• Dated 20^th August, 2026

10% Pre-Deposit on Penalty-Only GST Orders Not Applicable Where SCN Was Issued Before 1 October 2025: Delhi High Court

BRIEF FACTS:

The Assessee was issued a Show Cause Notice dated 25.06.2025 under Section 122(1A) of the CGST Act, proposing penalties aggregating to approximately ₹346.55 crore against each Assessee for alleged wrongful availment and passing on of Input Tax Credit through a network of fictitious entities. The adjudication proceedings culminated in an Order-in-Original dated 16.12.2025 imposing the proposed penalties, without any accompanying demand of tax against the Assessee in their individual capacities. The Assessee sought to challenge the order under Section 107 of the CGST Act. However, by that time, the proviso to Section 107(6), substituted with effect from 01.10.2025, required a pre-deposit of 10% of the penalty for filing an appeal against an order demanding penalty without involving any demand of tax. The Assessee would consequently have been required to deposit approximately ₹34.66 crore each.

ASSESSEE'S CONTENTION:

The Assessee contended that the substituted proviso to Section 107(6) could not apply to the case since the adjudicatory proceedings had commenced with the issuance of the SCN on 25.06.2025, when no percentage-based pre-deposit was prescribed for a wholly disputed penalty-only order under Section 122(1A). It was submitted that the right of appeal is a substantive right which vests upon commencement of the lis, along with the conditions governing its exercise. The Assessee relied upon the principles laid down by the Supreme Court in Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh, Garikapati Veeraya v. N. Subbiah Choudhry and Videocon International Ltd. v. SEBI, contending that a subsequent amendment which imposes a more onerous condition upon the appellate remedy cannot govern proceedings already initiated under the earlier regime unless the legislature expressly or by necessary intendment provides otherwise.

DEPARTMENT'S CONTENTION:

The Department contended that the Assessee had no enforceable right of appeal until the Order-in-Original was passed on 16.12.2025. Since the appeal became available only after the substituted proviso had come into force, the appeal was required to comply with the law prevailing on the date of filing. The Department further relied upon the words "no appeal shall be filed" in the substituted proviso and submitted that the amended provision governed all appeals filed after 01.10.2025. It was also argued that there was no saving provision preserving the earlier pre-deposit regime for proceedings in which only a Show Cause Notice had been issued before the amendment.

DECISION:

The Delhi High Court held that the substituted proviso to Section 107(6), effective from 01.10.2025, would not apply to the Assessee's appeal. The Court held that the right of appeal is a substantive right and that the appellate package, including the conditions governing its exercise, attaches to the lis when the original proceedings commence. Such right cannot subsequently be subjected to a more onerous condition unless the legislature has expressly or by necessary intendment provided for such application. The Court held that the material event in the present case was the issuance of the SCN dated 25.06.2025. By issuing the SCN, the Department had formulated and asserted a definite proposition of personal penal liability and placed the same for adjudication. The subsequent replies, personal hearing and Order-in-Original were held to be stages of the same adjudicatory proceeding. Accordingly, the lis had commenced before 01.10.2025. The Court further observed that, on the date of issuance of the SCN, the appellate package did not require any percentage-based pre-deposit for challenging a wholly disputed penalty-only order under Section 122(1A). The substituted proviso introduced a mandatory 10% deposit and thereby imposed a substantial financial impediment which did not exist when the proceedings commenced.

The Court rejected the Department's argument that the words "no appeal shall be filed" made the date of filing determinative. It held that these words merely prescribe the stage at which the applicable pre-deposit must be complied with and do not determine which version of Section 107(6) governs proceedings initiated before the amendment. Consequently, the Assessee was held not liable to deposit 10% of the disputed penalties as a condition for filing the appeal. The Appellate Authority was directed to register and entertain the appeal without treating non-payment of the 10% pre-deposit as a deficiency

BTA's COMMENT:

The decision reiterates the settled principle that the right of appeal is a substantive right and that the appellate remedy, including the conditions attached to its exercise, is determined with reference to the stage at which the lis commences. The judgment makes an important distinction between the date of commencement of adjudicatory proceedings and the date of passing of the Order-in-Original or filing of the appeal. The ruling is particularly significant for penalty-only proceedings under Section 122(1A), where the SCN was issued before 01.10.2025 but the adjudication order was passed thereafter. In such cases, the subsequent introduction of the 10% pre-deposit requirement under Section 107(6) cannot be applied retrospectively to burden a vested appellate right with a condition that did not exist when the proceedings commenced. The judgment also clarifies that while an Appellate Authority has no inherent power to waive an applicable statutory pre-deposit requirement, the question of waiver does not arise where the amended pre-deposit provision itself is held inapplicable.

Case Reference- Gaurav Jain & Anr. vs. Joint Commissioner (Appeals-II), CGST Delhi Zone & Anr., W.P.(C) 8414/2026, decided on 31 July 2026 (Delhi High Court).

Author- Shristy Pathak

Edited by- Madhurima Bose