Tax Vista

Your weekly tax recap

Edn. 289 - 10th August 2026

Kasi Viswanathan V

Penalty Appeals: Pre-deposit for Earlier Orders?

The past week saw two important developments on the applicability of the pre-deposit conditions introduced with effect from 01.10.2025 for penalty-only disputes. One is the Hyderabad GSTAT's order admitting an appeal without insisting upon pre-deposit under Section 112(8). The other is the judgment of the Delhi High Court, which examined vested appellate rights and commencement of the lis.

The issue was earlier discussed in Edition No. 286 while covering a Hyderabad GSTAT matter where a Bench comprising the same Member (Technical) had called for a response from the Department before deciding whether a penalty appeal arising from a pre-01.10.2025 order could be admitted without payment of pre-deposit. The Department has since filed its counter on 06.08.2026.

In the present matter, the proceedings took a different course. On enquiry by the Bench, the departmental representative stated that there was no objection to deciding the issue of pre-deposit matter on merits. The Tribunal accordingly proceeded to examine the applicability of Section 112(8).

The appeal arose from a penalty dispute where the show cause notice was issued on 29.09.2022, the Order-in-Original on 28.08.2023 and the Order-in-Appeal on 12.01.2024. The Tribunal noted that the proviso to Section 112(8), introducing a pre-deposit requirement in appeals involving only penalty, came into force only on 01.10.2025.

Referring to the Calcutta High Court decision [2025-VIL-1125-CAL] [discussed in Edition No. 286], the Tribunal observed that the amendment neither expressly nor by necessary implication indicated retrospective operation. Since the proceedings had arisen under the pre-amendment regime, the Tribunal held that the requirement of pre-deposit under Section 112(8) would not apply and admitted the appeal (albeit with a rider).

An important feature of the Hyderabad GSTAT order, however, is the rider inserted by the Tribunal. The Tribunal observed that if, while deciding the appeal on merits, it ultimately comes to the conclusion that the appellant was required to make a deposit equal to ten per cent of the penalty amount under Section 112(8), the appellant would be bound to comply with such direction. The order therefore permits the appeal to proceed without pre-deposit at present, but stops short of finally conclusion.

The issue has now also received detailed consideration from the Delhi High Court. The Court reiterated that the right of appeal is a vested substantive right and forms part of one continuous proceeding commencing with the lis. A lis comes into existence when a claim asserted by one party is met with opposition from the other. In the context of tax adjudication, the Court held that the relevant date is the initiation of proceedings and not the date of the transaction, investigation or appeal. On the facts before it, the material event was the issuance of the show cause notice prior to 01.10.2025. Since the law prevailing on that date did not require payment of pre-deposit in penalty-only matters, the subsequently introduced condition could not be applied unless the statute expressly or by necessary implication so provided.

The Court also examined the effect of the amendment being brought about through substitution of the existing proviso. It observed that while substitution ordinarily replaces the earlier provision, it does not by itself divest rights that had already accrued. Referring to the settled principle that an appellate remedy is a complete "package", comprising not merely the existence of the appeal but also the forum, scope and conditions subject to which it may be pursued, the Court held that the package available when the lis commenced continues to govern those proceedings unless a contrary legislative intention is clearly manifested.

The Court also noted that the Finance Act, 2025 brought about both beneficial and adverse changes. While it introduced a ten per cent pre-deposit requirement for penalty-only appeals generally, it simultaneously reduced the pre-deposit requirement for appeals against detention and seizure orders under Section 129 from twenty-five per cent to ten per cent. The Court nevertheless held that the fact that the amendment may benefit some classes of appellants cannot justify applying it retrospectively to others where it imposes a new burden.

The Court also examined whether the objective of discouraging frivolous appeals or securing a portion of the disputed liability justified application of the amended provision. The Court observed that legislative purpose cannot supply retrospectivity where the statute itself contains none. A prospective amendment necessarily creates different regimes for proceedings initiated before and after a specified date. That consequence by itself cannot justify imposing a burden upon a vested appellate right. The Court accordingly concluded that the Finance Act, 2025 neither expressly nor by necessary implication subjects proceedings initiated before 01.10.2025 to the newly introduced ten per cent pre-deposit requirement applicable to penalty-only appeals.

The Court also distinguished Surinder Singh Deswal (Section 148 of the Negotiable Instruments Act) on the ground that the amount there became payable pursuant to a judicial direction and did not operate as a condition for institution of the appeal itself. In contrast, Sections 107(6) and 112(8) prescribe conditions governing access to the appellate forum. It also distinguished Chandra Sekhar Jha, noting that the Customs law amendments were accompanied by specific transitional provisions creating separate appellate regimes. No comparable transitional arrangement accompanies the GST amendment.

The Calcutta High Court decision dealt with a comparatively easier fact situation where the appeal itself had been filed and rejected during a period when the amended proviso was not part of the statute book. The Delhi High Court had the opportunity to consider the issue after the amendments had come into force.

At present, High Court decisions appear to proceed on a common footing that the requirement is a substantive condition attached to the vested right of appeal and cannot be applied to proceedings initiated prior to 01.10.2025 in the absence of express words or necessary implication. Read with the Hyderabad GSTAT order, the position may assist admission of appeals before the Tribunal notwithstanding the rider recorded in the present order. However, the Department's submissions in the pending Hero Wiretex [2026-VIL-39-GSTAT-HYD] and the Tribunal's eventual view at the stage of final hearing for admission remain areas to watch [Re: 2026-VIL-41-GSTAT-GZB, 2026-VIL-779-DEL].

Pre-deposit Shortfall: Curable?

The Petitioner had challenged an Order-in-Appeal dated 04.08.2025 whereby the first appellate authority dismissed the appeal against Order-in-Original dated 26.12.2024 on the ground that the mandatory pre-deposit requirement under Section 107(6) had not been fulfilled. Although various amounts had been deposited during the course of investigation, there remained a shortfall of ₹33.18 lakh vis-à-vis the statutory requirement of ten per cent. The deficiency was subsequently made good on 01.04.2025. The Petitioner contended that the delay was on account of genuine financial constraints and that the shortfall had been deposited within the condonable period available for filing the appeal.

The Bombay High Court noted that the shortfall in pre-deposit had already been made good before the appellate authority passed the order dismissing the appeal. Taking note of this position and following its earlier decisions, including JEM Exporter [2023-VIL-489-BOM], the Court held that the appeal deserved to be considered on merits. The matter was accordingly restored to appellate authority for fresh consideration.

The decision may require to be viewed in the context of the earlier Bombay High Court rulings on the subject followed in the present matter. In JEM Exporter and Delphi World Money [2024-VIL-1210-BOM], the controversy primarily related to proof of payment of pre-deposit and other procedural deficiencies such as production of valid authorisation, certified copies. The emphasis in those decisions appears to be on curing defects and producing material necessary to establish compliance, rather than the actual issue of fulfillment of condition under Section 107(6).

Similarly, in D.N. Polymers and G. Khanna, the Petitioners had disputed the existence of any shortfall itself. In the ordinary course, the language of Section 107(6) appears clear that the prescribed amount is required to be paid before filing the appeal. Accordingly, where the issue relates to proof of payment, adjustment of amounts already deposited, validity of authorisation, certified copies or even the existence of a shortfall itself, an opportunity to cure the defect would ordinarily be necessary. The position may, however, be different where the shortfall is undisputed. The present case sailed through due to the fact that the (undisputed) shortfall was made good within the condonable period available for filing the appeal and before the appellate authority passed the order of dismissal. On those facts, the Court considered it appropriate that the appeal be heard on merits.

On a different note, in JEM Exporter's case, it was observed that once an appeal is rejected on the ground of non-compliance with the statutory requirements, the appellate authority could not simultaneously proceed to decide the merits of the dispute. If the appeal itself is treated as not maintainable, any adjudication on merits is not permissible and without jurisdiction.

The position under the Odisha High Court's decision in Digambar Road lines [2025-VIL-1195-ORI] was different. There, the appellate authority had rejected the appeal both on account of non-compliance with Section 107(6) and on merits. The High Court held that even if one of the grounds was found to be unsustainable, the order need not be interfered with where the other ground independently justified the ultimate conclusion. The findings on merits were accordingly sustained. The challenge was ultimately carried to the Supreme Court [2026-VIL-34-SC], but without success [Re: 2026-VIL-835-BOM]

[Read previous edition dated 03.08.2026]

(The views expressed are personal. The author can be reached for feedback or queries on v.k.vishwa@gmail.com)