seeds, from Indian farmers, reinforcing its support for local agriculture.
Broader Implications for Corporate Insolvency Cases.
The Supreme Court’s verdict underscores the sanctity of resolution plans under the IBC. By extinguishing pre-CIRP liabilities not included in such plans, the ruling:
- Protects Companies: Shields businesses from retrospective tax demands post-insolvency.
- Clarifies Legal Boundaries: Reinforces that tax authorities must adhere to resolution plans approved during insolvency proceedings.
Patanjali Foods’ Strategic Moves Amid Challenges.
Despite inflationary pressures on palm oil and wheat, Patanjali Foods has expanded its footprint:
- Home & Personal Care (HPC) Acquisition: Completed on November 1, 2024, diversifying into dental, skin, and hair care.
- Export Growth: ₹67.27 crore in Q3 FY25, spanning 29 countries.
However, its FMCG segment saw revenue dip to ₹2,037.61 crore (from ₹2,498.62 crore YoY) due to commodity price volatility.
FAQ Section.
Q: What was the Supreme Court ruling regarding Patanjali Foods?
A: The Supreme Court dismissed a Special Leave Petition (SLP) filed by the Income Tax Department, nullifying a ₹186 crore tax demand on Patanjali Foods for the pre-Corporate Insolvency Resolution Process (CIRP) period.
Q: Why was the tax demand initially raised?
A: The tax demand was raised by the Income Tax Department for multiple assessment years before the company underwent the Corporate Insolvency Resolution Process.
Q: What was the outcome of the previous legal challenges?
A: The National Company Law Tribunal (NCLT) initially struck down the tax demand, and the Bombay High Court upheld this decision.
Q: How did Patanjali Foods become aware of the Supreme Court’s decision?
A: Patanjali Foods stated they were unaware of the hearing and learned about the dismissal through a tax-related website on February 18, 2025.
Q: What is the financial impact of the ruling on Patanjali Foods?
A: The company confirmed that the ₹186 crore tax liability no longer stands, and no significant financial impact is expected.
Q: How has the stock market reacted to the Supreme Court’s decision?
A: Shares of Patanjali Foods Ltd increased by over one percent following the ruling, reflecting positive investor sentiment.
Q: What are Patanjali Foods’ key business segments?
A: Patanjali Foods operates in several segments, including Food & FMCG, Nutrela Business, Nutraceuticals Business, and Edible Oils.
Q: What are the company’s major brands?
A: Key brands include Nutrela, Mahakosh, Sunrich, Ruchi Gold, and Ruchi No. 1.
Q: What is Patanjali Foods’ strategy for international markets?
A: The company aims to increase exports to 10% of total revenue in the next two years, focusing on health-conscious consumers worldwide.
Conclusion
The Supreme Court’s decision to nullify the ₹186 crore tax demand on Patanjali Foods marks a significant legal and financial victory for the company. This ruling not only eliminates a substantial liability but also reinforces investor confidence, paving the way for continued growth and expansion in the FMCG and food processing sectors. Patanjali Foods’ strategic focus on health-oriented products, combined with its robust financial performance and commitment to quality, positions it well for future success in both domestic and international markets.
Disclaimer: The information provided in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and completeness of the content, no guarantees are made regarding its reliability. The article is based on publicly available information and does not constitute legal, financial, or professional advice. Readers are advised to consult relevant experts or sources for specific guidance.
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C.K. Gupta
Hello, I am C.K. Gupta Founder of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.
