Delhi HC: New 10% GST Penalty Pre-Deposit Cannot Apply to Earlier Proceedings

Background of the GST penalty dispute

The GST Department issued a show-cause notice on 25 June 2025 proposing penalties under Section 122(1A) of the CGST Act. The adjudication concluded through an Order-in-Original dated 16 December 2025.

Penalties aggregating to about ₹346.55 crore were imposed separately on each petitioner. No accompanying tax demand was raised against them in their individual capacities.

The petitioners intended to challenge the order under Section 107. The appellate authority stated that it had no power to waive or reduce an applicable statutory pre-deposit, which led to the writ petition before the Delhi High Court.

Change made to Section 107(6)

Before 1 October 2025, Section 107(6) did not prescribe a percentage-based pre-deposit for an appeal against a wholly disputed penalty-only order under Section 122(1A). The earlier proviso dealt with orders under Section 129(3).

The substituted proviso, effective from 1 October 2025, requires an appellant challenging a penalty-only order to deposit 10% of the penalty. Applying it to this case would have required each petitioner to deposit approximately ₹34.66 crore before filing an appeal.

The amendment therefore introduced a new and substantially more onerous condition for this category of appeal.

Issue considered by the Delhi High Court

The principal question was whether the amended 10% pre-deposit requirement applied when the show-cause notice was issued before 1 October 2025, but the adjudication order and proposed appeal arose after that date.

The Department argued that the law in force when the appeal was filed should apply. The petitioners contended that their substantive appellate right became attached when the show-cause notice formally commenced the dispute.

Right of appeal is a substantive right

The High Court explained that a right of appeal is created by statute, but once it becomes attached to a proceeding it is a substantive right. A later law cannot impair that right or impose a more burdensome condition unless the legislature clearly gives the amendment such operation.

Although an appeal can be exercised only after an adverse order, the right to carry the dispute through the appellate process attaches when the lis begins. Under the GST adjudication framework, the show-cause notice identified the proposed personal penalty and formally commenced the proceedings.

Accordingly, the appellate conditions existing on 25 June 2025 governed the petitioners, not the more onerous condition introduced from 1 October 2025.

Relief granted by the Court

• The petitioners were not required to deposit 10% of the disputed penalties before filing their appeals.
• The appellate authority was directed to register and entertain the appeals without treating non-payment of the 10% amount as a defect.
• The period from 20 March 2026 until the judgment date was excluded for calculating limitation.
• The petitioners were directed to file their appeals within four weeks.
• No coercive recovery action was permitted during that four-week period.
• The merits of the penalty order were left open for determination by the appellate authority.

What the judgment does not decide

The Court did not hold the amended proviso unconstitutional. Because it found that the new condition did not apply to these proceedings, it left the constitutional challenge open for an appropriate case.

The Court also did not examine whether the penalties were factually or legally justified. Every contention concerning the allegations, evidence and penalty order remains available before the appellate authority.

The ruling should therefore be read as a decision on the temporal application of the amended pre-deposit condition, not as a decision cancelling the underlying penalties on merits.

Practical significance for GST taxpayers

The decision may assist taxpayers facing penalty-only orders where the underlying show-cause notice was issued before 1 October 2025. The date when proceedings commenced can determine which appellate conditions apply.

Taxpayers should examine the SCN date, the section under which the penalty was imposed, whether the order includes a tax demand and the precise wording of Section 107(6) applicable on the relevant date.

Appeal limitation remains important. A taxpayer should not assume that this judgment automatically extends time or removes other statutory requirements in every case.

• Preserve the complete show-cause notice and proof of its date.
• Separate penalty-only demands from orders involving disputed tax.
• Calculate the appeal deadline from the communication of the order.
• Identify the version of Section 107(6) applicable when proceedings began.
• File the appeal promptly and raise the pre-deposit issue with supporting legal grounds.

Conclusion

The Delhi High Court protected an existing appellate right from being impaired by a later and more burdensome pre-deposit requirement. For proceedings started through a show-cause notice before 1 October 2025, a penalty-only appeal is governed by the earlier Section 107(6) regime.

The judgment provides important guidance on GST appeal conditions, but its application will depend on the dates, demand structure and facts of each case. Taxpayers should review the complete order and obtain case-specific advice before filing an appeal.