Prospective operation of GST penalty pre-deposit for GSTAT appeals: Analysis of GSTAT Hyderabad ruling

1. Background and context

The introduction of a specific pre-deposit requirement for penalty-only disputes under Section 112(8) of the Central Goods and Services Tax Act, 2017 (“CGST Act”) with effect from October 01, 2025 created a critical question for ongoing and past proceedings: does this new condition apply to disputes that began earlier, particularly where only penalty is in issue and no tax demand exists?

The Hyderabad Bench of the Goods and Services Tax Appellate Tribunal (“GSTAT”), in M/s. Reddy Veeranna Constructions Pvt. Ltd. v. Appeal I Commissioner & Ors. [APL/623/HYD/2026 dated July 28, 2026], has now clarified that the newly inserted proviso to Section 112(8) operates only prospectively. Where penalty proceedings had already commenced prior to October 01, 2025, appeals to GSTAT arising from such proceedings cannot be subjected to the ten percent penalty pre-deposit condition.

This decision turns on the long-settled doctrine that the right of appeal is a substantive and vested right. Such right crystallises on the date when the lis commences (typically, the date of the Show Cause Notice (“SCN”)) and cannot be impaired by a later statutory amendment unless the legislature expressly or by necessary implication makes it retrospective.

The GSTAT Hyderabad Bench, while admitting the appeal without insisting on the statutory pre-deposit under Section 112(8), has nevertheless preserved its power to revisit the issue at the stage of final hearing if required in law.

2. Factual matrix of the case

2.1 Initiation of penalty proceedings

  • M/s. Reddy Veeranna Constructions Pvt. Ltd. (“the Appellant”) was issued an SCN dated September 29, 2022 (“the SCN”).
  • The SCN alleged issuance of fake invoices without any real supply of goods or services.
  • Penalties were proposed under Section 122 of the CGST Act.

2.2 Adjudication by the original authority

  • The Adjudicating Authority passed an Order-in-Original (“OIO”) dated August 28, 2023.
  • Through this OIO, penalties were imposed:
    • Under Section 122 of the CGST Act read with Section 20 of the Integrated Goods and Services Tax Act, 2017 (“IGST Act”); and
    • Under Section 125 of the CGST Act read with Section 20 of the IGST Act.
  • The demand in issue comprised only penalties; there was no “tax in dispute” component.

2.3 First appellate stage

  • The Appellant carried the matter in appeal to the First Appellate Authority.
  • The appeal was rejected by an Order-in-Appeal dated January 12, 2024 (“the Impugned Order”), thereby confirming the OIO in full.

2.4 Appeal to GSTAT and defect memo

  • Aggrieved by the Impugned Order, the Appellant filed an appeal before GSTAT, Hyderabad Bench.
  • The Registry issued a defect memo noting, among other things, that the Appellant had not deposited the statutory pre-deposit under Section 112(8) of the CGST Act.
  • The question arose whether, in a penalty-only matter where the entire chain of proceedings (SCN, OIO, and Impugned Order) pre-dated October 01, 2025, the newly inserted proviso to Section 112(8) requiring a ten percent penalty pre-deposit was applicable.

3. Assessee’s submissions before GSTAT

The Appellant raised the following key contentions:

  1. Nature of demand

    • The case involves a demand only of penalty, with no tax amount in dispute.
    • Prior to the insertion of the proviso to Section 112(8), pre-deposit at the Tribunal stage was linked exclusively to the “tax in dispute”. Hence, for penalty-only matters, there was no statutory requirement to make any pre-deposit for filing an appeal before GSTAT.

  2. Prospective application of the 2025 amendment

    • The proviso to Section 112(8) was brought into force vide the Finance Act, 2025 (Act No. 7 of 2025) dated March 29, 2025 and made effective only from October 01, 2025.
    • The SCN (September 29, 2022), the OIO (August 28, 2023), and the Impugned Order (January 12, 2024) all predated October 01, 2025.
    • Hence, the right of appeal in this case stood crystallised under the unamended appellate regime, which did not insist on a penalty-based pre-deposit in penalty-only cases.

  3. Vested right of appeal

    • The right to appeal is a substantive, vested right that accrues at the time when the lis commences, i.e., the issuance of the SCN.
    • A subsequent statutory amendment introducing a fresh pre-condition—such as a mandatory pre-deposit of penalty—cannot be applied to proceedings already underway, unless the amending statute clearly provides retrospective effect.

  4. Judicial precedents relied upon
    Reliance was placed on the following rulings:

    • Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh [(1953) 4 STC 114 (SC)] – where the Hon’ble Supreme Court held that:
      • The right of appeal is a vested right that cannot be taken away by a later law unless the law explicitly or by necessary implication has retrospective operation.
      • A later amendment imposing a more onerous pre-condition for maintaining an appeal cannot be applied to pending proceedings.
    • Barjinder Singh Kohli v. Assistant Commissioner of Revenue & Ors. [W.P.A. No. 19676 of 2025 dated November 03, 2025] – Calcutta High Court decision holding, inter alia, that:
      • No pre-deposit condition can be read into the law where it did not exist when the lis commenced.
      • Authorities cannot import non-existent conditions affecting the right of appeal.
    • Anukul Bindal v. Union of India [Writ Tax No. 2096 of 2026] – where the Allahabad High Court granted interim protection in the context of penalty-only demands and pre-deposit requirements.
    • Decision of the Andhra Pradesh Sales Tax Appellate Tribunal in Life Line Aqua – reiterating the principle of vested appellate rights.

  5. Stand of the Revenue

    • Upon a query from the Bench, the Departmental Representative indicated that the Revenue did not object to the issue of pre-deposit being decided on merits by the Tribunal.

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