PRE-DEPOSIT REQUIREMENT FOR FILING APPEALS UNDER GST FRAMEWORK AND A DRAFTING LACUNA

Abstract: The Finance (No. 2) Act, 2024 and the Finance Act, 2025 with corresponding changes in SGST Acts have re-shaped the pre-deposit requirements for filing appeals under the GST framework. While these amendments aim to rationalise the quantum of pre-deposit and reduce the financial burden on appellants, a careful textual reading reveals a stark and consequential anomaly. For appeals involving penalty without any tax demand, the pre-deposit requirements are capped under the IGST Act but remain completely uncapped under the CGST and SGST Acts. This article examines the architecture of pre-deposit obligations, and argues that the omission of CAP with respect to penalty cases is a drafting error warranting urgent legislative correction.

I. Introduction

The right to appeal is a fundamental safeguard in any tax adjudication system. However, the legislature has always conditioned this right upon the deposit of a minimum sum - the 'pre-deposit' - as a check against frivolous litigation and to ensure that public revenues are not indefinitely withheld during protracted appellate proceedings. Under the Goods and Services Tax framework, this condition is embedded in Section 107 (appeals to the first Appellate Authority) and Section 112 (appeals to the GST Appellate Tribunal or GSTAT) of the Central Goods and Services Tax Act, 2017.

Initially, pre-deposit requirements were incorporated under Sections 107 and 112 only for appeals involving a tax demand, and there were no pre-deposit requirements for appeals involving other issues such as penalty or interest without any tax demand. The Finance (No. 2) Act, 2024 (effective 1 November 2024) reduced the upper cap on pre-deposit in tax demand cases. Thereafter, the Finance Act, 2025 (effective 1 October 2025) introduced pre-deposit requirements for appeals involving penalty without any tax demand for the first time.

Taken together, these amendments create three distinct classes of appeals with different pre-deposit obligations.

• • Class (a): Orders involving disputed tax demands, with or without penalty, interest, fine, etc. For these appeals, the pre-deposit requirement is capped at Rs. 20 crore under the CGST Act Rs. 20 crore under the SGST Act, and Rs. 40 crore under the IGST Act.
  • Class (b): Orders involving disputed penalty but no tax demand, with or without interest, fine, etc. For these appeals, the pre-deposit requirement is capped at Rs. 40 crore under the IGST Act but remains completely uncapped under the CGST and SGST Acts - a drafting lacuna with potentially severe financial consequences for appellants.
  • Class (c): Orders involving disputed interest, fine, etc., with no tax or penalty demand. For these appeals, there is no pre-deposit requirement at all.

II. The Pre-Deposit Framework and a drafting inadvertent omission

Section 107(6) of the CGST Act as amended by The Finance (No. 2) Act, 2024 and the Finance Act, 2025 requiring pre-deposit reads as below

“(6) 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 per cent of the remaining amount of tax in dispute arising from the said order, subject to a maximum of twentycrore rupees, in relation to which the appeal has been filed:

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.”

There is a similar provision contained in Section 112(8) of the act with respect to filing appeal before GSTAT, the second appellate authority with a rider that the deposit requirements under Section 112(8) are in addition to the deposit requirements under Section 107(6) of the act. Further Section 20 of Integrated Goods and Services Tax Act, 2017 simply imports the provisions contained under CGST Act 2017 for the purposes of appeals and revision with following proviso:

“Provided also that a maximum amount of forty crore rupees shall be payable for each appeal to be filed before the Appellate Authority or the Appellate Tribunal.”

Since the cap introduced under Section 20 of IGST Act is a general ceiling, it applies to all type of appeals requiring pre-deposit including Class (b) penalty-only appeals. Thus, unlike the CGST/SGST Act, the IGST Act caps the pre-deposit for penalty-only appeals also through this general provision.

Thus, every appellant, before filing an appeal before the first Appellate Authority as well as Second Appellate Authority, is required to deposit the following:

• • 100% of the admitted liability under CGST/SGST/IGST Acts in all cases; and
  • A sum equal to ten per cent of the remaining amount of tax in dispute, subject to a maximum of 20 Crore-CGST, 20 Crore-SGST, 40 Crore-IGST.
  • Where an order involves no tax demand, but involves demand of penalty, ten per cent of the penalty under IGST Act with a upper cap of 40 Crores and ten per cent of the penalty under CGST and SGST Acts each with no upper cap.
  • Where an impugned order does not demand tax or penalty but only imposes interest, late fee, or other monetary fine, the situation shall not be covered under Section 107(6) or 112(8) of the CGST/SGST Act and consequently under Section 20 of IGST Act and thus shall fall entirely outside both the main provision and the proviso, and therefore attract no pre-deposit obligation. The main provision is triggered only by a disputed tax demand and the proviso is triggered only by a disputed penalty demand. An order limited to interest or fine falls outside both triggers, and accordingly no pre-deposit is required as a condition of appeal at either level.

Since, the caps operate independently per enactment, a single order with tax demands spanning all three enactments CGST, SGST, and IGST, can attract pre-deposit up to Rs. 20 crore under CGST Rs. 20 crore under SGST, and Rs. 40 crore under IGST at the first appellate level, totalling Rs. 80 crore. At GSTAT under Section 112, an equivalent further deposit is required, taking the theoretical maximum across both levels to Rs. 160 crore for a combined CGST + SGST + IGST demand. To illustrate the gravity of the asymmetry created between capping under CGST/SGST vs IGST Act, consider a hypothetical example of a 700-crore penalty under CGST and SGST Act each and a 1000 crore penalty under IGST Act, which will require a pre-deposit of Rs. 70 Cr (uncapped) under CGST and SGST Act each and Rs. 40 Cr (capped) under IGST Act with a cumulative figure of Rs. 180 Cr before the first Appellate Authority. If the appeal fails and the appellant proceeds to GSTAT under Section 112, a further Rs. 180 crore pre-deposit would be required. The cumulative pre-deposit for pursuing the appeal through both levels reaches Rs. 360 crore. This makes the appellate remedies in such a situation illusory and renders the appellant remediless forcing them to approach High Courts under writ jurisdiction. Further there is no rationale for prescribing a cap under IGST Act but not under CGST/SGST Act.

This clearly appears to be a drafting inadvertent omission rather than a deliberate policy choice which needs to be corrected. proviso to Section 107(6) and the proviso to Section 112(8) of the CGST Act should be amended to introduce an upper cap on the pre-deposit for Class (b) penalty-only appeals, aligned with the Class (a) ceiling and the IGST general cap. The amended proviso to Section 107(6)/112(8) could read:

“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, subject to a maximum of twenty crore rupees, has been paid by the appellant.”

III. Other Interpretive Issues Requiring Clarification

Multi-Party Orders: Whose Tax Demand Governs?

Under the GST law, every legal entity is required to file a separate appeal. Each appeal must be filed on the GST/GSTAT portal, which requires each appellant to deposit the admitted liability in full and the prescribed percentage of the disputed amount. A conceptual difficulty arises in cases where a single adjudication order/OIA/Revision Order is passed against multiple noticees/parties. The portal treats each appeal in isolation and computes pre-deposit independently per appellant.

Consider an order that imposes a tax demand of Rs. 100 crore on Party A along with penalty, but imposes only penalty on Party B. If Party A pays 10% (Rs. 10 crore) as pre-deposit while filing its appeal, the portal seeks pre deposit from Party B also. In such a situation, the question is: for the party facing only a penalty, does the proviso to Section 107(6), which requires 10% of penalty as pre-deposit, apply, or does the main clause apply, since the order as a whole does involve a tax demand?

One possible reading is that the proviso applies only when the order “demanding penalty” does not “involve demand of any tax” from any party and since the same order does involve a tax demand (albeit against a different party), the proviso is inapplicable. Under this view, the penalty-facing party falls under the main clause of Section 107(6), which requires 10% of the remaining amount of tax in dispute. Since this party disputes no tax, it would owe zero pre-deposit. This reading is textually coherent and taxpayer-friendly.

The counter-view is that the phrase “any order demanding penalty without involving demand of any tax” should be read in a party-specific rather than order-specific manner - i.e., whether vis-a -vis that appellant, the order demands penalty without any tax. This purposive interpretation prevents the anomaly of a party escaping pre-deposit entirely by virtue of a co-noticee’s tax liability in the same order, a clarificatory circular from CBIC is urgently needed.

Tax Admitted, Penalty Disputed: A Portal-Level Inconsistency

A second interpretive puzzle arises when the same appellant both faces a tax demand and a penalty demand in the same order, but disputes only the penalty - having accepted and paid the full tax. The question is whether such an appellant is required to pay 10% of the disputed penalty as pre-deposit.

Reading Section 107(6) carefully: the main clause applies to “the remaining amount of tax in dispute.” Since the appellant does not dispute any tax (having accepted it fully), there is technically no “remaining amount of tax in dispute,” and consequently no pre-deposit obligation under the main clause. The proviso applies only to orders involving penalty “without involving demand of any tax.” Since this order does involve a tax demand (even though it is not disputed), the proviso is arguably inapplicable too. On this reading, the appellant owes no pre-deposit for disputing the penalty, having already paid 100% of admitted tax.

However, the GST portal reportedly does not permit filing of such appeals until 10% of the disputed penalty is deposited. This portal-level requirement appears to be inconsistent with the statutory text, which neither the main clause nor the proviso can be stretched to cover. The portal’s insistence on collecting 10% of penalty in such cases has no clear statutory basis and creates a practical barrier to appellate access that is not sanctioned by law. This discrepancy between legislative intent and portal implementation needs to be rectified, either by a corrective legislative process or by a technical fix to the portal.