Madras HC Waives Requirement Of 10% Pre Deposit Of Penalty And Allow Appeals To Be Filed Without Pre-Deposit

The Madras High Court has waived requirement of 10% pre-deposit of penalty and allow appeals to be filed without pre-deposit. The bench of Justice C. Saravanan has dismissed a batch of writ petitions challenging GST assessment orders passed under Section 74 of the respective GST enactments against several entities allegedly involved in circular trading and wrongful availment of Input Tax Credit (ITC), while simultaneously granting significant relief by waiving the statutory pre-deposit requirement for filing appeals. The petitions were filed by multiple business entities including Tvl. SAM Enterprises, Tvl. New Life Healthcare Products, Tvl. Infix Global Healthcare LLP, Tvl. M.S. Global Health Care, Tvl. Sri Sana Enterprises, and Tvl. Q-Tech Surgical Products, challenging various assessment orders issued in Form GST DRC-07 for tax periods ranging from 2020-21 to 2024-25. The impugned orders had imposed substantial penalties under Sections 122(1)(ii) and 122(1)(vii) of the GST enactments on allegations of fraudulent circular trading and fake ITC transactions. The Department alleged that the petitioners had artificially inflated their turnover through circular trading arrangements without actual movement of goods, allegedly with the objective of boosting business turnover, availing fake ITC, and creating an appearance of being major players in the medical equipment supply sector for obtaining bank loans and other financial benefits. The assessment orders reportedly concluded that the entities had only 1% or lesser genuine transactions while the remaining transactions constituted circular trading. The judgment records that the tax authorities imposed penalties running into several crores of rupees. The tabulated details in the order indicate cumulative penalties exceeding ₹367 crores under Section 122(1)(ii) alone, apart from additional liabilities under Section 122(1)(vii). The petitioners argued before the Court that even assuming the allegations were correct, the maximum penalty imposable under Section 122(1) should have been restricted to ₹10,000 and that the authorities lacked justification for imposing penalties equivalent to the alleged ineligible ITC amounts. They also relied upon Supreme Court judgments dealing with proportionality of punishment, including Coimbatore District Central Cooperative Bank vs. Employees Association, Charanjit Lamba vs. Army Southern Command, and S.R. Tewari vs. Union of India, to contend that penalties must be proportionate to the gravity of misconduct. However, the High Court rejected these submissions and held that the language employed in Section 122(1) of the GST enactments did not confer discretion upon the assessing authority to impose a lesser penalty where the statute specifically uses the phrase “whichever is higher.” The Court observed that the statutory scheme under Section 122 materially differed from Section 11-AC of the Central Excise Act, 1944, which had been interpreted by the Supreme Court in earlier decisions such as Union of India vs. Dharamendra Textile Processors and Union of India vs. Rajasthan Spinning and Weaving Mills. The bench noted that the assessment orders had adequately recorded findings regarding the objective of circular trading and wrongful ITC availment after considering the submissions of the petitioners during assessment proceedings. The Court observed that prima facie the petitioners appeared to have availed ineligible ITC and passed on such credit to inflate turnover figures and derive undue benefits from the system. The judgment stated that such conduct attracted penalty provisions under Section 122(1) of the GST enactments. The Court further emphasized that GST laws provide a complete appellate mechanism beginning with appeals before the Appellate Authority under Section 107, followed by further appeals before the GST Tribunal and subsequently before the High Court. Relying upon the Supreme Court’s decision in L. Chandra Kumar vs. Union of India, the Court held that the petitioners could not bypass the statutory appellate framework by directly invoking writ jurisdiction. While dismissing the writ petitions, the Court granted substantial relief to the petitioners by dispensing with the mandatory 10% pre-deposit requirement under Section 107 of the GST enactments for filing appeals. The Court observed that insistence on pre-deposit of such enormous penalty amounts would cause undue hardship and effectively render the appellate remedy illusory. Accordingly, liberty was granted to the petitioners to file appeals within thirty days from receipt of the order, without payment of the statutory pre-deposit. The High Court also directed that if such appeals are filed, the Appellate Authority should dispose of them on merits and in accordance with law, preferably within ninety days from the date of receipt of the Court’s order, after granting an opportunity of hearing to the petitioners. Case Details Case Title: Tvl.SAM Enterprises Versus The Commercial Tax Officer Citation: JURISHOUR-1186-HC-2026(MAD) Case No.: W.P. Nos.2628, 2630, 2633, 2912, 2925, 2927, 2982, 3206, 3211, 3949, 3953, 3963, 4088. 4097, 4101, 4107, 4113. 4117 and 4191 of 2026 Date: 18.02.2026 Counsel For Petitioner: S.Durairaj Counsel For Respondent: Amirtha Poonkodi Dinakaran Click Here To Read Order Read More: DRI Complaint Before Special Court Not Governed By Private Complaint Procedure: Delhi HC

Madras HC Waives Requirement Of 10% Pre Deposit Of Penalty And Allow Appeals To Be Filed Without Pre-Deposit

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