Summary: The Delhi High Court held that the substituted proviso to Section 107(6) of the CGST Act, effective 01.10.2025, requiring a 10% pre-deposit of penalty for specified penalty-only appeals, did not apply where the Show Cause Notice (SCN) was issued before that date but the adjudication order was passed thereafter. The Court held that the lis commences with issuance of the SCN, when the Department formulates allegations, asserts liability and calls upon the assessee to respond, and that the right of appeal is a substantive vested right arising at that stage. The appellate regime, including applicable pre-deposit conditions, therefore crystallises with the commencement of the lis unless the amending legislation expressly or by necessary implication provides otherwise. The Court found no such legislative intention in the Finance Act, 2025 or Section 107. It rejected the Revenue’s reliance on the date of filing the appeal and held that the substituted proviso was inapplicable to the petitioners’ appeals. It directed registration and entertainment of the appeals without the 10% deposit and excluded the writ-petition period for limitation. The constitutional challenge to the substituted proviso was left open.
When Does the Lis Commence under GST? When Does a GST Dispute Actually Begin?
Delhi High Court Settles the Law on Appellate Pre-Deposit under Section 107(6) of the CGST Act
A Critical Analysis of Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II), CGST
Introduction
The right of appeal is a cornerstone of every fair and equitable tax administration system. While the power of taxation is an essential attribute of the State, the availability of an effective appellate remedy constitutes an equally important safeguard against arbitrary exercise of statutory authority. The Supreme Court has consistently recognised that, although the right of appeal is a creation of statute, once conferred it becomes a substantive and vested right, forming an integral part of the legal proceedings initiated against an assessee. Any legislative amendment that substantially impairs or burdens this vested right raises significant questions concerning retrospectivity, legislative intent, and constitutional fairness.
The issue assumed considerable significance under the Goods and Services Tax (GST) regime following the enactment of the Finance Act, 2025, whereby the proviso to Section 107(6) of the Central Goods and Services Tax Act, 2017 was substituted with effect from 1 October 2025. The amendment introduced, for the first time, a mandatory pre-deposit of 10% of the penalty amount for filing appeals against penalty-only orders under specified provisions of the Act. Since many adjudication proceedings had already commenced prior to the amendment but culminated in orders after its enforcement, an important legal question arose as to whether the amended pre-deposit requirement would apply to proceedings initiated before the amendment or only to those commenced thereafter.
This precise issue came before the Delhi High Court in Gaurav Jain & Another v. Joint Commissioner (Appeals-II), CGST Delhi Zone & Another (W.P.(C) No. 8414 of 2026, decided on 31 July 2026). The controversy centred on whether the commencement of the lis (legal dispute) should be reckoned from the date of issuance of the Show Cause Notice (SCN) or from the date of the adjudication order, for determining the applicability of the amended appellate pre-deposit provisions under Section 107(6).
In a significant pronouncement, the Delhi High Court reaffirmed the long-settled doctrine that the right of appeal crystallises upon commencement of the lis, and that the Show Cause Notice constitutes the point at which the lis begins, as it is the first formal assertion of liability by the tax authorities requiring the assessee to answer the allegations. Consequently, the Court held that the appellate regime existing on the date of issuance of the SCN governs the appeal, and a subsequent legislative amendment imposing a more onerous pre-deposit requirement cannot ordinarily operate retrospectively in the absence of an express or necessarily implied legislative mandate.
The judgment assumes considerable importance not merely because it resolves the controversy regarding the amended proviso to Section 107(6), but because it reiterates fundamental principles governing vested appellate rights, retrospective operation of fiscal legislation, and the concept of the “appellate package” developed through landmark decisions of the Supreme Court in Hoosein Kasam Dada, Garikapati Veeraya, and Videocon International. It also provides much-needed certainty for taxpayers and tax administrators by clarifying that statutory amendments affecting substantive appellate rights must ordinarily operate prospectively unless the Legislature clearly indicates a contrary intention.
This article critically analyses the judgment, the statutory framework of Section 107 of the CGST Act, the competing arguments advanced by the parties, the judicial reasoning adopted by the Delhi High Court, and its wider implications for GST litigation. It also examines how the decision strengthens the doctrine of vested rights, reinforces certainty in fiscal jurisprudence, and protects taxpayers from retrospective impairment of statutory remedies while preserving the Legislature’s power to prescribe prospective conditions for appeals.
Comprehensive Legal Analysis
I. Introduction
This judgment is one of the most significant decisions under the CGST Act, 2017 dealing with the temporal applicability of the substituted proviso to Section 107(6) introduced by the Finance Act, 2025, effective from 01.10.2025.
The Court examined a narrow but extremely important question:
Whether the newly introduced requirement of depositing 10% of the penalty for filing an appeal against a penalty-only order applies where the Show Cause Notice (SCN) was issued before 01.10.2025 but the Order-in-Original was passed after the amendment came into force.
The judgment has far-reaching implications on:
- vested right of appeal,
- commencement of the lis,
- retrospective operation of appellate conditions,
- applicability of amended pre-deposit provisions.
II. Facts of the Case
The petitioners were issued a Show Cause Notice dated 25.06.2025 proposing penalties under Section 122(1A) of the CGST Act.
The SCN alleged that the petitioners were:
- key persons;
- principal beneficiaries;
- involved in passing and availing fraudulent Input Tax Credit through fictitious entities.
The SCN proposed two penalties against each petitioner:
- ₹137.16 crore
- ₹209.38 crore
aggregating approximately ₹346.55 crore each.
Importantly,no tax demand was raised against them individually; only penalties were proposed.
The petitioners:
- filed replies;
- participated in personal hearings;
- contested the allegations.
Thereafter, the adjudicating authority passed an Order-in-Original dated 16.12.2025 imposing the very penalties proposed in the SCN.
Appeal Difficulty
By the time the order was passed, the substituted proviso to Section 107(6) had already come into force on 01.10.2025.
Consequently, each petitioner was required to deposit approximately ₹34.66 crore before filing the statutory appeal.
The petitioners challenged this requirement before the Delhi High Court.
III. Issues Involved
The Court framed the following principal issue:
Whether the substituted proviso to Section 107(6), effective from 01.10.2025, requiring 10% pre-deposit of penalty, applies where:
- the SCN was issued before 01.10.2025; but
- the adjudication order was passed after 01.10.2025?
Subsidiary issues included:
1. When does the lis commence?
2. When does the right of appeal vest?
3. Whether the amendment is prospective or retrospective?
4. Whether the appellate package existing on the date of SCN is preserved?
5. Whether the appellate authority can waive statutory pre-deposit?
6. Whether the constitutional validity of the amended proviso required examination?
IV. Petitioners’ Arguments
The petitioners contended that:
(A) Right of Appeal is a Substantive Right
Relying upon:
- Hoosein Kasam Dada
- Garikapati Veeraya
- Armour Security (India) Ltd. v. Commissioner, CGST Delhi East and Anr.
they argued that the right of appeal vests on commencement of the lis.
Since the SCN was issued on 25.06.2025, the appellate regime prevailing on that date governed their appeals.
(B) No Pre-deposit Existed on SCN Date
When the SCN was issued, Section 107(6) did not require any percentage-based pre-deposit for penalty-only orders under Section 122(1A).
Therefore, the later amendment cannot impose a more onerous burden.
(C) Amendment Cannot Operate Retrospectively
The substituted proviso substantially burdens the vested appellate right.
Hence, it cannot apply retrospectively unless expressly provided.
(D) Constitutional Challenge
Alternatively,
petitioners argued:
the uncapped 10% penalty pre-deposit was arbitrary, especially when tax appeals were subject to a statutory monetary cap.
(E) Financial Hardship
Requiring ₹34.66 crore deposit would effectively destroy their statutory right of appeal.
V. Respondents’ Arguments
The Revenue argued:
(A)
No appellate right existed until the Order-in-Original was passed.
(B)
The appeal could only be filed after 01.10.2025.
Hence, the law prevailing on the filing date governs.
(C)
The opening words
“No appeal shall be filed…” make the filing date decisive.
(D)
The substituted proviso replaced the earlier proviso. No saving clause exists.
Hence, the amended law applies.
(E)
Petitioners themselves initially requested waiver,
thereby accepting applicability of the amended provision.
(F)
The pre-deposit discourages frivolous appeals and automatically grants stay under Section 107(7).
VI. Analysis of the Law
The Court examined:
- Section 107;
- substituted proviso;
- Finance Act 2025;
- Supreme Court precedents.
It noted: Prior to 01.10.2025 no percentage-based pre-deposit existed for penalty-only orders under Section 122(1A).
The substituted proviso introduced this burden for the first time.
The Court emphasized: the amendment materially altered the “appellate package” available to the assessee.
VII. Court’s Reasoning
The Court gave detailed reasons.
1. Right of Appeal is Substantive
The Court reiterated: although appeal is statutory, once created, it becomes a substantive vested right. It cannot subsequently be impaired unless the Legislature expressly provides.
2. Commencement of Lis
This is the most significant finding.
The Court held: the lis commences when the Department:
- formulates allegations;
- asserts liability;
- calls upon the assessee to answer.
That stage is reached upon issuance of the Show Cause Notice. Not on the date of adjudication.Not on filing appeal.
The Court held: the SCN dated 25.06.2025 commenced the lis.
3. Appellate Package
The Court adopted
Videocon International
and observed:A vested appellate right includes:
- forum;
- conditions;
- limitations;
- scope.
All together constitute one appellate package. This package crystallises on commencement of the lis.
4. Amendment is More Onerous
The Court held: for penalty-only cases, the amendment introduced an entirely new financial burden.
Hence, it diminishes the vested appellate package.
5. No Legislative Intention
Neither: Finance Act 2025 nor Section 107 contains any express retrospective clause.
Nor any necessary implication. Therefore, pending proceedings remain governed by earlier law.
6. “No Appeal Shall Be Filed”
Revenue relied upon these words. The Court rejected the argument.
It held: these words indicate when deposit becomes payable, not which appellate regime applies.
7. Distinguishing Respondents’ Judgments
The Court distinguished:
- Hardeodas Jagannath v. State of Assam
- Surinder Singh Deswal and Ors. v. Virender Gandhi
- Chandra Sekhar Jha v. Union of India and Anr.
- Barjinder Singh Kohli v. Assistant Commissioner of Revenue and Ors.7
on facts and statutory context. It held none displaced the principles of:
- Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh & others
- Garikapati Veeraya v. N. Subbiah Choudhry and Ors
- Videocon International.
8. Waiver
The Court agreed that the Appellate Authority has no power to waive a statutory pre-deposit.
However, since the amended proviso itself was held inapplicable, the question of waiver did not survive.
VIII. Ratio Decidendi
The ratio of the judgment is:
The right of appeal under Section 107 is a substantive vested right that attaches upon commencement of the lis. In GST adjudication, the lis commences on the date of issuance of the Show Cause Notice. Therefore, the appellate regime, including conditions of pre-deposit, is governed by the law prevailing on the date of the SCN unless the amending statute expressly or by necessary implication provides otherwise.
IX. Principles Settled
The judgment settles the following principles:
1. The SCN, not the adjudication order, determines the commencement of the lis.
2. The right of appeal is a substantive right.
3. The appellate package vests on initiation of adjudicatory proceedings.
4. A more onerous pre-deposit condition cannot ordinarily apply to pending proceedings.
5. The date of filing the appeal is not determinative of the applicable appellate regime.
6. Substitution of a statutory provision does not automatically destroy vested rights.
7. The Appellate Authority has no inherent power to waive a statutory pre-deposit.
8. Constitutional validity of the substituted proviso was left open, as it was unnecessary to decide in the facts of the case.
X. Final Directions
The Delhi High Court:
- held that the substituted proviso to Section 107(6) does not apply to the petitioners’ appeals;
- directed that no 10% penalty pre-deposit was required for filing the appeals;
- directed the Appellate Authority to register and entertain the appeals without insisting on such deposit;
- excluded the period during which the writ petition remained pending while computing limitation for filing the appeals;
- clarified that the constitutional challenge was left open for an appropriate case.
XI. Conclusion
The decision in Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II), CGST is a landmark judgment on the doctrine of vested appellate rights under the CGST Act. By holding that the lis commences with the issuance of the Show Cause Notice, the Delhi High Court reaffirmed the settled principles laid down in Hoosein Kasam Dada, Garikapati Veeraya, and Videocon International. The Court made it clear that a subsequent legislative amendment imposing a more onerous condition for filing an appeal cannot ordinarily operate against proceedings already initiated unless the Legislature expressly provides for such retrospective application. The judgment strengthens taxpayer protection against retrospective impairment of appellate remedies while preserving the Legislature’s authority to prescribe conditions prospectively. It is likely to serve as an important precedent wherever amendments alter pre-deposit requirements or other substantive conditions governing statutory appeals under fiscal laws.
Concluding Remarks
The judgment in Gaurav Jain & Another v. Joint Commissioner (Appeals-II), CGST Delhi Zone marks a significant milestone in the jurisprudence governing appellate rights under the GST regime. While the dispute ostensibly concerned the applicability of the amended proviso to Section 107(6) requiring a pre-deposit of 10% of the penalty amount, the Delhi High Court addressed a far more fundamental question concerning the commencement of the lis and the vesting of the right of appeal. By holding that the Show Cause Notice, and not the adjudication order, marks the commencement of the legal dispute, the Court has reaffirmed one of the most enduring principles of Indian appellate jurisprudence.
The judgment faithfully applies the constitutional and statutory principles laid down by the Supreme Court in Hoosein Kasam Dada, Garikapati Veeraya, and Videocon International, recognising that the right of appeal is not merely a procedural facility but a substantive legal right which vests upon initiation of adjudicatory proceedings. Equally important is the Court’s recognition that the right of appeal encompasses the entire “appellate package”, including the forum, conditions, limitations, and financial burdens attached to the appellate remedy. Once this package crystallises, it cannot ordinarily be altered to the detriment of the assessee by subsequent legislative amendments unless the Legislature has expressly or by necessary implication provided for retrospective operation.
From the perspective of fiscal jurisprudence, the judgment strikes an appropriate balance between legislative supremacy and taxpayer protection. It does not question Parliament’s competence to introduce new pre-deposit requirements or modify appellate conditions prospectively. Rather, it emphasises that fairness, certainty, and the rule of law demand that such changes should not retrospectively impair vested appellate rights arising from proceedings already initiated. This approach preserves the confidence of taxpayers in the stability of statutory remedies while respecting the Legislature’s authority to reform procedural law for future disputes.
The practical significance of the decision extends far beyond the facts of the case. It will govern numerous pending GST disputes where Show Cause Notices were issued prior to 1 October 2025 but adjudication orders were passed thereafter, and it provides authoritative guidance for determining the applicable appellate regime whenever statutory amendments alter pre-deposit requirements or other substantive conditions governing appeals. By clarifying that the date of issuance of the Show Cause Notice determines the applicable appellate law, the judgment eliminates uncertainty that could otherwise have resulted in inconsistent application of the amended provisions.
Equally noteworthy is the Court’s conscious decision to leave the constitutional validity of the substituted proviso to Section 107(6) open for consideration in an appropriate case. Consequently, while the judgment conclusively settles the issue of retrospectivity and vested appellate rights, it does not foreclose future constitutional challenges to the amended provision itself.
In conclusion, Gaurav Jain is far more than a decision on pre-deposit; it is a reaffirmation of the constitutional principles of legal certainty, fairness, and protection of vested rights in fiscal legislation. The judgment reinforces that the commencement of the lis is determined by the issuance of the Show Cause Notice, that substantive appellate rights cannot ordinarily be impaired by subsequent legislative amendments, and that the doctrine of vested rights continues to remain a vital safeguard against retrospective erosion of statutory remedies. The decision is likely to serve as a leading precedent not only under the CGST Act but also across other fiscal statutes wherever amendments seek to alter the conditions governing statutory appeals after adjudicatory proceedings have already commenced.
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