Facts of the Case:  In this case, the petitioner filed an appeal before the Appellate Authority under Section 107 of the CGST Act, 2017, challenging the adjudication order raising tax demand. The Appellate Authority, by order dated 19 September 2024, dismissed the appeal on the ground of non-compliance with the mandatory pre-deposit requirement.

It was held that 10% of the disputed tax, amounting to ₹12.76 lakh, was required to be deposited, whereas the petitioner had deposited only ₹8.62 lakh. The petitioner contended before the High Court that there was no shortfall in the pre-deposit, and even assuming a short deposit, the Appellate Authority ought to have issued a defect memo or granted an opportunity to rectify the procedural lapse before rejecting the appeal.

The petitioner relied on earlier coordinate bench rulings in JEM Exporter v. Union of India, wherein similar dismissals had been held to violate principles of natural justice.

The Department argued that the petitioner was duly heard, and since pre-deposit under Section 107(6) is mandatory, the rejection was valid.

Issue: Whether the Appellate Authority can dismiss an appeal for alleged shortfall in pre-deposit without affording the appellant an opportunity to explain or make good the deficiency?

Held that: The Bombay High Court set aside the impugned order and remanded the matter to the Appellate Authority, and held that the hearing provided to the petitioner was only on the merits of the appeal, and no notice was given regarding the alleged shortfall in pre-deposit.

Following the ratio in JEM Exporter (supra) and D.N. Polymers (supra), dismissal of an appeal for procedural non-compliance without opportunity to rectify defects violates natural justice.

The Appellate Authority must first allow the appellant to demonstrate that no shortfall exists, and if any deficiency is found, grant a reasonable period (four weeks) to make good the short deposit. Only if the petitioner fails to comply within such extended time can the appeal be dismissed for non-compliance.

Accordingly, the writ petition was allowed, and the rule made absolute, directing the Appellate Authority to hear the appeal afresh on merits once compliance is ensured. The decision reiterates that procedural lapses in pre-deposit compliance under Section 107(6) CGST Act should not defeat substantive justice. The appellate authority is bound to give an opportunity to rectify or make good any shortfall before rejecting an appeal.

Case name: M/s G. KHANNA & COMPANY v. UNION OF INDIA & ORS. dated 23.09.2025

To read the complete judgment 2025 Taxo.online 2524