Mandatory Pre-Deposit under GST: An Analysis of it's impact on Appellate Remedy.

Tax laws—and, indeed, most laws—impose a range of obligations on individuals and entities. These obligations generally fall into two broad categories: substantive (tax-related) obligations and procedural obligations. The taxpayer's adherence to these requirements is subject to verification by tax authorities through mechanisms such as scrutiny, audit, and anti-evasion measures. These processes often give rise to instances of actual or alleged non-compliance. 

When differences in interpretation or application of tax laws persist between the taxpayer and the tax authority, they crystallize into a dispute requiring resolution. Tax law acknowledges that divergent views may arise even when the underlying facts and legal provisions are the same. Consequently, a taxpayer may choose to challenge an adjudication order issued by the tax officer. Similarly, there may be instances where the Department itself finds the adjudication order unsatisfactory and opts to contest it.

It is for this reason that the statute provides further channels of appeal, to both sides. However, since the right to appeal is a statutory right, the statute also places reasonable fetters on the exercise of that right.  The time limits prescribed by the statute for filing of appeals and the requirement of pre-deposit of a certain sum before the appeal can be heard by the competent authority are examples of such fetters on the statutory right.

Appeal before the Commissioner of GST and GST Appellant Tribunal is filed under Section  107 and Section 112 of the Central Goods and Service Tax Act’ 2017 respectively. But one of the harsh and draconian conditions mentioned in sub-section 6 of Section 107 and sub-section 8 of Section  112 related to pre deposit for appeal under GST is against fundamental right to access justice.

In This article, we would try to evaluate whether the mandatory Pre-Deposit requirement under GST is a Necessary Check or Barrier to the Justice ?

In this article “Pre-Deposit” means the amount as mentioned in section 107(6) clause (ii) and amount mentioned in section 112(8) clauses (ii).

Condition for filing appeal to Commissioner of GST (Appeal) as provided by Section 107(6) is as under:

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 twenty crores 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 10% of the said penalty has been paid by the appellant.]

….. Substitute by Finance Act 2025

Condition for filing appeal before GST Appellate Tribunal as provided by Section 112(8) is as under:

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 section 107, arising from the said order, 10% of the remaining amount of tax in dispute, in addition to the amount paid under sub-section (6) of subject to a maximum of twenty crores 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, in addition to the amount payable under the proviso to sub-section (6) of section 107 has been paid by the appellant.]

…… inserted vide The Finance Act, 2025, to be effective from a date to be notified

Now in this article, we will try to find out answer to the two questions:

Question No. 1 Whether Mandatory Pre-deposit under GST is a Reason for causing irreparable damage & irreversible Effect to the genuine businesses who are slapped with Arbitrary High Value Orders at the stage of Adjudication passed without applying mind or appreciating facts & submissions.  

Answer: Yes, the mandatory pre-deposit requirement under the GST Act, 2017, though intended to discourage frivolous litigation, can indeed cause irreparable damage and have irreversible effects on genuine businesses in following manner:

1-Financial Hardship and Increased Financial Cost:

• For appellant being SMEs and mid-size businesses, depositing a large sum as pre-deposit for filing appeal often based on inflated or arbitrary assessments blocks the working capital that could otherwise be used for operations, salaries, compliance and even for business expansion.
• Sometimes appellant are dependent on financial institutions for financing there working capital. They have availed credit facilities in various forms from the banks. Now if they have to make mandatory pre-deposit for filing appeal, it will directly affect the financial cost of the tax payer.

Eg: Appellant has availed credit facility for financial institution @ 10 % per annum, then if he has to make mandatory pre-deposit, interest cost for making such pre-deposit will be an added hardship to the business financial health.

2-Irreparable Injury:

Even if the appeal eventually succeeds, the damage is already done in form of the financial strain causing businesses to downsize, default on obligations, or even shut down.

3-Irreversible Effects: Article 19(1)(g) Right to carry on Trade or Profession:

• If a business collapses or becomes NPA (non-performing asset) due to this forced deposit, reversal of the tax order at a later stage becomes meaningless. It is noticed at many instances that financial damage once done put business in vicious circle of financial hardship which can cause bankruptcy followed by permanent closure of business which is again the violation of Fundamental Right of Right of Carry on Trade or Profession as guaranteed by Article 19(1)(g) of the Indian Constitution.  

4-Violation of Natural Justice:

• If the original order was passed without proper application of mind, ignoring facts or representations, then forcing a pre-deposit may seem punitive and defeat the purpose of appeal as a corrective mechanism. Even many instances have been notices when any order passed by proper officer being arbitrary in nature is challenged in the High Court and the matter is remanded back to the adjudicating authority with directions. In these situations also taxpayer is financially burdened by the fees of the lawyer of a High Court which everyone knows is a hefty amount. The principle of natural justice may be undermined when financial capability becomes a barrier to legal recourse.

5-Unequal Access to Justice: Article 14 of Indian Constitution i.e Equality before the Law:

• It creates a barrier for aggrieved parties (appellant), especially when high-value demands are raised without substance, making appeals practically unaffordable. GST department can go before the Appellate Authority without making any pre-deposit which again leads to violation of fundamental right guaranteed by Article 14 i.e right to equality before the law and equal protection of the laws within the territory of India.
• This requirement can effectively deny the right to appeal to taxpayers who may have a genuine case but lack immediate funds to deposit. Hence it is deemed to be violation of right to access to the justice as provided by combined reading of Article 14 and Article 21 of the Constitution of India.

6-Protection of life & personal liberty: Article 21 of Indian Constitution

• For genuine or small taxpayer (appellant), for filing appeal, mandatory pre-deposit under GST could, in extreme circumstances, result in the loss of life or livelihood if a taxpayer is denied access to appellate remedies due to lack of funds.
• “If a person cannot afford the pre-deposit, they may be unable to appeal a tax demand, which could lead to financial ruin, loss of business, mental distress, or even suicide — thus infringing the right to life under Article 21.”
• This is not merely hyperbolic. Indian courts and legal scholarship have increasingly recognized the connection between financial distress and Article 21 rights, especially in cases involving farmers, small businesses, and debtors.
• The present condition of Pre-Deposit before filing appeal impairs their right of a taxpayer (appellant) to live with dignity, which is constitutionally protected.

7-Pressure Tactics or real-world abuse of legal provisions:

Sometimes the adjudicating authorities use this pre-deposit provision under GST as a tool to bargain with the tax payer to settle the part of the demand now, or be ready to make a big amount of pre-deposit to file an appeal against our order. Sometimes arbitrary adjudication is done with the malafied intention to satisfy the personal grudge by the GST officers. This coercive bargaining erodes the fundamental principal of justice by hampering

1. Fair & reasoned adjudication free from coercion as officers may not fairly examine facts and arguments, relying instead on pressure tactics.
2. Taxpayer right to appeal without undue financial burden.

Proviso to section 107(6) and section 112(8) is not only harsh but draconian in nature.

Further, an amendment has been made in proviso to section 107(6) and a proviso has been inserted in section 112(8) by Finance Act’ 2025 which in nut shell states where the order demanding only penalty is concerned, mandatory condition for pre-deposit as mentioned in respective section 107 and 112 is required to be fulfilled before filing appeal with the respective appellate authority.

As discussed earlier, the pre-deposit requirement for filing an appeal under the GST regime is already stringent; however, the recent amendment extending this mandatory pre-deposit to appeals against orders imposing only penalties renders the provision even more onerous and disproportionate in nature.

It is often observed that while adjudicating Show Cause Notices (particularly those issued under Section 74 of the Central Goods and Services Tax Act, 2017), the department tends to propose penalties under multiple clauses of sub-section (1) of Section 122, as well as other sub-sections of the same provision. As a result, the penalty imposed in the order-in-original frequently amounts to two or three times the tax allegedly involved.

While the pre-deposit of 10% may appear modest in relation to the total disputed tax amount, but actually it can be crushing for small business specially where taxpayer (appellant) is honest, bonafied and arbitrary demand has been raised without application of mind and considering the reply.

Reference can be taken from writ petition filed before the Bombay High Court in case of Shantanu Sanjay Hundekari & Ors vs Union of India & Ors [2024 TAXONATION 594 (BOMBAY)]- In this case, 4 officers of the company were foisted with the Show Cause Notice under section 74 of the Central Goods & Service Tax Act’ 2017 whereupon a demand of Rs. 37,31,00,38,326/- towards penalty is being demanded from them being the tax amount stated to be defaulted by the employer.          

The said show cause notice was rendered bad, illegal and finally quashed by the Bombay High Court on the basis of Jurisdictional Error, Vicarious Liability and abuse of power. High Court further commented on the intentions of the concerned officers as under:

 Para 33: The foregoing discussion would also lead us to conclude that it is highly unconscionable and disproportionate for the concerned officer of the Revenue to demand from the petitioner an amount of Rs.3731 crores, which in fact is clearly alleged to be the liability of Maersk, as the contents of the show cause notice itself would demonstrate. The petitioner would not be incorrect in contending that the purpose of issuing the show cause notice to the petitioner, who is merely an employee, was designed to threaten and pressurize the petitioner.

If the Bombay High Court had not quashed the show cause notice in Shantanu Sanjay Hundekari & Ors vs Union of India & Ors [2024 TAXONATION 594 (BOMBAY)], and if—as was evident—the adjudicating authority passed an adverse order, then the mandatory pre-deposit requirement introduced by the Finance Act, 2024 would have placed the four officers in a deeply unjust position to make pre-deposit which amount to Rs. 746.20 crores for filing appeal, an obviously impossible amount for salaried employees or functionaries acting in the course of employment.

Question No. 2: Whether a Provision for Waiver of Pre-deposit after considering the genuineness of the appellant & his transactions, is required to be inserted under GST Law?

Answer: Yes, mandatory pre-deposit under the GST Act can cause irreparable damage and have long-term adverse effects, especially when arbitrary adjudication orders are passed. This underscores the need for:

1. Better scrutiny at the adjudication level,

2. A mechanism for waiver or relaxation of pre-deposit in exceptional cases like genuineness of the appellant and the nature of transaction,

3. And quicker disposal of appeals to minimize business disruption.

Inserting a provision for waiver or relaxation of pre-deposit in the GST law based on the genuineness of the appellant and the nature of transactions is not only desirable but arguably essential to ensure fairness, access to justice, and protection of legitimate businesses. Our Finance Ministry should take decision based on following:

1.Protection of Constitutional Rights:

• Mandatory pre-deposit, without exception, can violate Article 14 (equality before law), Article 19(1)(g) (freedom to practice any profession or carry on business) and Article 21 (right to the protection of life and personal liberty).
• A waiver provision would restore judicial discretion, allowing relief in exceptional or hardship cases.

2. Consistency with Other Laws:

• In Service Tax and Excise (pre-GST), appellate authorities had discretion to waive pre-deposit under Section 35F of the Central Excise Act (prior to the 2014 amendment).
• Income Tax Act’ 1961 also allows Commissioner of Income Tax (Appeals) and Appellate Tribunal entertain appeals without pre-deposit and allows stay of demand in meritorious cases.

3.Consistency with Global Taxation System:

• In the present scenario, for India to compete with other developed countries, it has to make its taxation policy in tune with global tax system and so as it rules and regulations.

• Aligning India's tax litigation provisions with those in developed countries is important for fostering investor confidence, reducing litigation backlog, and enhancing ease of doing business.

• Many developed counties like, USA, Germany, Australia, UK, Canada do not have Pre-Deposit requirement in for filing an appeal.

4. Safeguarding Business Continuity & Economic Growth:

• For small and medium enterprises (SMEs), locking significant funds as pre-deposit can cripple operations and cause job losses — defeating the goal of economic growth under GST.

5.Preventing Misuse of Adjudication Power:

• As you've noted, pre-deposit is sometimes misused to pressure taxpayers (appellant) into settling weak or baseless demands. Even sometime arbitrary and huge demands are created with malafied intention of the adjudicating officer or personal grudge with the taxpayer (appellant). A waiver provision can be a check on such abuse, especially where the SCN and order suffer from non-application of mind or procedural lapses.

6.Genuine Taxpayer vs Tax Evaders:

• One-size-fits-all approach treats genuine taxpayers and fraudulent ones the same.
• A waiver mechanism would allow authorities or appellate forums to differentiate based on facts — e.g., clean compliance history, no wilful misstatement, or bonafide errors.

HIGH COURT VIEW AND APROACH ON WAIVER OF MANDATORY PRE-DEPOSIT CONDITION:

High Courts generally do not waive the mandatory pre-deposit condition under GST in writ petitions because of the statutory bar and limited scope of writ jurisdiction, though they can (and occasionally do) intervene in exceptional cases involving glaring injustice or arbitrary orders.

Ques: Why waiver of mandatory condition of pre-deposit is rare?

Ans:Statutory Mandate is clear and mandatory in nature: Under Section 107(6) and Section 112(8) of the CGST Act, pre-deposit is a condition precedent to filing an appeal. The language used is "no appeal shall be filed unless...", which courts interpret as mandatory and not directory. High Courts holds that “Where the statute makes something a condition for exercising a right, the court cannot bypass that condition unless the law itself allows it.”

Writ Jurisdiction (Article 226) is Discretionary and Limited: High Courts avoid stepping into matters where:

• An alternative statutory remedy (i.e., appeal) exists, and
• The petitioner is merely trying to bypass pre-deposit.

• High Courts is of the opinion that the courts might be flooded with these types of petition for waiver of mandatory pre-deposit writs

• In writ petition, High Courts cannot go into the merits of the case

Courts should not interfere with fiscal legislation unless there is a clear constitutional violation

• Harshness or hardship is not sufficient ground to invalidate a law.
• There is always a strong presumption in favour of the constitutionality of a statute, especially economic or taxation laws.
• The burden lies on the person challenging the statute to show clear and manifest violation of constitutional provisions.

No Inherent Power to Waive Mandatory Statutory Requirements: Unlike the pre-GST era (e.g., under the Excise/Service Tax laws pre-2014), where tribunals had discretion to grant waiver of pre-deposit, the GST law does not grant such power — not even to appellate authorities.

High Courts say they cannot create a waiver power where none exists in statute.

Ques: When Writ should be entertained despite No Pre-deposit?

Ans: There are exceptions, and courts have provided relief without insisting on pre-deposit where:

• The impugned order is patently arbitrary or passed without jurisdiction.
• Violation of natural justice (e.g., no hearing granted, order passed ex parte).
• Adjudication done mechanically, without addressing facts or evidence.
• The taxpayer shows severe financial hardship and a prima facie strong case.
• Fraud or abuse of process by the department is evident.
• Where adjudicating officer do not follow the law laid down by the various notified judgement of the jurisdictional High Courts & Supreme Court.

In this case, courts may stay the demand temporarily, remand the matter back to the adjudicating authority with pre-deposit or directing pre-deposit of lower amount or in rare cases waive of the pre-deposit condition.

High Courts are bound by statutory limitations and principles of judicial restraint. They generally won’t waive pre-deposit unless the case involves clear abuse of process, procedural illegality, or exceptional hardship that makes the standard appellate remedy illusory.

Judicial Interpretations:

Courts have largely upheld the constitutionality of mandatory pre-deposit because they are bound by statutory limitations and principles of judicial restraint. They generally won’t waive pre-deposit unless the case involves clear abuse of process, procedural illegality, or exceptional hardship that makes the standard appellate remedy illusory.

Author’s view and suggestion while dealing with Pre-deposit condition under GST for filing appeal:

High Courts should give away their old approach and assumptions:

Courts should come out of its approach laid by the Supreme Court's decision in P. Laxmi Devi v. State of Andhra Pradesh, reported in (2008) 4 SCC 720, which is a significant judgment concerning the doctrine of constitutional invalidity, particularly the presumption of constitutionality of statutes and the limited scope of judicial review in economic legislation. The assumption that one-size-fits-all approach which treats genuine taxpayers and fraudulent ones the same should be disregarded where it fails to differentiate between bona fide taxpayers and those acting with fraud or malice. A rigid, mechanical application without scope for discretion violates Article 14, Article 19(1)(g) and Article 21 of the Indian Constitution.

Check on the protection given to GST Officer u/s 157 of the Act:

Section 157 provides protection to GST officers from prosecution for actions done “in good faith”. While this is a standard legal safeguard in many statutes to protect honest officers, it becomes problematic when misused.

"We urge the Government to review the blanket immunity provided under Section 157 of the CGST Act officers who act arbitrarily, disregard taxpayer replies, and raise disproportionate demands must not be protected under the guise of ‘good faith.’ Such misuse of power erodes trust in the tax system and violates principles of natural justice. It is essential to ensure that the GST framework is not only efficient but also accountable. We strongly recommend the institution of a disciplinary framework and amendment to Section 157 to ensure that errant officers face strict consequences including suspension, demotion or dismissal."

Redefine or limit the scope of “good faith” to exclude actions that are grossly negligent, arbitrary, or malicious. Allow prosecution or legal action in cases where abuse of power is substantiated with evidence.

High Courts to set binding precedents penalizing such behaviour in writ petitions under Article 226 for arbitrary tax demands.

Setting of separate tribunal or authority to consider waiver of Pre-deposit:

The idea of setting up a separate tribunal or authority to consider waiver of pre-deposit under GST is both legally viable and constitutionally grounded, especially when viewed through the lens of access to justice, proportionality, and reasonable classification under Articles 14 and 21 of the Constitution.

A quasi-judicial authority or a waiver committee under CBIC or GST Council which can be constituted with retired tax officers, independent experts, and legal professionals who must be empowered to grant full or partial waiver of pre-deposit based on financial hardship, public interest, arbitrary demand with high pitched adjudication orders or prima facie strength of the case.

Factors to be considered by the revenue in setting up the waiver authority are:

• Under Section 35F of the Central Excise Act, as amended, pre-deposit was mandatory — but earlier provisions allowed discretion to waive pre-deposit on grounds of hardship.
• N. Balakrishnan v. M. Krishnamurthy (1998): Procedural rules should not defeat substantive justice.
• Gupta Coal v. Union of India (2001): Courts upheld the right to seek waiver of pre-deposit where serious hardship existed.

CA Tushar Jain

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