Proviso to Section 107(6) Inapplicable When Assessment Order Confirms Tax, Interest, and Penalty Demands

By | September 25, 2026
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Proviso to Section 107(6) Inapplicable When Assessment Order Confirms Tax, Interest, and Penalty Demands

Issue

Whether the proviso to Section 107(6), requiring a mandatory 10 percent pre-deposit of penalty, applies to an appeal where the detailed assessment order confirmed tax, interest, and penalty, even if Form DRC-07 was issued solely for the unpaid penalty portion.

Facts

  • Adjudication Order: The petitioner-assessee faced an adjudication order confirming liability towards tax, interest, and penalty.
  • Payment of Dues: The detailed assessment order recorded that the tax and interest components had already been paid by the assessee, leaving only the penalty portion outstanding.
  • Issuance of Form DRC-07: Because only the penalty amount remained unpaid, the proper officer issued Form GST DRC-07 exclusively in respect of the unpaid penalty.
  • Rejection of Appeal: The appellate authority rejected the petitioner’s statutory appeal solely for non-compliance with the proviso to Section 107(6), demanding a 10 percent pre-deposit of the penalty amount.
  • Writ Challenge: The petitioner filed a writ petition before the High Court challenging the rejection order passed by the appellate authority.

Decision

  • Inapplicability of Section 107(6) Proviso: The proviso to sub-section (6) of Section 107 is attracted only when an order demanding penalty is passed in isolation without any demand for tax. Since the underlying adjudication order confirmed tax, interest, and penalty together, the proviso was inapplicable. [Para 7] [In favour of assessee]
  • Order Set Aside & Appeal Restored: The appellate order rejecting the appeal on the sole ground of pre-deposit was set aside, and the appeal was restored to the appellate authority for fresh adjudication on merits. [Para 7] [Matter remanded]

Key Takeaways

  1. Scope of Section 107(6) Proviso: The pre-deposit rule under the proviso to Section 107(6) applies strictly to standalone penalty orders where no tax demand exists.
  2. Substance Over Summary Forms: The character of an order is governed by the detailed adjudication order (akin to a civil court judgment) rather than the isolated scope of the summary DRC-07 issued for recovery.
  3. Restoration for Merits Adjudication: Rejections of GST appeals premised on an erroneous interpretation of pre-deposit provisions under Section 107 will be quashed, ensuring the taxpayer receives a hearing on the merits.
HIGH COURT OF MADRAS
Kappa Chakka Kandhari Foods (P.) Ltd.
v.
Commissioner of GST and Central Excise (Appeals- I)*
Senthilkumar Ramamoorthy, J.
WP No. 34361 of 2026
W.M.P. No.37738 of 2026
SEPTEMBER  7, 2026
G. Natarajan for the Petitioner. A.P. Srinivas, Sr. SC for the Respondent.
ORDER
1. Challenging the appellate order dated 17.07.2026 rejecting the petitioner’s appeal solely on the ground that the petitioner had not pre-deposited 10% of the penalty, the present writ petition has been filed.
2. Referring to detailed order dated 18.12.2025, learned counsel for the petitioner points out that said order imposes liability towards tax, interest and penalty. He submits further that the order records the payment of both tax and interest. Consequently, he contends that the proviso to sub-section (6) of Section 107 is not attracted.
3. Mr.A.P.Srinivas, learned senior standing counsel, accepts notice for the respondent.
4. The detailed order records, in the operative paragraph, as under:
“i. I drop the demand of Rs.51,88,983/- (Rupees Fifty-one lakh Eighty-eight thousand Nine hundred Eighty-three only) out of the total demand of Rs.2,17,22,663/- raised in SCN No.08/2025-26 ADC(HPU) dated 07.05.2025 for the year 2018-19.
ii. I confirm and appropriate the demand of Rs.1,65,33,680/- (Rupees One Crore Sixty Five Lakh Thirty Three Thousand Six Hundred and Eighty only) (Rs.28,74,872 paid for the period 2018-19, Rs.49,57,592/- paid for the period 2019-20 and Rs.87,01,216/- paid for the period 2020-21) under Section 74(9) of CGST/TNGST Act,2017.
iii. I confirm and appropriate the payment of interest amounting to Rs.25,19,134/- (Rupees Twenty Five Lakh Nineteen Thousand One Hundred and Thirty Four only) (Rs.6,31,884/-paid for the period 2018-19, Rs.11,99,614/- paid for the period 2019-20, Rs.6,87,636/- paid for the period 2020-21) under Section 50(1) of CGST/TNGST Act, 2017 as detailed above.
iv. I impose penalty of Rs.1,65,33,680/- (CGST Rs.82,66,840/- SGST Rs.82,66,840/-) [Rupees One Crore Sixty five Lakhs Thirty three thousand Six hundred & Eighty only] in terms of Section 74(9) of CGST/TNGST Act, 2017 r/w Section 122(2)(b) of CGST/TNGST Act, 2017.”
5. As can be seen from the above extract, the detailed order confirms liability towards tax, interest and penalty. It also records that tax and interest were paid. Said detailed order is akin to a judgment of a civil Court. Because only the penalty portion remained unpaid, an order in Form DRC 07 was issued only in respect of penalty. This is akin to a decree.
6. The proviso to sub-section (6) of Section 107 reads as under:
“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 percent of the said penalty has been paid by the appellant.”
7. As can be seen from the text of the proviso, said proviso is attracted to cases wherein an order demanding penalty is made without involving any demand of tax. In this case, the order confirmed the demand towards tax, interest and penalty. Hence, the proviso to sub-section (6) of Section 107 is inapplicable to this case. Because the petitioner’s appeal was rejected solely on this ground, the appellate order is unsustainable and is hereby set aside. As a consequence, the appeal is restored for adjudication on merits.
8. This writ petition is disposed of on the above terms. There shall be no order as to costs. Consequently, the connected writ miscellaneous petition is closed.