Facts of the Case:

In this case, the appellant was issued a Show Cause Notice dated 29.09.2022 alleging that it had issued fake invoices without actual supply of goods or services. Based on the allegations, the adjudicating authority imposed penalties under Section 122 of the CGST Act read with Section 20 of the IGST Act and under Section 125 of the CGST Act read with Section 20 of the IGST Act through an Order-in-Original dated 28.08.2023. Aggrieved by the said order, the appellant preferred an appeal before the First Appellate Authority. However, the Appellate Authority, by Order-in-Appeal dated 12.01.2024, affirmed the penalties and dismissed the appeal.

The appellant thereafter filed an appeal before the GST Appellate Tribunal, Hyderabad. During scrutiny, the Registry issued a defect memo pointing out certain procedural defects and also objected that the appellant had not made the statutory pre-deposit required under Section 112(8) of the CGST Act. While the appellant rectified the procedural defects relating to indexing, bookmarking and uploading of documents, it contested the requirement of pre-deposit. The appellant argued that the dispute involved only penalties and that the proceedings had commenced much before the amendment introduced by the Finance Act, 2025, which inserted a proviso requiring pre-deposit of 10% of the penalty amount in penalty-only appeals with effect from 01.10.2025.

Issue:

Whether an appellant is required to make a pre-deposit of 10% of the penalty amount under the proviso to Section 112(8) of the CGST Act, inserted by the Finance Act, 2025 with effect from 01.10.2025, in respect of penalty proceedings that had commenced prior to the amendment?

Appellant’s Contentions

The appellant contended that before the amendment brought into force on 01.10.2025, Section 112(8) required pre-deposit only in respect of disputed tax and did not mandate any pre-deposit in cases involving only penalties. Since the Show Cause Notice had been issued on 29.09.2022 and the Order-in-Appeal was passed on 12.01.2024, the entire lis had arisen and substantially concluded before the amendment came into force.

The appellant further argued that the right of appeal is a vested substantive right that accrues on the date when the original proceedings commence and cannot be curtailed by a subsequent amendment imposing additional conditions unless the legislature expressly provides retrospective operation. Reliance was placed on the Supreme Court judgment in Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh and the Calcutta High Court decision in Barjinder Singh Kohli v. Assistant Commissioner & Others, wherein it was held that prior to the Finance Act, 2025 there was no requirement of pre-deposit in penalty-only matters and that the amendment could not be retrospectively applied.

Revenue’s Stand

The Departmental Representative did not raise any objection to the Tribunal deciding the issue of pre-deposit on merits. The Registry’s objection was based on the amended provision of Section 112(8), which introduced a requirement of depositing 10% of the penalty amount for admission of appeals against penalty-only orders.

Held That:

The Tribunal examined Section 112(8) of the CGST Act and observed that, prior to 01.10.2025, the provision required payment of admitted dues and 10% of the disputed tax for filing an appeal before the Tribunal. There was no statutory requirement of any pre-deposit where the dispute involved only penalties without any demand of tax.

The Tribunal noted that the proviso inserted by the Finance Act, 2025, effective from 01.10.2025, for the first time mandated a pre-deposit equal to 10% of the penalty amount in cases where the appeal was directed solely against a penalty order. However, the amendment did not indicate either expressly or by necessary implication that it would operate retrospectively.

The Tribunal observed that the Show Cause Notice in the present case had been issued on 29.09.2022, the Order-in-Original on 28.08.2023 and the Order-in-Appeal on 12.01.2024, all much before the amendment became effective. Therefore, the appellant’s right of appeal had crystallized under the unamended statutory framework.

Relying upon the judgment of the Calcutta High Court in Barjinder Singh Kohli and the landmark decision of the Supreme Court in Hoosein Kasam Dada (India) Ltd., the Tribunal held that a vested right of appeal cannot be burdened by a subsequently introduced condition of pre-deposit unless the legislature expressly provides for retrospective application. Since no such intention was evident in the Finance Act, 2025, the newly inserted proviso could not be applied to the appellant’s case.

Accordingly, the Tribunal held that no pre-deposit was required under Section 112(8) of the CGST Act for admission of the appeal. The appeal was admitted, notice was issued to the respondents and the matter was directed to be listed after four weeks.

The Tribunal, however, clarified that its observations were confined to the issue of admission of the appeal and would not prejudice the merits of the case. It further observed that if, at the stage of final hearing, it ultimately concluded that any pre-deposit was legally payable, the appellant would be required to comply with such direction.

Takeaway: The proviso inserted to Section 112(8) of the CGST Act by the Finance Act, 2025, requiring a pre-deposit of 10% of the penalty amount in penalty-only appeals, was held to be prospective and incapable of being applied to proceedings initiated before 01.10.2025. Consequently, taxpayers involved in penalty-only disputes arising prior to the amendment cannot be compelled to satisfy a pre-deposit condition that did not exist when the proceedings commenced. The ruling provides important clarity on the prospective operation of the Finance Act, 2025 amendment and strengthens the principle that vested appellate rights cannot be impaired by subsequent legislative changes unless expressly intended by Parliament.

Case Name: REDDY VEERANNA CONSTRUCTIONS PVT. LTD v. APPEAL I COMMISSIONER, APPEAL I COMMISSIONER, APPEAL I COMMISSIONER & ORS. dated

Citation No. 2026 Taxo.online 2211