Author: Ashwarya Sharma, Advocate, Co-Founder & Legal Head, RB LawCorp
Published on: 04/08/2026
Introduction
Procedural amendments in tax law often appear straightforward until they collide with proceedings that are already underway.
One such issue arose after the Finance Act, 2025 substituted the proviso to Section 107(6) of the CGST Act with effect from 1 October 2025, introducing—for the first time—a mandatory 10% pre-deposit even in appeals arising from penalty-only orders, including those passed under Section 122.
The amendment immediately raised an important legal question.
If a Show Cause Notice was issued before 1 October 2025, but the adjudication order and appeal arise thereafter, does the newly introduced pre-deposit requirement apply?
The Hon’ble Delhi High Court answered this question in Gaurav Jain & Another v. Joint Commissioner (Appeals-II), CGST Delhi Zone, holding that the amended proviso operates prospectively, and cannot burden proceedings where the dispute had already commenced before the amendment came into force.
In doing so, the Court reaffirmed one of the oldest principles of appellate jurisprudence—that the right of appeal vests when the lis begins, not when the appeal is eventually filed.
Background of the Dispute
The petitioners received a Show Cause Notice dated 25 June 2025 proposing penalties under Section 122(1A) of the CGST Act.
The adjudicating authority subsequently passed an Order-in-Original on 16 December 2025, confirming the proposed penalties.
This timeline became crucial.
When the Show Cause Notice was issued, Section 107(6) did not require any percentage-based pre-deposit for appeals against penalty-only orders under Section 122.
However, by the time the adjudication order was passed, the substituted proviso had already come into force, introducing a mandatory 10% pre-deposit.
The dispute therefore lay precisely at the intersection of the old and new statutory regimes.
The Core Issue Before the Court
The controversy before the Delhi High Court was narrow but significant.
Should the law governing the right of appeal be determined by:
- the date on which the Show Cause Notice was issued,
- or the date on which the adjudication order was passed and the appeal became exercisable?
The answer would determine whether the petitioners were required to deposit 10% of the penalty before their appeal could even be entertained.
The Petitioners’ Case
The petitioners argued that the right of appeal is a substantive statutory right, and such right crystallises once the dispute itself commences.
According to them, the commencement of the dispute occurred on 25 June 2025, when the Department first asserted liability by issuing the Show Cause Notice.
Since the law prevailing on that date imposed no percentage-based pre-deposit for appeals against Section 122 penalty orders, the subsequent amendment could not retrospectively burden an already vested right.
The Revenue’s Stand
The Revenue contended that no enforceable right of appeal arises until an adjudication order is actually passed.
Since the Order-in-Original was passed after 1 October 2025, the substituted proviso had already become operational.
Accordingly, every appeal filed thereafter, irrespective of when the proceedings commenced, had to satisfy the newly introduced 10% pre-deposit requirement.
The Department also argued that the amendment serves an important policy objective by discouraging frivolous appeals while simultaneously granting an automatic stay under Section 107(7).
Understanding the Amendment to Section 107(6)
Before 1 October 2025, the proviso to Section 107(6) required a percentage-based pre-deposit only in appeals arising from detention proceedings under Section 129(3).
Appeals against penalty-only orders under Section 122 carried no mandatory percentage-based deposit.
The substituted proviso fundamentally altered this position.
With effect from 1 October 2025, every appeal against a penalty-only order now requires payment of 10% of the disputed penalty before it can be entertained.
While the amendment reduced the pre-deposit requirement for Section 129 cases from 25% to 10%, it simultaneously introduced an entirely new financial condition for Section 122 appeals.
The High Court’s Analysis
The Right of Appeal Is a Vested Right
The Court reiterated the settled legal position that although the legislature may prescribe conditions governing appeals, the right of appeal itself is a substantive right.
Such a right vests once the legal dispute begins and cannot subsequently be impaired unless the statute clearly provides otherwise.
The Court observed that an adjudication order merely makes the vested right capable of exercise—it does not create the right for the first time.
When Does the Lis Commence?
Applying this principle, the Court held that the relevant date is not the date of adjudication.
Nor is it the date when the appeal is actually filed.
Instead, the dispute commences when the Department first asserts liability by issuing the Show Cause Notice.
Since the Show Cause Notice in the present case was issued on 25 June 2025, the petitioners’ appellate rights stood governed by the statutory framework existing on that date.
Subsequent replies, hearings, or adjudication proceedings merely formed part of the same continuing lis.
No Retrospective Legislative Intention
The Court then examined whether the Finance Act, 2025 expressly intended the amended proviso to apply to pending proceedings.
It found none.
Neither the substituted proviso nor the Finance Act contained any transitional provision indicating that proceedings already initiated prior to 1 October 2025 would be governed by the amended requirement.
In the absence of clear legislative language, the Court declined to attribute retrospective operation to a provision imposing a new financial burden upon the exercise of appellate rights.
Reliance on Settled Supreme Court Precedents
The Court placed considerable reliance upon the principles laid down by the Hon’ble Supreme Court in:
- Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh, and
- Videocon International Ltd. v. SEBI
These authorities consistently hold that unless a statute expressly provides otherwise, amendments imposing more onerous conditions upon the exercise of appellate rights cannot operate retrospectively.
Section 107(7) Does Not Alter the Position
The Revenue argued that since payment of pre-deposit automatically results in a statutory stay under Section 107(7), the amended provision should govern all appeals filed after 1 October 2025.
The Court rejected this submission.
Section 107(7), it observed, merely prescribes the consequence of complying with whichever version of Section 107(6) applies.
It cannot determine which statutory regime governs the appeal in the first place.
The Court’s Final Decision
The Delhi High Court ultimately held that the amended proviso to Section 107(6) applies prospectively.
Where the Show Cause Notice initiating the proceedings was issued before 1 October 2025, the appellate remedy remains governed by the unamended provision.
Accordingly, the petitioners were held not liable to deposit 10% of the penalty before filing their appeal.
Why This Judgment Matters
The ruling carries significance far beyond the individual petitioners.
A substantial number of Section 122 penalty proceedings commenced before 1 October 2025 remain pending before appellate authorities across the country.
For all such taxpayers, the judgment removes a financial hurdle that could otherwise involve significant amounts.
More importantly, the decision reinforces a foundational principle of appellate jurisprudence.
A vested statutory right cannot be made more burdensome midway through ongoing proceedings unless Parliament has expressly directed such retrospective application.
Conclusion
The Delhi High Court’s decision in Gaurav Jain is less about the quantum of pre-deposit and more about preserving certainty in procedural law.
By reaffirming that the right of appeal crystallises when the dispute itself begins, the Court has ensured that taxpayers are not subjected to changing procedural burdens after the commencement of proceedings.
The judgment also serves as an important reminder that amendments to appellate provisions, however well-intentioned, cannot automatically govern pending disputes unless the legislature clearly says so.
For taxpayers facing Section 122 penalty proceedings initiated before 1 October 2025, the ruling provides significant procedural relief.
For practitioners, it offers an important precedent that is likely to feature prominently in many pending GST appeals involving the amended Section 107(6).
📎 Attached Article for Detailed Reading
📎 Full Published Version: https://www.taxmann.com/research/gst-new/top-story/105010000000028780/no-pre-deposit-for-section-122-penalty-only-appeals-delhi-high-court-rules-on-prospective-application-of-the-amended-section-1076-opinion
(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)
