The Delhi High Court has held that the mandatory 10% pre-deposit for filing appeals against penalty-only orders under Section 107(6) of the Central Goods and Services Tax (CGST) Act, 2017, cannot be imposed where the adjudication proceedings commenced before the amendment came into force.

The Bench of Justice Anil Kshetrapal and Justice Shail Jain ruled that the right of appeal is a substantive vested right that crystallizes when the adjudicatory proceedings begin, and not when the order-in-original is passed. Consequently, the amended proviso introduced with effect from 1 October 2025 cannot retrospectively burden pending proceedings by imposing a new pre-deposit requirement. 

The petitioners were issued a Show Cause Notice (SCN) on 25 June 2025 alleging wrongful availment and passing on of Input Tax Credit (ITC) through a network of alleged fictitious entities. The notice proposed penalties under Section 122(1A) of the CGST Act amounting to ₹346.55 crore against each petitioner, without raising any corresponding tax demand in their individual capacities. 

Buy Now: GST Judgements E-Compilation – June 2026

After adjudication, the authorities passed an Order-in-Original dated 16 December 2025, confirming the proposed penalties. Since the order involved only penalties and no tax demand, the appellate authority insisted that each petitioner deposit approximately ₹34.66 crore, being 10% of the penalty, before entertaining the appeal under the amended proviso to Section 107(6). 

The petitioners challenged this requirement before the Delhi High Court, arguing that the amendment could not apply because the adjudicatory proceedings had commenced before the new provision came into force.

The central issue before the Court was whether the substituted proviso to Section 107(6), effective from 1 October 2025, requiring a 10% pre-deposit in penalty-only cases, applies where the Show Cause Notice was issued before the amendment, even though the adjudication order was passed after its enforcement. 

The High Court extensively examined the settled legal principle that the right of appeal is a substantive right and not merely procedural. Relying upon landmark Supreme Court judgments including Hoosein Kasam Dada, Garikapati Veeraya, and Videocon International, the Court reiterated that the appellate rights available to a litigant become vested when the lis commences, and those rights cannot subsequently be burdened by more onerous statutory conditions unless the legislature expressly provides otherwise. 

The Court observed that the Show Cause Notice dated 25 June 2025 constituted the commencement of the adjudicatory proceedings, as it specifically proposed quantified penalties against the petitioners and initiated formal adjudication. Since, on that date, Section 107(6) did not prescribe any percentage-based pre-deposit for penalty-only orders under Section 122(1A), the petitioners acquired the appellate rights available under the unamended law. 

According to the Court, the subsequent amendment introducing a mandatory 10% pre-deposit significantly altered the appellate package by imposing a substantial financial burden where none previously existed. Such an amendment could not operate retrospectively in the absence of any express legislative intention. 

Rejecting the Revenue’s contention that the amended provision should apply merely because the appeal would be filed after 1 October 2025, the Court held that the words “no appeal shall be filed” merely prescribe the stage at which compliance is required and do not determine the temporal applicability of the amendment.

The Bench further noted that neither the Finance Act, 2025, nor the substituted proviso contains any transitional provision indicating that pending adjudicatory proceedings would be governed by the amended pre-deposit requirement. Accordingly, the amendment was held to operate only prospectively for proceedings initiated on or after 1 October 2025. 

The petitioners had also challenged the constitutional validity of the amended proviso, contending that an uncapped mandatory pre-deposit in penalty-only cases could render the appellate remedy illusory.

However, having concluded that the amendment itself was inapplicable to the petitioners’ case, the High Court found it unnecessary to examine the constitutional challenge and expressly kept that question open for determination in an appropriate future case. 

Allowing the writ petition, the High Court held that the petitioners are not required to deposit 10% of the disputed penalties before filing their statutory appeals. The appellate authority has been directed to register and entertain the appeals without insisting upon such pre-deposit, subject only to compliance with any admitted dues under Section 107(6)(a). 

The Court further excluded the period during which the writ petition remained pending while computing limitation for filing appeals, directed that the appeals be filed within four weeks, and restrained the authorities from taking coercive recovery measures during that period.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Rajasthan HC Imposes Rs. 5 Lakh Exemplary Costs on CBIC For Vindictive Suspension of IRS Officer