The Delhi High Court has held that the right of appeal is a substantive right which vests upon commencement of the lis, i.e., upon initiation of adjudicatory proceedings by issuance of a Show Cause Notice, and carries with it the conditions governing its exercise as they stood on that date. The substituted proviso to Section 107(6) of the CGST Act, introduced with effect from Oct 01, 2025, which for the first time mandates a pre-deposit of ten per cent of the penalty for filing an appeal against a penalty-only order, does not apply to adjudicatory proceedings initiated by a Show Cause Notice issued prior to Oct 01, 2025, even though the Order-in-Original was passed thereafter.
The Court clarified that Finance Act, 2025 neither expressly nor by necessary implication manifests an intention to subject pending adjudicatory proceedings to the newly introduced pre-deposit condition. In the absence of such legislative intent, the appellate remedy remains governed by Section 107(6) as it stood on the date the lis commenced.
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As far as vesting of Appellate Right is concerned, the Division Bench comprising Justice Anil Kshetarpal and Justice Shail Jain observed that the right of appeal is a creature of statute and the legislature may define its scope, prescribe the forum and impose conditions upon its exercise. However, it is firmly established that the right of appeal is substantive and not merely procedural. Once vested, it cannot be taken away, impaired or subjected to a more onerous condition unless the legislature has manifested such an intention expressly or by necessary intendment. Although an appeal can ordinarily be filed only after an adverse decision is rendered, the right to pursue the proceedings through the appellate hierarchy attaches to the lis at its commencement; the adverse order merely makes that right capable of exercise.
The Court found that neither Section 129 of the Finance Act, 2025 nor the substituted proviso states that the new condition shall apply to adjudicatory proceedings pending on Oct 01, 2025. Nor is there any transitional provision identifying pending proceedings which would be governed by the earlier or the substituted regime. The words “no appeal shall be filed” determine the stage at which compliance is required where the substituted proviso applies, but they do not answer the anterior question as to which appellate regime governs proceedings initiated before the substitution. To treat the words as conclusive of temporal application would make the date of filing determinative in every case.
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The absence of an express saving clause also does not advance the Respondents’ case, because where an amendment is not retrospective, rights and obligations crystallised upon commencement of the lis remain unaffected unless the amending enactment expressly or by necessary intendment provides otherwise. The substituted proviso can operate fully and effectively in respect of adjudicatory proceedings initiated on or after Oct 01, 2025 without being applied to proceedings in which the appellate package had already vested, added the Court.
As far as Waiver and Constitutional Validity is concerned, the Court agreed with the proposition, as established in Tecnimont and M/s. Impressive Data Services, that where a statutory pre-deposit condition applies, the Appellate Authority cannot invoke inherent or implied powers to waive or reduce it on the ground of financial hardship. The communication dated March 09, 2026 was therefore correct insofar as it stated that the Appellate Authority possessed no statutory or inherent power to waive an applicable pre-deposit requirement.
However, the Petitioners were entitled to relief on a different basis, the substituted proviso does not govern the appellate right of the Petitioners which attached to the proceedings commenced on June 25, 2025. The fact that the Petitioners initially sought waiver or reduction of the pre-deposit does not determine the statutory regime applicable to their appeals; an erroneous assumption made by a litigant regarding the applicable law cannot render applicable a statutory provision which otherwise does not govern the proceedings, nor can there be an estoppel against the correct interpretation of a statute.
Briefly, the Petitioners, Gaurav Jain and another, were issued a Show Cause Notice by the CGST authorities, alleging that they were key persons and main beneficiaries of a network of non-existent or fictitious entities through which Input Tax Credit had been wrongfully availed and passed on. The SCN invoked Section 122(1A) of the CGST Act against each Petitioner and proposed two quantified penalties i.e., Rs. 137.16 crores for alleged passing on of Input Tax Credit and Rs. 209.38 crores for alleged availment of Input Tax Credit, aggregating to Rs. 346.55 crores against each Petitioner. Upon conclusion of the proceedings, the Adjudicating Authority imposed upon each Petitioner the very penalties proposed in the SCN, without raising any tax demand against them in their individual capacities.
Desirous of assailing the Impugned Order under Section 107 of the CGST Act, the Petitioners addressed an E-mail to the Appellate Authority seeking waiver or relaxation of the pre-deposit requirement on the ground of financial hardship. By communication dated March 09, 2026, the Appellate Authority declined the request, stating that it possessed neither any statutory mandate nor any inherent discretionary power to relax, reduce or waive the prescribed pre-deposit.
