Section 107 GST Appeals Against Confiscation Orders: Stay, Redemption Fine & Restitution

Summary:The article examines appeals against confiscation orders under Section 130 of the CGST Act, 2017, focusing on the legal effect of confiscation, the appellate framework under Section 107, and related issues concerning redemption fine, refund and restitution. It explains that title to confiscated goods vests in the Government under Section 130(5) upon confiscation, while Section 107 provides an appellate remedy but grants a deemed stay only for recovery proceedings after the prescribed pre-deposit. The article discusses whether the Appellate Authority has an implied power to grant interim stay, referring to judicial decisions on implied appellate powers. It also analyses situations where confiscated goods are unavailable, including goods released under bond or returned under Section 67(7), and examines the treatment of redemption fine as a monetary demand. Further, it discusses refund where redemption fine is paid and the appeal succeeds, distinguishing between cases where only confiscation is set aside and those where both confiscation and tax liability fail. The article also considers restitution where confiscated goods are disposed of before the appeal is decided and discusses the competing approaches to determining compensation.

Appeal Against a Confiscation Order Under GST: Why Section 107 Offers No Automatic Stay, and What Happens When the Goods Are Gone

I. Introduction

A confiscation order under Section 130 of the Central Goods and Services Tax Act, 2017 (“the Act”) is, in substance, the most severe consequence the Act permits short of prosecution. Unlike an ordinary demand of tax, interest or penalty — a money claim that can be resisted, deferred and, if the taxpayer succeeds, simply reversed on paper — confiscation strikes at title itself. Once the order is passed, ownership of the goods passes to the Government by operation of law. This distinction has consequences that are not always appreciated at the point a taxpayer decides whether, and how, to appeal. This article examines: the precise legal effect of a confiscation order; why the appellate mechanism under Section 107 does not, as a matter of statutory construction, stay that effect merely upon payment of the ordinary 10% pre-deposit; whether the Appellate Authority nonetheless has an implied power to stay a confiscation order in deserving cases; the different position that arises where the goods are no longer available for physical confiscation and the demand crystallises into a redemption fine; the question of refund where a taxpayer pays the fine, redeems the goods, and later succeeds in appeal; and the question of restitution where the Department disposes of the goods before the appeal is decided.

II. Confiscation and vesting of title — Section 130(5)

Section 130 empowers the proper officer to confiscate goods (and conveyances) where, inter alia, a person supplies or receives goods in contravention of the Act with intent to evade tax, fails to account for goods on which tax is payable, or otherwise contravenes the Act with intent to evade payment of tax. Sub-section (2) requires the officer to give the owner an option to pay a fine in lieu of confiscation, capped at the market value of the goods less the tax chargeable thereon. Where that option is not exercised, or the fine is not paid, the confiscation takes full effect.

Sub-section (5) is the operative provision for present purposes: “Where any goods or conveyance are confiscated under this Act, the title of such goods or conveyance shall thereupon vest in the Government.” This vesting is automatic and instantaneous upon the passing of the order — it does not await any further step, and in particular it does not await the exhaustion of any appeal. Sub-section (6) reinforces this by requiring the proper officer to “take and hold possession” of the confiscated goods, with the assistance of the police if necessary. Sub-section (7) then permits disposal of the goods — after giving the owner a period not exceeding three months to exercise the redemption option — with the sale proceeds to be deposited with the Government.

III. The right of appeal against a confiscation order

Section 107(1) permits any person aggrieved by “any decision or order” passed under the Act to appeal to the Appellate Authority — this is broad enough to, and does, include a confiscation order under Section 130. The Appellate Authority’s jurisdiction over confiscation and fine is placed beyond doubt by the first proviso to Section 107(11), which requires that before the Appellate Authority passes “an order enhancing any fee or penalty or fine in lieu of confiscation or confiscating goods of greater value,” the appellant must be given a reasonable opportunity of being heard. The provision would have no field of operation if confiscation orders were not appealable in the first place. There is, accordingly, no doubt that a confiscation order can be appealed on merits.

The difficulty does not lie in appealability. It lies in what happens to the goods, and to the vesting of title, while that appeal is pending.

IV. No automatic stay of confiscation order itself

A. The statutory text of Section 107(6) and (7)

Section 107(6) provides that no appeal shall be filed 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 per cent of the remaining amount of tax in dispute arising from the order, subject to a prescribed ceiling. Section 107(7) provides that where the appellant has paid the amount referred to in sub-section (6), the recovery proceedings for the balance amount shall be deemed to be stayed until disposal of the appeal.

Two textual features are decisive. First, clause (b) of sub-section (6) computes the mandatory 10% by reference only to “tax in dispute” — not to the disputed fine, penalty, fee or interest. Second, sub-section (7) stays “recovery proceedings” for the remaining amount — a formulation apt to describe the machinery for collecting money (principally under Section 79 of the Act), not the vesting of title in specific goods, which occurs automatically under Section 130(5) independently of any recovery process.

B. The Finance Act, 2025 amendment does not close the gap for fine

With effect from 1 October 2025, the proviso to Section 107(6) was substituted to address a narrower, related gap: cases where an order demands penalty without any accompanying demand of tax. The substituted 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.” A corresponding proviso was inserted in Section 112(8) for appeals to the Appellate Tribunal.

This amendment is significant, but it does not touch the confiscation problem, for a precise textual reason: it speaks of “penalty,” not “fine.” The Act consistently treats these as distinct categories — Section 107(6)(a) itself lists “tax, interest, fine, fee and penalty” as five separate items, and Section 130 itself distinguishes the “fine” payable in lieu of confiscation under sub-section (2) from the “penalty” leviable under Section 122 by virtue of sub-section (1). A redemption fine in lieu of confiscation is not a penalty within the meaning of the amended proviso. The 2025 amendment therefore closes the pre-deposit gap for penalty-only orders (a category driven principally by orders under Section 129(3), which frequently impose penalty with no tax component) without in any way extending a stay mechanism to a fine in lieu of confiscation, still less to the confiscation of the goods themselves.

C. Vesting under Section 130(5) is not a “recovery proceeding”

Even where a confiscation order is accompanied by a tax demand — permitting the appellant to pay 10% of the disputed tax and thereby obtain a deemed stay of “recovery proceedings for the remaining amount” under Section 107(7) — that deemed stay cannot, on a plain reading, undo or suspend the vesting of title in the goods. Vesting under Section 130(5) is not a “recovery proceeding” in any ordinary sense of that phrase; it is a self-executing legal consequence that occurs the moment the order is passed, independent of any subsequent step the Department might otherwise have to take to recover money owed (such as the modes of recovery listed in Section 79). There is, in other words, no “recovery” of the goods themselves capable of being stayed — the goods are simply no longer the appellant’s property from the moment the order takes effect. The same reasoning explains why Section 130(6), which empowers the proper officer to “take and hold possession” of the confiscated goods with police assistance if necessary, is similarly untouched by an appeal filed with the ordinary pre-deposit: taking possession pursuant to an order whose vesting effect is already complete is not a recovery of an amount, and Section 107(7) has no purchase on it.

V. Does the appellate authority have an implied power to stay a confiscation order even where the fine is not paid?

Given the gap identified above, the question naturally arises whether the Appellate Authority, quite apart from the mechanical pre-deposit machinery in Section 107(6)/(7), possesses an inherent or implied power to stay a confiscation order in deserving cases, pending disposal of the appeal. This is a genuinely debatable question. The Act contains no express provision empowering the Appellate Authority to grant such a stay — Section 107 is silent on interim relief altogether, in marked contrast to its detailed treatment of the pre-deposit-linked deemed stay.

The general jurisprudential position, however, favours the existence of such an implied power. The foundational authority is the Supreme Court’s decision in Income Tax Officer, Cannanore v. M.K. Mohammed Kunhi, AIR 1969 SC 430, where the Income Tax Appellate Tribunal had declined to entertain a stay application on the footing that the Income Tax Act conferred no express power to grant one. The Supreme Court held that “it is a firmly established rule that an express grant of statutory power carries with it by necessary implication the authority to use all reasonable means to make such grant effective,” and that the Tribunal’s appellate jurisdiction “impliedly grants the power of doing all such acts… as are essentially necessary to its execution,” including the power to stay proceedings so that a successful appeal is not rendered nugatory. The Court was troubled precisely by the scenario now under discussion: if the appellate authority is “entirely helpless in the matter of stay,” the entire purpose of the appeal can be defeated even where the assessee ultimately succeeds.

This principle has recently been applied within the GST framework itself, albeit in relation to the second appellate forum. In The Hongkong and Shanghai Banking Corporation Ltd v. State of Maharashtra & Ors. (Writ Petition (L) No. 4698 of 2026, Bombay High Court, order dated 20.02.2026), the Court held that the GST Appellate Tribunal possesses inherent and incidental power to grant interim relief, including stay of recovery, notwithstanding the absence of an express provision to that effect. The Court reasoned that Section 113(1) of the Act — which empowers the Tribunal to “pass such orders as it thinks fit… confirming, modifying or annulling the decision or order appealed against” — confers wide appellate jurisdiction that cannot sensibly be read to exclude interim powers, since denying such power would render the appellate remedy illusory; it expressly followed Mohammed Kunhi in doing so, and noted that Rule 10 of the Goods and Services Tax Appellate Tribunal (Procedure) Rules, 2025 itself recognises the Tribunal’s inherent powers, with Rule 29 providing a procedure for interlocutory stay applications.

It is worth noting that this ruling concerned Section 113 (governing the Appellate Tribunal), not Section 107 (governing the first Appellate Authority). The two provisions are, however, structurally close to identical on the point that matters: Section 107(11) similarly empowers the Appellate Authority to “pass such order, as it thinks just and proper, confirming, modifying or annulling the decision or order appealed against.” The reasoning applied to Section 113(1) in the HSBC case — that a broad power to finally dispose of an appeal carries with it, by necessary implication, the narrower and merely protective power to preserve the subject-matter of that appeal in the meantime — applies with equal logical force to Section 107(11). No decision appears yet to have applied this reasoning specifically to a Section 107 appeal against a confiscation order, and the position must accordingly be treated as unsettled rather than concluded. But the direction of travel in the case law — Mohammed Kunhi’s foundational reasoning, now expressly imported into the GST appellate structure via the HSBC ruling — provides a real and principled basis on which to press for interim protection before the first Appellate Authority itself, as a supplement to, rather than a substitute for, the statutory pre-deposit mechanism discussed above.

VI. Where goods are not available for confiscation: Redemption fine as a pure money demand

A. Goods released under bond — Section 67(6)

A materially different position arises where, for whatever reason, the goods are no longer physically available to the Department at the time of adjudication — for instance, because they were earlier released to the taxable person on execution of a bond and furnishing of security under Section 67(6). In such cases the adjudicating authority may still record a finding that the goods were liable to confiscation and proceed to impose a fine in lieu of confiscation, notwithstanding that there is nothing left to physically confiscate.

The pari materia position under the Customs Act, 1962 supports the validity of this course, provided the goods were released under bond. In Weston Components Ltd. v. Commissioner of Customs, New Delhi, (AIR 2000 SUPREME COURT 561, 2000 (1) SCALE 41) the Supreme Court held that where goods have been released to the importer on an application supported by a bond, the subsequent discovery of an irregularity entitling the customs authorities to confiscate the goods is not defeated merely because the goods are no longer in the Department’s custody — the mere fact of release on bond does not take away the power to levy a redemption fine. This principle turns specifically on the existence of a bond preserving the Department’s right to proceed against the goods notionally, even though physical possession has passed to the taxable person.

B. Goods returned on account of the Department’s own default — Section 67(7)

A distinct, and in practice increasingly significant, variant of this fact pattern arises where the goods were not released on any bond at all, but were returned as a matter of statutory compulsion under Section 67(7) — that is, because the Department itself failed to issue notice within the maximum period of retention prescribed by that sub-section. Where a confiscation notice is subsequently issued (or an earlier one adjudicated) in respect of goods that have already stood returned under Section 67(7), the goods are, once again, unavailable at the point of adjudication.

This scenario cannot simply be assimilated to Weston Components. That decision turned expressly on the presence of a bond by which the taxable person had undertaken to produce the goods, or their value, if called upon — an undertaking that preserves the Department’s notional claim notwithstanding release. A return compelled under Section 67(7) carries no such undertaking: it is not a conditional release granted at the taxable person’s request, but an unconditional statutory consequence of the Department’s own default. This raises a more fundamental question than the one Weston Components answers — whether goods that the statute itself required to be returned unconditionally, precisely because the Department failed to act within time, can thereafter be treated as available for confiscation, or reduced to a redemption fine, without some fresh and independent act of seizure. That question does not appear to have been authoritatively settled in the GST context. It is, however, squarely raised whenever a Section 130 notice follows a Section 67(7) release, and there is a principled argument — going beyond the bond-based reasoning in Weston Components — that the position of a taxable person in this situation is stronger, precisely because the unavailability of the goods flows entirely from the Department’s own default rather than from any arrangement preserving its rights.

C. Consequence: the fine becomes a recoverable money demand

Once a redemption fine is imposed notwithstanding the unavailability of the goods — whether following a Section 67(6) bond-release or a Section 67(7) statutory return — the character of the demand changes materially. There is no longer a specific, identifiable res in respect of which title can vest under Section 130(5) or possession be taken under Section 130(6); the confiscation has, in effect, already been converted into a determinate monetary sum. Recovering that sum, if unpaid, requires the Department to resort to the ordinary recovery machinery of the Act — principally Section 79 — in the same way as recovery of an unpaid tax demand. That is precisely the kind of “recovery proceeding” Section 107(7) is drafted to address. On this footing, an appeal against such an order, accompanied by payment in full of any admitted amount under Section 107(6)(a) and 10% of any disputed tax under Section 107(6)(b), should attract the deemed stay under Section 107(7) in respect of the remaining disputed amount — including the disputed redemption fine — because what remains to be “recovered” is now purely an amount of money, not a proprietary interest in specific goods.

VII. Refund where fine is paid, goods are redeemed, and appeal later succeeds

A related but distinct question arises where the taxable person chooses the opposite course: paying the redemption fine, obtaining the goods, and pursuing the appeal on merits regardless. Where that appeal succeeds, the extent of the taxable person’s refund entitlement turns on what, precisely, the appellate order finds.

Confiscation liability and tax liability, though they may arise from the same set of facts, are analytically distinct obligations under the scheme of Section 130. Sub-section (3) makes this explicit by providing that the owner of confiscated goods “shall, in addition” to the fine, remain liable to any tax, penalty and charges payable in respect of the goods — the fine does not subsume or substitute the tax liability. The Supreme Court’s recent decision in M/s Navayuga Engineering Co. Ltd. v. Union of India & Anr. (Civil Appeal No. 1024 of 2014, decided 23 July 2024, reported as 2024 INSC 547), addressing the pari materia provision in Section 125(2) of the Customs Act, confirms this separation: the Court held that an importer’s liability to pay customs duty survives even after confiscated goods are redeemed on payment of a fine, and that this duty liability is distinct from, and independently assessed apart from, the liability to pay the fine itself.

Applying this separation to the refund question produces two distinct outcomes, depending on what the successful appeal actually establishes:

First, where the appellate order sets aside the confiscation — for instance, on the ground that intent to evade tax was not established, or that the goods were in fact duly accounted for — but leaves the underlying tax liability on the goods independently intact (because that liability rests on a ground unconnected with the confiscation finding), only the redemption fine is refundable. The fine was premised entirely on the confiscation; once confiscation is set aside, the premise for the fine falls away, but the tax liability, being independently sustained, continues to be payable, consistent with the separation of the two liabilities recognised in Navayuga Engineering.

Second, where the appellate order goes further and finds that no tax was ever payable at all — that is, the entire evasion allegation fails, so that both the confiscation and the associated tax demand collapse together — the taxable person is entitled to refund of both the redemption fine and the tax paid. In this scenario the tax was collected only as an incident of, and contemporaneously with, redemption of goods that are now held never to have been liable to confiscation or to tax in the first place; retaining it would leave the Government in possession of money collected without the authority of law, contrary to Article 265 of the Constitution, and the taxable person would be entitled to consequential refund of the entire amount paid, not merely the fine component.

VIII. Restitution where confiscated goods have already been disposed of by department

A further complication arises where the taxpayer chooses not to pay the redemption fine, allows confiscation to take effect, and appeals — and the Department, in the meantime, disposes of the goods under the power conferred by Section 130(7). That sub-section permits disposal after satisfying the officer that the goods are not required for any other proceeding, and after giving the owner a period not exceeding three months to pay the fine in lieu of confiscation; the sale proceeds are to be deposited with the Government. If the appeal subsequently succeeds and the confiscation order is set aside, the goods, ex hypothesi, can no longer be returned. The question is what the taxpayer is then entitled to.

This is not a new question in Indian law, even if it has not yet been definitively answered in the GST context. The Supreme Court addressed it, on closely analogous facts, in State of Gujarat v. Memon Mahomed Haji Hasam (also reported as State of Bombay (now Gujarat) v. Memon Mahomed Haji Hasam), AIR 1967 SC 1885. There, vehicles seized and ordered confiscated by the customs authorities of the erstwhile State of Junagadh were disposed of as unclaimed property while the owner’s appeal against the seizure and confiscation order was still pending; the appeal later succeeded, but by then the vehicles could not be restored. The Supreme Court held that the order of confiscation was not final while an appeal lay against it, and that if the appellate authority found no good ground for the exercise of the power, the property could no longer be retained and had, under the Act, to be returned to the owner. Because there was a statutory right of appeal, the Court held there was a statutory duty on the State to keep the seized property intact pending the appeal, and an implied obligation not to allow it to be tampered with or dissipated while the confiscation order remained under challenge. On the breach of that obligation, the State was held liable to compensate the owner for the property it could no longer restore — the Court treating the State, from the point of seizure until the appeal was finally decided, as standing in the position of a bailee, obliged to take reasonable care of the goods and to return them, or their value, once the confiscation was set aside.

Memon Mahomed establishes the governing principle rather than a mechanical formula: where a statute confers a right of appeal against confiscation, the confiscating authority holds the goods, pending that appeal, under an obligation analogous to that of a bailee, and is liable to make good the value of the goods if it disposes of them and the confiscation order is subsequently set aside. Applied to Section 130, the analogy is a natural one: the statute itself contemplates that a confiscation order may be varied or set aside on appeal (see the first proviso to Section 107(11)), yet also permits disposal of the goods within three months under Section 130(7) — creating precisely the tension Memon Mahomed addressed, between the Department’s interest in not indefinitely warehousing goods and the taxpayer’s right to have the subject-matter of a pending appeal preserved, or its value made good.

It is on the measure of that value that a genuine and, at present, unresolved debate exists. The taxpayer’s position — consistent with ordinary restitutionary principle and with the bailee analogy drawn in Memon Mahomed — is that the value payable should be assessed as at the date the goods became liable to be returned to the taxpayer (that is, the date the confiscation order was set aside, or the date title would have re-vested in the taxpayer but for the Department’s prior disposal), since it is that date which fixes the point at which the Department’s obligation to restore the goods (or their equivalent) crystallised, and any later fall or rise in value is not something the taxpayer should bear or the Department should benefit from, given that the disposal was the Department’s own act. The Department’s likely counter-position, resting on the text of Section 130(7) itself — which speaks only of depositing “the sale proceeds thereof” with the Government — is that its exposure is confined to whatever the goods actually realised on sale, on the footing that Section 130(7) creates a specific statutory mechanism (sale proceeds in, sale proceeds out) rather than an open-ended valuation exercise. This is a real and reasoned position, and it cannot be said to be without textual support. But it sits uneasily with Memon Mahomed’s characterisation of the Department’s obligation as that of a bailee bound to preserve the goods (or make good their value) pending a still-live appeal — an obligation that, if taken seriously, is not satisfied merely by returning whatever a forced or expedited sale happened to fetch, particularly where the sale itself was a matter within the Department’s own control and timing. No GST-specific ruling appears yet to have settled this precise question, and it should be regarded as genuinely debatable rather than concluded either way; a taxpayer in this position would be on firm ground pressing for valuation as at the date of entitlement to return, while being alive to the possibility that a forum may instead confine relief to actual sale proceeds by reference to the language of Section 130(7).

IX. Conclusion

The structure that emerges is as follows. Where confiscated goods remain physically available, title vests in the Government the moment the order is passed under Section 130(5), and this is not a consequence the ordinary Section 107(6)/(7) pre-deposit-and-stay mechanism can reach, because it is not a “recovery proceeding” — a position reinforced by the Finance Act, 2025 amendment’s careful limitation to “penalty,” leaving “fine in lieu of confiscation” untouched. Whether the Appellate Authority nonetheless has an implied power to stay the confiscation itself, independent of the pre-deposit mechanism, remains formally unsettled for Section 107, though the reasoning in Mohammed Kunhi — now expressly applied to the structurally similar Section 113 in the HSBC ruling — provides a principled basis for pressing such a request. Where, by contrast, the goods are unavailable — whether released under bond per Section 67(6), or returned on account of the Department’s own default under Section 67(7) — and the confiscation resolves into a pure redemption fine, that fine is a determinate money demand recoverable only through the Act’s ordinary recovery machinery, and should in principle attract the deemed stay under Section 107(7) once the appellant complies with Section 107(6). Where a taxpayer instead pays the fine, redeems the goods, and later succeeds on appeal, the refund available depends on whether the underlying tax liability is also found unsustainable — if it is, both fine and tax are refundable; if the tax liability survives independently, only the fine is. And where the Department disposes of goods that were the subject-matter of a still-pending appeal, Memon Mahomed supplies real, if not GST-specific, authority for treating the Department as a bailee liable to make good the value of what it could no longer restore — though whether that value is fixed as at the date the right to return crystallised, or is confined to actual sale proceeds under Section 130(7), remains a genuinely open question calling for resolution in the GST context.