Delhi High Court: No 10% Pre-Deposit for GST Penalty-Only Appeals on Pre-October 2025 Notices

The Delhi High Court has held that a GST appeal against a penalty-only order does not attract the 10 per cent pre-deposit introduced from 1 October 2025 where the show cause notice was issued before that date. In Hans Raj Kaushik Prop Kaushik Industries v. Union of India, W.P.(C) 15157/2026, decided on 13 October 2026, a Division Bench of Justice Anil Kshetarpal and Justice Bharat Parashar applied its own ruling in Gaurav Jain to a proprietor whose show cause notice was dated 30 June 2025 and whose Order-in-Original followed on 17 December 2025, after the amended proviso to Section 107(6) of the CGST Act, 2017 had taken effect. Every other dispute in the case, including whether the order was validly served, when limitation began and whether the adjudicating officer had the power to impose the penalty, was sent to the Appellate Authority.

The ruling matters beyond this one proprietor because the same bench is simultaneously pressing the Central Board of Indirect Taxes and Customs to issue instructions on exactly this question. In Surendra Kumar v. Union of India, W.P.(C) 15022/2026, the court on 12 October 2026 directed CBIC members to examine Gaurav Jain and Parag Garg and issue appropriate directions before the next hearing on 27 October 2026. Practitioners with penalty-only appeals pending in Delhi now have a reported judgment to cite, and may have a board-level instruction within the fortnight.

Facts in Kaushik Industries: a June 2025 notice, a December 2025 order and a portal dispute

The adjudication concerned Financial Year 2018-19 and ended in a penalty alone, with no tax demanded from the petitioner personally. The show cause notice was issued on 30 June 2025 and the petitioner replied on 18 August 2025. The Order-in-Original was passed on 17 December 2025. A further order dated 30 December 2025 was described by the petitioner as a rectification; the department's version was that two pages omitted from the original upload were added on 31 December 2025 and that this was neither a fresh adjudication nor the start of a fresh limitation period.

The petitioner said he came to know of the order only on 11 May 2026, when he accessed the GST portal, and that his former assistant who handled tax matters had fallen out of contact. He also pointed to paragraph 2.5 of the Order-in-Original, which recorded that an inspection had found him not operating from the registered premises, to argue that dispatch by Speed Post to that address could not amount to effective service. The department countered that the order had gone to the registered e-mail and by Speed Post, and that later access to the portal did not mean the order had not been communicated earlier.

A jurisdictional objection was also pleaded: that the officer who issued the notice had no valid assignment of functions under Section 122, relying on Circular No. 254/11/2025-GST dated 27 October 2025. Counsel did not press this at the hearing, and the court left it open for the appeal.

What changed in Section 107(6) on 1 October 2025 and why Gaurav Jain controls

Section 129 of the Finance Act, 2025 substituted the proviso to Section 107(6). The earlier proviso applied only to detention and seizure penalties under Section 129(3) and required 25 per cent of the penalty to be paid before an appeal could be filed. The substituted proviso reads 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. Notification No. 16/2025-Central Tax dated 17 September 2025 appointed 1 October 2025 as the commencement date for sections 126 to 134 of the Finance Act, 2025, which include this change. Before that date there was no percentage-based pre-deposit for a penalty-only order outside Section 129(3).

In Gaurav Jain v. Joint Commissioner (Appeals-II), CGST Delhi Zone, W.P.(C) 8414/2026, decided on 31 July 2026, the same court dealt with two directors on whom penalties of ₹346,55,18,856 each had been imposed under Section 122(1A) by an order dated 16 December 2025, on a show cause notice dated 25 June 2025. The 10 per cent deposit would have been about ₹34.66 crore per appellant. The court held that the right of appeal is a substantive right that vests when the lis commences, which is no later than the show cause notice, and that the appellate package available on that date cannot be made more onerous by a later amendment unless the legislature says so expressly or by necessary intendment. The Finance Act, 2025 contains no transitional provision for pending proceedings, and the words no appeal shall be filed govern the stage of compliance rather than the temporal reach of the new condition. The court relied on Hoosein Kasam Dada, Garikapati Veeraya and Videocon International, and also held that an Appellate Authority has no power to waive a pre-deposit where the statute does impose one.

Kaushik Industries extends that reasoning to an ordinary proprietor without any fresh analysis, which is the point: paragraph 16 of the judgment records that because the liability is penalty alone and the show cause notice predates the 1 October 2025 amendment, the petitioner is entitled to the benefit of Gaurav Jain, with the finding confined to Section 107(6). The appeal must be governed by the sub-section as it stood on the notice date.

The position on pre-deposit for appeals to the Appellate Authority, as it emerges from the amendment and the two judgments, can be put in one table.

As an illustration, take a sole proprietor on whom a penalty of ₹2,00,00,000 is imposed under Section 122(1A) for allegedly passing on fraudulent credit, with the show cause notice dated 15 August 2025 and the order dated 20 January 2026. Read literally on the order date, the substituted proviso would demand 10 per cent, that is ₹20,00,000, before the appeal is even registered. On the Delhi High Court's reading the lis began on 15 August 2025, when no percentage deposit existed for such an order, so the appeal is filed without the ₹20,00,000. If the same notice had been issued on 15 October 2025 instead, the ₹20,00,000 would be payable before filing.

Service, the limitation clock and Section 14 of the Limitation Act

The court refused to decide whether the order had been served. Paragraph 14 records that no conclusive finding on the validity or sufficiency of service is returned, and that the date of communication and limitation are left to the Appellate Authority. The petitioner may rely on the Punjab and Haryana High Court's decision in Luxmi Traders v. Union Territory of Chandigarh, (2026) 44 Centax 371, which treats a mere portal upload of an order passed after contest as insufficient to trigger the appeal period, but the court noted that its applicability depends on the mode of service actually used, since the department here asserts e-mail and Speed Post in addition to the portal.

The more consequential direction is in paragraph 18. If the petitioner seeks exclusion of the time the writ petition remained pending, he must apply under Section 14 of the Limitation Act, 1963 before the Appellate Authority, which will decide it on merits; the mere filing of such an application shall not be construed as an automatic exclusion of the said period. This is a departure from Gaurav Jain, where the court itself excluded the period from 20 March 2026 to the date of judgment and gave four weeks to file. An appellant who went to the High Court first, as Kaushik did, therefore carries the limitation risk back to the appellate forum and must build the Section 14 case with dates of filing, hearing and disposal.

The same logic applies to the Section 122 competence challenge. The court neither examined nor rejected it; paragraph 17 allows it to be raised before the Appellate Authority along with the service and limitation points and the applicability of Luxmi Traders and Gaurav Jain. Paragraph 19 makes clear that nothing in the judgment touches the merits of the penalty.

CBIC directions due before the 27 October hearing

The Division Bench's parallel order in Surendra Kumar v. Union of India, W.P.(C) 15022/2026 explains why this judgment is unlikely to be the last word for Delhi taxpayers. On 9 October 2026 the court recorded that the issues appeared to be covered by two of its judgments and that writ petitions on substantially similar questions kept being filed, consuming the court's time. The Commissioner, CGST, told the court the judgments had not yet been examined. On 12 October 2026, after a Principal Commissioner sought time to take a policy decision, the court directed CBIC members to examine the relevant judgments and issue appropriate directions before the next date of hearing, which is 27 October 2026.

The second judgment named in that order is Parag Garg v. Commissioner, Adjudication, CGST Delhi West, W.P.(C) 13883/2026, pronounced on 29 September 2026 by the same bench. It held that the words any person in Section 122(1A) are not confined to a taxable person and extend to any registered or unregistered person who both retains the benefit of a transaction covered by clauses (i), (ii), (vii) or (ix) of Section 122(1) and at whose instance the transaction was conducted, and that the provision reaches only transactions on or after 1 January 2021 regardless of when the notice was issued. Directors and promoters facing personal Section 122(1A) penalties on pre-October 2025 notices are therefore the group most directly affected by both lines of authority, and the appeals Parag Garg sent back to the Appellate Authority will themselves be penalty-only appeals on pre-amendment notices.

For a pending or contemplated penalty-only appeal in Delhi where the notice predates 1 October 2025, the filing should cite both Gaurav Jain and Kaushik Industries in the grounds, pay any admitted amount under Section 107(6)(a), and record the pre-deposit position expressly so that a registration deficiency memo can be answered. Where the appeal is being filed after a writ, a separate Section 14 application with a dated chronology goes in with it. Where service is disputed, the e-mail delivery record, the Speed Post tracking and the portal access log should be assembled now, because that is where the Appellate Authority has been told to look. Outside Delhi the judgments are persuasive rather than binding, and any instruction CBIC issues before 27 October 2026 will show whether the department intends to apply them nationally or to contest them further.

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