Vested Appeal Rights Under GST: Impact of Section 107(6) Amendment on Pending Penalty Proceedings

The Delhi High Court’s decision in Gaurav Jain & Anr. Vs Joint Commissioner (Appeals-II) CGST Delhi Zone & Anr. is a significant ruling on how changes to appeal pre‑deposit conditions under the CGST Act should operate over time. The judgment examines whether a subsequently introduced mandatory pre‑deposit of 10% of penalty under the substituted proviso to Section 107(6) can bind appeals where the underlying adjudication began before the amendment date but culminated afterwards.

The Court has reiterated classic principles of tax and constitutional jurisprudence—particularly that the right of appeal is a substantive vested right which attaches at the commencement of the lis (dispute), and that this right cannot be made more onerous for existing proceedings unless the legislature has clearly provided for such retrospective impact.

This article unpacks the ruling, the statutory context of Section 107(6), and the practical implications for GST assessees facing penalty-only proceedings, especially under Section 122(1A).

Statutory Context: How Section 107(6) Evolved

Pre‑Amendment Framework (Before 01.10.2025)

Under Section 107 of the CGST Act, 2017, an assessee aggrieved by an Order‑in‑Original can file an appeal before the prescribed Appellate Authority.

Before 01.10.2025, Section 107(6) provided that:

  • The appellant must pay:
    • The entire amount of tax, interest, fine, fee and penalty admitted by the assessee, and
    • 10% of the remaining amount of tax in dispute, capped at ₹20 crore.
  • Proviso (then in force): For appeals against orders passed under Section 129(3), a 25% penalty pre‑deposit was mandatory.

Critically:

There was no percentage-based mandatory pre‑deposit for appeals against penalty-only orders under Section 122(1A) where no tax demand existed.

In other words, if the order imposed only a personal penalty under Section 122(1A) without any tax component, the assessee was not required to deposit a fixed percentage of such penalty as a condition to file an appeal, prior to 01.10.2025.

Post‑Amendment Position (From 01.10.2025 Onwards)

By Section 129 of the Finance Act, 2025, the proviso to Section 107(6) was substituted with effect from 01.10.2025. The new proviso reads:

“Provided that in case of any order demanding penalty without involving demand of any tax, no appeal shall be filed against such order unless a sum equal to ten per cent of the said penalty has been paid by the appellant.”

Key consequences of this substitution:

  • For orders under Section 129(3):
    • The pre‑deposit reduced from 25% to 10% of penalty (beneficial change).
  • For all other penalty-only orders (including under Section 122(1A)):
    • A 10% mandatory pre‑deposit on penalty was imposed for the first time (onerous change).

This triggered a crucial temporal question:

If the Show Cause Notice (SCN) in a penalty-only case was issued before 01.10.2025, but the Order‑in‑Original was passed after 01.10.2025, which version of Section 107(6) governs the appeal?

The Delhi High Court in Gaurav Jain & Anr. directly addressed this issue.

Case Snapshot: Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II) CGST Delhi Zone & Anr.

Key Facts

  • SCN Date: 25.06.2025
    • Issued under Section 122(1A) alleging wrongful availment and passing of Input Tax Credit through non‑existent entities.
  • Legal regime on SCN date:
    • No percentage‑based pre‑deposit required for appeals against penalty-only orders under Section 122(1A).
  • Amendment Effective Date: 01.10.2025
    • Substituted proviso to Section 107(6) introducing 10% deposit on penalty-only orders.
  • Order‑in‑Original (OIO) Date: 16.12.2025
    • Personal penalties of ₹346.55 crore imposed on each petitioner under Section 122(1A).
    • No tax demand against petitioners individually.
  • Revenue’s demand for appeal filing:
    • 10% of penalty per petitioner ≈ ₹34.66 crore as pre‑deposit under substituted proviso.
  • Core legal issue:
    • Does the substituted proviso to Section 107(6) (effective 01.10.2025) apply to appeals arising from SCNs issued before that date?

1. Is the Right of Appeal Substantive or Merely Procedural?

The Revenue argued: