Nidhi Kamath & Sneha Mishra
Re-Assessing Mandatory Pre-Deposit Under The GST Appellate Regime: A Jurisprudential Critique of Section 107(6) of The CGST Act, 2017
Setting the Background
Section 107(6) of the Central Goods and Services Tax Act, 2017, (“GST”) has arisen within the larger legislative framework intended to operationalize and implement a unitary, self-contained appellate system under the Goods & Services Tax regime, aiming to integrate several laws concerning indirect taxation into one law. Drawing lessons from the presumptions relating to pre-deposit under the earlier laws concerning indirect taxes, namely the Central Excise Act and Customs Act, the legislature has deliberately abandoned the discretionary relief structure, specific to the lack of impossibility in the pre-deposit, under the new regime by making the specified, non-negotiable proportion of the disputed tax liability, a condition precedent for filing the appeal. The Object and Reasons for the CGST Act indicate the legislative desire for efficiency, certainty, and uniformity in the administration of tax laws, under which Section 107(6) is intended to operate as a procedural filter, seeking a balance between appellate access and revenue protection.
Section 107(6) states that “No appeal shall be filed under sub-section (1), unless the appellant has paid-
(a) in full, such part of the amount of tax, interest, fine, fee, and penalty arising from the impugned order, as is admitted by him; and
(b) a sum equal to ten percent of the remaining amount of tax in dispute arising from the said order, subject to a maximum of twenty crore rupees, in relation to which the appeal has been filed.”
However, despite the trend in the precedents where the judicial discretions were provided for the relief component, the legislative structure design for Section 107(6), on the contrary, exhales the spirit for standardization over judicial flexibility for case-by-case consideration in facilitating tax appellate relief under the law, signalling a revolutionary transition in the development of the subject matter concerning indirect taxes under the taxing statute in India.
A Comparative Examination of Appellate Pre-Deposit Regimes under Pre-GST Indirect Tax Statutes
It is essential to have a nuanced analysis of the legal position regarding the discretionary power vested in the appellate authorities in statutes pre-existing the GST. Section 62(4) of the Karnataka Value Added Tax Act had no discretionary power vested with the Appellate Authority to alter pre-deposit requirements under the law. Section 26(6) of the Maharashtra Value Added Tax Act had the discretionary power to alter pre-deposit requirements under the law. Section 84(1) of the West Bengal Value Added Tax Act vested discretionary power to alter pre-deposit requirements under the law. While Section 82(3) of the Rajasthan Value Added Tax Act had no discretionary power vested with the Appellate Authority to alter pre-deposit requirements under the law. Section 76 & 73(4) of the Delhi Value Added Tax Act & Gujarat Value Added Tax Act, respectively, have vested discretionary power to alter pre-deposit requirements under the law. Section 52(1) of the Tamil Nadu Value Added Tax Act provides no discretionary power vested with the Appellate Authority to alter pre-deposit requirements under the law. A holistic understanding of the comprehensive analysis of the pre-existing GST statutes that were subsequently replaced by the GST highlights the various powers vested with respect to discretion in exercising the mandate of pre-deposit, which is an interesting observation to make.
Scope & Judicial Interpretation
Position of Vires of the Pre-Deposit Provision in similar Fiscal Statutes
The legal position with respect to the discretionary power vested in the Appellate Authority has seen a varying position. It is quintessential to analyze the rationale laid down in the case of Mardia Chemicals v. Union of India [2004] 59 CLA 380 (SC), wherein it was held that in the SARFAESI Act, a 75% pre-deposit before an appeal was an “unreasonable, oppressive, arbitrary” restriction that made the remedy illusory and, as a result, illegal under Article 14. These conditions are unfair and arbitrary in addition to being burdensome and oppressive. As a result, we believe that subsection (2) of section 17 of the Act violates Article 14 of the Constitution and is irrational and arbitrary.
In the case of Shyam Kishore v. Municipal Corporation of Delhi AIR1992SC2279, it was held that in many instances, though the assessee may not be able to pay the disputed amount sought to be deposited by him under Section 17(b) of the Delhi Municipal Corporation Act due to financial difficulties, the District Judges shall not have any discretion to issue a stay order regarding the deposit of or waive the requirement for payment of the disputed amount on appeal. Consequently, the appeal shall be dismissed. This aspect about compelling the citizen to deposit the sum on pain of forfeiting the right of appeal under Section 170(b) of the Act, arbitrarily and without any exception or guidelines, is, therefore, arbitrary. This particular aspect made mandatory by virtue of the Act brings about the vice of unconstitutionality and being ultra vires on account of contravening Article 14 of the Constitution. The absence of discretion on the part of the Appellate Authority/District Judge on exemptions relating to the deposit on tax may also occasion hardship. A condition imposed by statute may be irksome and therefore occasion hardship on the part of the citizen.
In the case of Seth Nandlal v. State of Haryana (1980 AIR 2097) and Anant Mills Co. Ltd. v. State of Gujarat (AIR 1975 SUPREME COURT 1234), it was held that the legislature may set restrictions on the use of the right of appeal, which is a creation of the statute, provided that the restrictions are not so severe as to render the right practically illusory. This highlights how the appeal provision ought not to be illusory. Further, State of A.P. v. P. Laxmi Devi (AIR 2008 SUPREME COURT 1640) highlights how statutes about fiscal or tax measures are granted more latitude than other statutes. In the social and economic domains, every decision is basically experimental and ad hoc. Due to the complexity of economic issues, unique treatment for particular circumstances is unavoidable. Therefore, the State must be given considerable discretion in formulating fiscal or regulatory measures, and the court should not interfere in this area or declare legislation unconstitutional unless required by the laws or the Constitution.
Position of Vires of the Pre-Deposit Provision with respect to ‘Beneficial Position’ in Pre-Existing Statutes
One of the contentions with respect to the waiver of the pre-deposit requirement is fundamentally based on how the various Value Added Tax Statutes provided discretion to the Appellate Authority, which is absent in the post-GST regime. Various precedents in this regard hold a contrary position with respect to this contention. In the case of Bannari Amman Sugars Limited v. Commercial Tax Officer (AIRONLINE 2004 SC 923), Shrijee Sales Corporation and Anr. v. Union of India (AIRONLINE 1996 SC 470) and Sales Tax Officers and Anr. v. Shree Durga Oil Mills (AIR 1998 SUPREME COURT 591), it was holistically held that once public interest is assumed as the higher equity that has precedence over individual equity, the doctrine shall apply even where the time has already been stipulated for the execution of the promise. If a supervening public equity arises, it shall be permissible for the government to grit its stand and have the right to withdraw from the representation made by it, which encouraged persons to take certain steps that might result adversely to the benefit of such persons due to the said withdrawal. Further, it shall be within the purview of the Government to withdraw from the promise, even if there is no obvious public interest involved, subject to the consideration that no person shall be placed in any disadvantageous position that cannot be made good.
The interpretative point of these verdicts is that any exemptions/concessions are not vested rights and can be withdrawn in the public interest; thus, a repealed provision that placed beneficiaries in a more favorable position does not by itself render the newer provision ultra vires. But under the CGST Act, the absence of any discretionary power to be vested with the Appellate Authority in itself is against the interest of the public, and hence these verdicts ought not to be applicable in this case.
Precedents with respect to Financial Hardship caused
The case of Impressive Data Services Pvt. Ltd. vs Commissioner (Delhi High Court) W.P.(C) 4662/2025 & CM APPL. 21564/2025 reaffirmed the pre-deposit’s required nature while acknowledging its severity in some circumstances and recommending legislative action for hardship-based relief. In Flipkart Internet Pvt. Ltd. v. State of Bihar, the Patna High Court stressed the need for judicial discretion to waive or lower the deposit based on hardship and acknowledged the disproportionate burden of a flat pre-deposit in high-value cases. These verdicts highlight how financial hardship plays a vital role in determining the waiving off of pre-deposit.
Way Forward
To set a roadmap regarding the vires of Section 107(6) of the Act, the requirement of 10% pre-deposit requires revision as the disputed income in the tax matters ranges over high margins, usually in crores, as it is based on turnover, profit ratio, etc. It is quintessential to provide the assessee with ample opportunities and give due consideration to the financial hardships caused, before the imposition of 10% mandatory pre-deposit. It is also important to understand that the assessee was in a beneficial position before the implementation of the Goods & Services Tax Act enforcement. Even if the aforementioned precedents are taken into account, it is essential to analyze the provision through the lens of Public Interest and provide judicial discretion to the Appellate Authorities to waive off the pre-deposit requirements as and when required.
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