The Delhi High Court dismissed twelve connected writ petitions challenging CGST penalty orders, holding that the petitioners must pursue statutory appeals under Section 107 of the CGST Act and that the pre-deposit requirement is governed by the provision as it stood at the time of the Show-Cause Notices, not by the later amendment.
Background & Facts
The Dispute
The petitioners, who are Managing Directors, Directors or Partners of sixty-one companies and seventy-one individuals, were served Show-Cause Notices (SCNs) in 2020 for the period 01.07.2017 to 31.03.2019. The SCNs alleged fraudulent availing and utilisation of Input Tax Credit (ITC) on the basis of invoices issued without any corresponding supply of goods. The Additional Commissioner, CGST, Delhi West, imposed penalties under Sections 74, 76(2) and 122(1) of the Central Goods and Services Tax Act, 2017.
Key Facts
- SCNs issued in 2020 to each petitioner; no tax demand was raised against them personally.
- Penalties were calculated on the amount of ineligible ITC for each petitioner (e.g., Rajeev Gupta - total penalty Rs. 75,045; Arun Kumar Jain - total penalty Rs. 301,98* etc.).
- The impugned order dated 06.02.2025 affirmed the penalties.
- Petitioners contended that Section 122(1) applies only to a “taxable person” and that no tax was payable by them individually.
- They also challenged the applicability of Sections 74 and 76(2).
Procedural History
- 2020: SCNs issued to the petitioners.
- 06.02.2025: Additional Commissioner issued the impugned order imposing penalties.
- 12.08.2025: Petitioners filed twelve writ petitions under Article 226 of the Constitution of India (W.P.(C) 2704/2025 and connected matters).
- 04.08.2025: Supreme Court order in Mukesh Kumar Garg v. Union of India stayed recovery of amount on deposit of 25% of demand and reserved the question on Section 122(1).
- 31.07.2026: Delhi High Court judgment in Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II) held that the proviso to Section 107(6) effective from 01.10.2025 does not apply to appeals arising from SCNs issued earlier.
- 13.08.2026: Present common judgment delivered, disposing of the twelve writ petitions.
Parties' Positions
- Petitioners: Argued that they are not “taxable persons”, that Sections 74, 76(2) and 122(1) are inapplicable, and that the pre-deposit requirement should follow the law as it stood at the time of the SCNs.
- Respondents: Maintained that the impugned order is appealable under Section 107, that the appellate authority may examine all contentions, and that the statutory remedy remains open.
Relief Sought
The petitioners sought quashing of the penalty orders, a declaration that Sections 74, 76(2) and 122(1) do not apply to them, and a direction that no pre-deposit be required.
The Legal Issue
Whether the petitioners, who are not “taxable persons”, can be penalised under Sections 74, 76(2) and 122(1) of the CGST Act, and whether the pre-deposit requirement under Section 107(6) must follow the amendment effective from 01.10.2025 or the provision as it stood at the time of the Show-Cause Notices.
Arguments Presented
For the Petitioners
- Contended that Section 122(1) applies only to a taxable person and that no tax demand was raised against them individually.
- Relied on the Supreme Court order in Mukesh Kumar Garg v. Union of India to argue that the issue of applicability of Section 122(1) is pending before the Supreme Court and should not be decided by the High Court.
- Asserted that the pre-deposit provision in the then-existing Section 107(6), not the amended proviso, governs the appeal because the SCNs were issued in 2020.
For the Respondents
- Submitted that the impugned order is appealable under Section 107 of the CGST Act and that the appellate authority may examine all the petitioners’ contentions.
- Emphasised that the statutory remedy of appeal remains open and that the High Court should not interfere with the merits of the penalty assessment.
The Court's Analysis
The Court began by noting that the petitioners are individuals who acted in their capacities as directors or managing directors of the assessed entities. It observed that the language of Section 122(1) expressly refers to a “taxable person”, and that the petitioners have not been treated as such, nor has any tax demand been raised against them personally. Consequently, the Court held that the question of applicability of Section 122(1) is squarely before the Supreme Court and must await that decision.
"The issue concerning the applicability of Section 122(1) of the CGST Act to a person who is not a “taxable person” shall be considered in conformity with the decision ultimately rendered by the Supreme Court in Mukesh Kumar Garg v. Union of India and Others ."
Turning to the pre-deposit requirement, the Court examined the amendment to Section 107(6) that introduced a new proviso effective from 01.10.2025. It referred to its own earlier judgment in Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II), which held that the proviso does not govern appeals arising from adjudicatory proceedings initiated before that date. Since the SCNs were issued in 2020, the Court concluded that the pre-deposit must be governed by the provision as it stood on the date of issuance of the SCNs.
The Court also addressed a procedural issue raised by the petitioners: the electronic portal for filing appeals under Section 107 may not permit filing where a petitioner lacks an individual GST registration or a temporary identification number. Relying on the principle of access to justice, the Court directed that the Appellate Authority must accept a physical appeal in such circumstances and must not reject it merely on the mode of filing.
Finally, the Court reiterated that the appeal under Section 107 is the exclusive statutory remedy. It therefore declined to interfere with the merits of the penalty assessment, leaving all substantive grounds open to be raised before the Appellate Authority.
The Verdict
The petitioners were directed to pursue an appeal under Section 107 of the CGST Act. The pre-deposit requirement shall be governed by Section 107(6) as it stood at the time of the 2020 SCNs, not by the amendment effective 01.10.2025. A stay on recovery of the penalty amount is conditioned on the petitioner depositing 25 % of the demand. If the electronic portal does not permit filing, the Appellate Authority must accept a physical appeal. The question of applicability of Section 122(1) will be decided in accordance with the pending Supreme Court judgment.
What This Means For Similar Cases
Appeal Must Follow Section 107
- Practitioners should advise clients that any penalty order under the CGST Act is appealable only under Section 107; alternative remedies are unavailable.
- All substantive arguments, including challenges to Sections 74, 76(2) and 122(1), must be raised before the Appellate Authority.
Pre-deposit Rules Are Date-Specific
- The pre-deposit amount must be calculated according to the version of Section 107(6) in force on the date of the Show-Cause Notice.
- The amendment effective 01.10.2025 cannot be invoked for SCNs issued earlier; reliance on the older provision is mandatory.
Physical Filing Is Permitted
- If the GST portal rejects an appeal due to lack of individual registration, counsel must file a physical appeal and cite the Court’s direction.
- The Appellate Authority is obligated to accept such filings and cannot dismiss them on technical grounds.
Pending Supreme Court Ruling
- Any argument concerning the applicability of Section 122(1) to non-taxable persons should be deferred until the Supreme Court pronounces its decision.
- Until then, lower courts will refrain from deciding that issue and will focus on procedural compliance.
