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By: Manoj Mishra
11 Aug 2026 9 min read
Appeals under GST carry a statutory cost of entry. A taxpayer challenging an adverse order must first make the prescribed pre-deposit; once this condition is met, recovery of the balance demand is ordinarily deemed to be stayed until disposal of the appeal. The mechanism is intended to deter unmeritorious appeals without impairing meaningful appellate review. Its application, however, becomes difficult in penalty-only cases, where there are no corresponding tax demand and the deposit is computed only with reference to the penalty under challenge. The Finance Act, 2025 has introduced a specific pre-deposit requirement for such appeals.
This article examines the legislative design, its comparison with the pre-GST regime, the absence of transitional provisions, the evolving judicial interpretations, and the questions now awaiting authoritative consideration by the Supreme Court.
Section 107 requires an appellant to pay admitted dues in full and 10% of the disputed tax, subject to the statutory ceiling, with recovery of the balance deemed to be stayed. Before 1 October 2025, the proviso dealt only with appeals against detention and seizure orders under Section 129(3), requiring a deposit of 25% of the penalty. Other penalty-only appeals, including those under Section 122(1A), carried no percentage-based pre-deposit.
The Law Committee, in its proposals to the 55th GST Council, identified both this gap and the absence of a corresponding Tribunal-stage deposit. It recommended a uniform 10% deposit at the first appellate stage and an additional 10% before the GST Appellate Tribunal (GSTAT). These recommendations were implemented through the Finance Act, 2025. While the amendment reduced the deposit in detention cases from 25% to 10%, it also created a new requirement for other penalty-only appeals. If the dispute reaches the Tribunal, the cumulative deposit may rise to 20% of the penalty. The framework, however, does not expressly deal with pending proceedings or provide a monetary cap for penalty-only deposits.
Penalty-linked pre-deposits are not new. Before 6 August 2014, Section 35F of the Central Excise Act and Section 129E of the Customs Act generally required deposit of disputed duty or penalty, with scope for waiver on grounds of undue hardship. The same model applied to Service Tax through Section 83 of the Finance Act, 1994. The Finance (No. 2) Act, 2014 replaced this discretionary regime with mandatory pre-deposits of 7.5% or 10%, expressly covering penalty-only appeals and capping total exposure at INR 10 crore. The CBEC also clarified that the deposit would be computed on the penalty imposed.
Significantly, the 2014 amendments included an express saving clause for appeals and stay applications already pending. The legacy regime therefore combined mandatory deposits with a monetary cap, administrative guidance and clear transitional protection. The Finance Act, 2025 adopts the penalty-linked deposit concept under GST, but without these safeguards. Much of the present litigation is therefore driven by the absence of transitional architecture, not merely by the deposit requirement itself.
The dispute turns on the distinction between accrual of the right of appeal and the stage at which it becomes exercisable. The Revenue argues that an appeal arises only after an adverse order, and that the law in force when the appeal is filed must govern. It relies on the phrase “no appeal shall be filed” and on the statutory bargain under which a taxpayer obtains deemed stay after making the prescribed deposit.
Taxpayers approach the issue differently. They contend that the right of appeal is a substantive vested right that attaches when the lis commences. The forum, scope and conditions of appeal together form the appellate regime applicable to that proceeding. A later law may alter that regime prospectively but cannot ordinarily impose a more onerous condition on an existing lis unless the legislature says so expressly or by necessary implication. This principle, recognised in Hoosein Kasam Dada, Garikapati Veeraya and Videocon International, prevents appellate conditions from shifting midstream.
The Delhi HC in Gaurav Jain case accepted that the right of appeal vested when the lis commenced. It treated adjudication and successive appeals as part of one connected legal pursuit and held that the applicable appellate package could not ordinarily be made more onerous by a later amendment. The Court did not hold that every summons, inquiry or investigation commences a lis. The decisive event was the SCN, which identified the petitioners, invoked the substantive penalty provision, quantified the proposed penalties and asserted a definite personal liability. The reply, personal hearing and final order were successive stages of the same proceeding.
The relevant inquiry was therefore not when the adjudicating authority finally ruled, but when the Department formally asserted a definite liability and called upon the noticee to answer it. This approach finds support in Armour Security, where the Supreme Court, while interpreting Section 6(2)(b) of the CGST Act, distinguished investigative summons from formal adjudicatory proceedings and observed that the subject matter ordinarily crystallises through an SCN. Since searches, summonses and preliminary inquiries may only gather information, the test remains fact sensitive. Only a sufficiently definite SCN may preserve the earlier appellate regime.
The Court held that the phrase “no appeal shall be filed” prescribed the stage of compliance, not the temporal reach of the amendment. Similarly, substitution of the proviso and absence of a saving clause did not, by themselves, justify retrospective application.
The ruling neither invalidated the amendment nor waived an otherwise applicable deposit. It only held that the amended conditions did not govern proceedings in which the lis had commenced before 1 October 2025, while leaving the challenge to the uncapped deposit open.
The jurisprudence is now unfolding across distinct factual settings, each raising a different facet of the amendment’s temporal reach. In Barjinder Singh Kohli, the Calcutta HC held that a subsequently introduced pre-deposit condition could not apply to an appeal filed before it came into force and remanded the matter for consideration of delay condonation and disposal on merits. In Anukul Bindal, the Allahabad HC granted interim protection but did not finally decide the temporal issue.
At the Tribunal level, the GSTAT in Reddy Veeranna Constructions Pvt. Ltd. considered a penalty-only appeal where the SCN, order-in-original and first appellate order all predated 1 October 2025. Noting that the proviso to Section 112(8) contained neither express retrospective language nor any necessary implication to that effect, the GSTAT admitted the appeal without insisting on the additional 10% deposit.
The order remains provisional. The Tribunal kept the issue open for final hearing and clarified that the appellant would have to make the deposit if Section 112(8) was ultimately held applicable. The ruling nevertheless shows that the vested-right debate is now climbing the appellate ladder.
The broader controversy is also pending before the Supreme Court in M.M. Traders which is listing for hearing on 14 August 2026. The underlying High Court order did not decide on retrospectivity but directed the taxpayers to the newly operational GSTAT. Before the Supreme Court, however, the petitioners relied on the fact that the appealable order itself preceded the amendment. Interim permission was granted to pursue the appeal without pre-deposit, subject to the outcome of the Special Leave Petition. Gaurav Jain presents the sharper issue because only the SCN preceded 1 October 2025, while the final order followed it.
The Supreme Court must first identify the temporal anchor for the amended pre-deposit regime. A formal SCN that identifies the noticee, invokes the substantive provision and asserts a definite, determinable liability appears to be the most principled threshold. The Court may, however, need to define when such a notice sufficiently crystallises the lis, distinguish investigation from adjudication, and address cases involving supplementary notices or persons added to proceedings after the amendment.
Consistency between Sections 107 and 112 is equally important. If the appellate conditions applicable when the lis commenced govern the first appeal, the same conditions should ordinarily continue at the GSTAT stage as well.
The Court may also need to address structural gaps in the penalty-only framework. The provisos prescribe no monetary ceiling and refer to 10% of “the said penalty”, without clarifying whether the deposit is to be computed on the total penalty or only the amount remaining in dispute. The law is also silent on overlapping penalties, partial appellate relief and composite orders imposing tax on a company but personal penalties on other appellants. Since the Appellate Authority has no power to waive an applicable deposit on grounds of hardship, an uncapped, cash-based pre-deposit in a high-value personal penalty dispute may become a substantial barrier to effective appellate access. Mandatory pre-deposits are constitutionally recognised, but their design should not make the appellate remedy practically illusory.
The controversy extends well beyond the merits of a 10% pre-deposit. At its core lies a more fundamental question: can the financial terms governing an appeal be altered after the adjudicatory process has already commenced?
The Delhi HC’s approach strikes a careful balance. It preserves Parliament’s power to prescribe appellate conditions prospectively, while protecting the settled principle that a substantive right of appeal, once vested, cannot ordinarily be made more onerous by a later enactment. It also ensures that access to appellate justice does not become a shifting threshold during the life of a proceeding. The Supreme Court’s ruling is expected to clarify when a lis commences, separate investigation from adjudication, ensure consistency between Sections 107 and 112, and address the wider concerns arising from an uncapped penalty-linked deposit. It will define the limits within which fiscal amendments may operate on ongoing proceedings and determine whether revenue protection can coexist with meaningful appellate access.
Saksham Bhutani, Consultant, Tax, and Priya Rani, Associate Director, Grant Thornton Bharat, have also contributed to this article.
This article first appeared in the Taxmann on 11 August 2026.
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