Section 107(6) CGST Act: Mandatory Pre-Deposit and the Case for Hardship Discretion

This article examines whether the fixed pre-deposit that Section 107(6) of the CGST Act, 2017 requires before a first appeal can be filed is vulnerable on constitutional grounds, and whether appellate authorities ought to be given power to reduce or waive it.

The question is current because the Delhi High Court has recently upheld the mandatory character of the deposit while openly recommending legislative relief for hardship cases. Practitioners advising on high-value disputes need to know how far the deposit can be resisted and what the courts have said so far.

The issue

Section 107(6) provides that no appeal shall be filed under sub-section (1) unless the appellant has paid two sums:

• in full, that part of the tax, interest, fine, fee and penalty arising from the impugned order which the appellant admits; and
• a sum equal to ten percent of the remaining amount of tax in dispute arising from the order, subject to a maximum of twenty crore rupees.

The provision contains no power in the appellate authority to reduce, waive or stay the amount. The deposit is a condition of filing, so an appeal presented without it is not maintainable. Three questions follow. Is a flat deposit with no hardship discretion constitutionally vulnerable? Does the removal of discretion that existed under earlier VAT enactments affect validity? Should the appellate authority be given a discretion?

The statutory background

The VAT statutes of the States that preceded GST did not follow one pattern. Some left the appellate authority no room to alter the amount: Section 62(4) of the Karnataka VAT Act, Section 82(3) of the Rajasthan VAT Act and Section 52(1) of the Tamil Nadu VAT Act are of this kind. Others allowed the authority to modify the deposit: Section 26(6) of the Maharashtra VAT Act, Section 84(1) of the West Bengal VAT Act, Section 76 of the Delhi VAT Act and Section 73(4) of the Gujarat VAT Act.