The Madras High Court has held that the special pre-deposit requirement applicable to appeals against penalty-only orders cannot be invoked when the original adjudication order confirms liabilities towards tax, interest and penalty.
The bench of Justice Senthilkumar Ramamoorthy observed that the proviso to Section 107(6) of the Central Goods and Services Tax Act, 2017 applies only where the order under appeal demands a penalty without involving any demand of tax.
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The Court consequently set aside an appellate order rejecting the company’s GST appeal for failure to pre-deposit 10% of the penalty and restored the appeal for adjudication on merits.
The petitioner/assessee had approached the High Court under Article 226 of the Constitution, challenging the Order-in-Appeal passed by the Commissioner of GST and Central Excise (Appeals-I), Chennai.
The appellate authority had rejected the company’s appeal solely because it had not deposited an amount equal to 10% of the penalty imposed in the adjudication proceedings.
The dispute arose from a detailed adjudication order dated December 18, 2025, concerning the financial years 2018-19 to 2020-21.
The adjudicating authority had initially dealt with a proposed tax demand of Rs.2.17 crore. Of this amount, a demand of approximately Rs.51.89 lakh was dropped.
The authority confirmed and appropriated the remaining tax demand of Rs.1.65 crore under Section 74(9) of the CGST and Tamil Nadu GST Acts. The confirmed amount comprised Rs.28.74 lakh for 2018-19; Rs.49.57 lakh for 2019-20; and Rs.87.01 lakh for 2020-21.
The adjudicating authority also confirmed and appropriated interest of approximately Rs.25.19 lakh under Section 50(1) of the GST enactments.
In addition, a penalty of Rs.1.65 crore was imposed under Section 74(9), read with Section 122(2)(b), of the CGST and TNGST Acts. The penalty consisted of Rs.82.66 lakh each under the Central GST and State GST components.
While the tax and interest had already been paid, the penalty remained unpaid. As a result, the summary order in Form GST DRC-07 reflected only the outstanding penalty liability.
Appearing for the company, counsel G. Natarajan submitted that the appellate authority had wrongly treated the matter as an appeal against an order demanding only a penalty.
Counsel pointed out that the substantive adjudication order imposed liabilities towards tax, interest and penalty. It also expressly recorded that the tax and interest amounts had been paid.
Accordingly, the company contended that the proviso to Section 107(6), requiring the deposit of 10% of the penalty in cases where an order demands penalty without involving any tax demand, was not attracted.
Senior Standing Counsel A.P. Srinivas accepted notice on behalf of the GST authority.
The High Court examined the operative portion of the adjudication order and noted that it clearly confirmed all three components—tax, interest and penalty.
The Court explained that the detailed adjudication order was comparable to a civil court judgment. Form GST DRC-07, which showed only the penalty as outstanding because the tax and interest had already been discharged, was comparable to the decree flowing from that judgment.
Therefore, the nature of the proceedings had to be determined from the substantive adjudication order and not merely from the unpaid amount reflected in Form DRC-07.
The fact that only the penalty remained unpaid did not transform the original order into an order demanding penalty without involving a demand of tax.
The proviso to Section 107(6) states that where an order demands a penalty without involving any demand of tax, an appeal cannot be filed unless the appellant pays a sum equal to 10% of the penalty.
Interpreting the provision, the High Court held that it is attracted only when the order itself demands a penalty without containing any tax demand.
In the present case, the adjudication order had expressly confirmed the demand for tax along with interest and penalty. The subsequent payment and appropriation of the tax and interest did not alter the character of the order.
The Court, therefore, concluded that the proviso to Section 107(6) was inapplicable.
Since the company’s appeal had been rejected solely for failure to deposit 10% of the penalty, the High Court declared the appellate order unsustainable and set it aside.
The appeal was restored to the file of the appellate authority for adjudication on merits. The writ petition was disposed of without any order as to costs, and the connected miscellaneous petition was closed.
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