10% Penalty Pre-Deposit for GSTAT Appeal is Mandatory; Prior DRC-03 Payments Cannot Be Adjusted.

Issue

In a penalty-only appeal to the GST Appellate Tribunal (GSTAT), can a taxpayer adjust an amount that was paid “voluntarily” (via Form GST DRC-03) during the initial investigation against the mandatory 10% pre-deposit of the disputed penalty, which is required by the amended Section 112 of the CGST Act?

Facts

The petitioner challenged an appellate order that had affirmed an adjudication order imposing only a penalty, with no tax demand.
The petitioner sought to file a second appeal before the GSTAT.
A recent amendment (Finance Act, 2025) to Section 112 of the CGST Act now mandates a pre-deposit of 10% of the disputed penalty for filing a GSTAT appeal.
The petitioner requested two things from the High Court:
1. Eight weeks’ time to make this 10% penalty deposit.
2. Permission to adjust this pre-deposit amount against a separate, larger sum that had already been paid via Form GST DRC-03 during the initial investigation stage.
The Revenue department opposed this adjustment, arguing that the DRC-03 payment was made towards a tax liability, not the penalty.

Decision

The High Court ruled in favour of the revenue on the main legal question.
It did not accept the petitioner’s request to adjust the prior DRC-03 payment against the new pre-deposit requirement.
The court affirmed that the amended law requires a fresh deposit of 10% of the disputed penalty to maintain an appeal before the GSTAT.
However, the court did grant the petitioner eight weeks’ time to make the fresh 10% pre-deposit.
Upon such deposit, the petitioner would be protected from any coercive action until the GSTAT disposes of the appeal.

Key Takeaways

Second Appeal, Second Pre-Deposit: The amendment to Section 112 (via Finance Act, 2025) establishes a second mandatory pre-deposit for filing an appeal with the GSTAT. This is in addition to the pre-deposit paid for the first appeal.
No Adjustment of Prior DRC-03 Payments: The court held that a “voluntary” payment made during an investigation (DRC-03), especially one designated for tax, cannot be automatically adjusted to meet the statutory pre-deposit for a subsequent appeal.
Penalty-Only Appeals Require Pre-Deposit: The 10% pre-deposit rule for GSTAT appeals applies even when the disputed amount is only a penalty.
Limited Judicial Relief: The High Court’s relief was limited to granting time to comply. It did not (and likely could not) waive the mandatory pre-deposit, showing a strict interpretation of the new statutory requirement.

HIGH COURT OF TELANGANA

Annai Infra Developers Ltd.

Commissioner of Customs and Central Tax^*

APARESH KUMAR SINGH, CJ.
and G.M. MOHIUDDIN, J.

WP No. 32612 OF 2025

OCTOBER 29, 2025

Sri S.Durairaj, Learned counsel and Sri Madanu Naresh, learned counsel for the Petitioner. Dominic Fernandes, learned Senior Standing Counsel for the Respondent.

ORDER

1. Learned counsel Sri S.Durairaj, representing learned counsel Sri Madanu Naresh, appears for the petitioner.

Sri Dominic Fernandes, learned Senior Standing Counsel for Central Board of Indirect Taxes and Customs, appears for the respondents.

2. The order-in-appeal dated 26.08.2025 is under challenge. The appellate authority has refused to interfere in the order-in-original imposing penalty upon the petitioner firm.

3. During the course of hearing, it has been brought to the notice of this Court that the Goods and Services Tax Appellate Tribunal (hereinafter referred to as, “the Appellate Tribunal”) has started functioning.

4. Section 112 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as, “the Act”), provides for appeal to the Appellate Tribunal. The Appellate Tribunal has issued an order dated 24.09.2025 under Rule 123 of the Goods and Services Tax Appellate Tribunal (Procedure) Rules, 2025, classifying the category of cases specified in column (2) of the table appended thereto and the period during which the appeal under Section 112 of the Act would be filed before the Appellate Tribunal corresponding to the period during which the orders of the appellate authority were passed.

5. In the present case, since the impugned order-in-appeal is dated 26.08.2025, the window for filing such appeal is prescribed at serial No.5 i.e., commencing on 01.02.2026 or any date succeeding such date being not later than 30.06.2026. It is further brought to the notice of this Court that the Finance Act, 2025, notified on 29.03.2025, has amended Section 112 of the Act and added the proviso to sub-section (8) thereto, which reads as under:

“130. In section 112 of the Central Goods and Services Tax Act, in sub-section (8), the following proviso shall be inserted, namely:-

“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.””

6. This Court has, in similar circumstances, relegated the aggrieved petitioner to prefer an appeal before the Appellate Tribunal within a timeframe. It has also been ordered that subject to deposit of 10% of the tax liability within the aforesaid time, no coercive action be taken against the petitioner therein till the decision of the Appellate Tribunal in the said appeal.

7. In the instant case, there is no imposition of tax liability. But, the liability of penalty has been imposed. Under the amended proviso to Section 112 of the Act, the aggrieved person has to deposit a sum equal to 10% of the penalty in addition to the amount payable under the proviso to sub-section (6) of Section 107 of the Act paid by the appellant.

8. Learned counsel for the petitioner submits that since the penalty is of substantial amount, the petitioner firm may be permitted to make 10% deposit of the penalty amount within a period of eight weeks. He also submits that certain amount deposited as tax liability in Form GST DRC-03 during the investigation may be permitted to be deducted from the 10% of the penalty amount to be deposited as a condition of pre-deposit for preferring the appeal.

9. To the aforesaid submission, the learned Senior Standing Counsel for Central Board of Indirect Taxes and Customs appearing for the respondents has taken objection. He submits that the amount paid by the petitioner firm as per Form GST DRC-03 annexed to the writ petition is towards the tax liability. The order-in-original as affirmed by the impugned order-in-appeal only imposes penalty. Therefore, the petitioner firm cannot take the benefit of making any deposit or payments towards tax liability during the investigation proceedings.

10. Upon consideration of the rival submissions of the parties, in the facts and circumstances noted above, the writ petition is disposed of without expressing any opinion on the merits of the case and by giving liberty to the petitioner firm to prefer an appeal before the Appellate Tribunal within the window period prescribed under the order dated 24.09.2025 issued by the Appellate Tribunal. The petitioner firm shall deposit 10% of the penalty amount within a period of eight weeks from today. If the petitioner firm makes such pre-deposit within the aforesaid period, no coercive action be taken against the petitioner firm till the decision of the Appellate Tribunal in the appeal to be filed. We, however, do not accept the contention of the petitioner firm that the amount paid towards the tax liability during investigation can be adjusted as against pre-deposit to be made for the purposes of preferring the appeal before the Appellate Tribunal. However, there shall be no order as to costs.

Miscellaneous applications pending, if any, shall stand closed.