Case Law

Section 107(6) 10% Pre-Deposit Not Applicable to Pre-Oct-2025 SCN Appeals — Delhi HC (Arun Kumar Jain)

Published 17 Aug 2026· Updated 17 Aug 2026· 7 min read

Executive Summary

The Delhi High Court’s Division Bench, in Arun Kumar Jain v. Additional Commissioner, CGST Delhi West Commissionerate & Ors. (CNR No. DLHC010109142025, 2026 TAXSCAN (HC) 1300, decided 13 August 2026), has reaffirmed and applied its earlier ruling in Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II), CGST Delhi Zone & Anr., holding that the amended proviso to Section 107(6) of the CGST Act — which requires a 10% pre-deposit of the penalty amount for penalty-only appeals, effective from 1 October 2025 — does not govern appeals arising from adjudicatory proceedings that commenced through a Show Cause Notice issued before that date. Justices Anil Kshetarpal and Shail Jain applied this principle to a set of writ petitions filed by directors and managing directors of companies (including petitioner Arun Kumar Jain), facing personal penalty exposure — without any tax demand against them individually — for an alleged fraudulent Input Tax Credit arrangement, on SCNs originally issued in 2020.

Background / Facts

The petitioners were directors and managing directors of companies against whom the department had issued Show Cause Notices in 2020, covering the period 1 July 2017 to 31 March 2019, alleging wrongful availment and utilisation of Input Tax Credit on the basis of invoices issued without any actual supply of goods. Significantly, no tax demand was raised against the petitioners in their individual capacity — the SCNs proposed penalties against them personally for their alleged role in the fraudulent ITC arrangement, under Section 122(1) of the CGST Act, which the petitioners’ counsel argued applies only to a “taxable person” (a status the petitioners contested in their individual capacity). Since this “taxable person” question is already pending before the Supreme Court, the Delhi High Court expressly declined to express any opinion on it in these proceedings. For the other issues raised, the Court directed the petitioners to the statutory appellate remedy under Section 107 of the CGST Act — but that direction required the Court to resolve a live, practically consequential question: did the amended 10% pre-deposit requirement under Section 107(6), which took effect from 1 October 2025, apply to appeals arising from these 2020-vintage SCNs?

The Court’s Reasoning

The amended proviso to Section 107(6), effective from 1 October 2025, provides: “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.” The Division Bench referred to and applied its own earlier decision in Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II), CGST Delhi Zone & Anr., holding in terms: “the proviso to Section 107(6), as substituted with effect from 01.10.2025, does not govern an Appeal arising from adjudicatory proceedings initiated through an SCN issued before that date. Such an Appeal continues to be governed by Section 107(6) as it stood on the date of commencement of the adjudicatory proceedings.” Applying this to the facts, since the SCNs against the petitioners were issued in 2020 — well before the 1 October 2025 amendment — any statutory appeal arising from those proceedings is governed by Section 107(6) as it stood at that time, not by the amended 10% pre-deposit proviso. The Court disposed of the petitions with a direction to the petitioners to approach the Appellate Authority under Section 107, leaving the “taxable person” question for the Supreme Court to resolve in the pending matter.

Why It Matters

This ruling does two useful things for practitioners in one order. First, it confirms — for a second time, and now specifically in the director/MD penalty-appeal context — that the SCN issuance date, not the appeal-filing date or the adjudication-order date, is the operative anchor for determining whether the amended 10% pre-deposit applies. Any client with a personal penalty exposure traceable to an old SCN should not be assumed to face the amended pre-deposit requirement merely because the appeal itself is being filed today. Second, it is a useful reminder that individual directors and managing directors, not just the corporate taxable person, can face standalone penalty proceedings under Section 122(1) — and that whether such proceedings are even valid against them personally is a distinct, currently unsettled question pending before the Supreme Court, separate from the pre-deposit question this ruling resolves.

Key Takeaways

The amended Section 107(6) proviso (10% pre-deposit for penalty-only appeals), effective 1 October 2025, does not apply to appeals arising from SCNs issued before that date — the governing pre-deposit regime is fixed as at the date the adjudicatory proceedings commenced (the SCN date), not the appeal date.
This is the second Delhi High Court ruling on this precise point (following Gaurav Jain), now specifically applied to personal penalty appeals by directors/MDs — giving it added weight as a settled, repeatable position rather than a one-off.
Whether Section 122(1) of the CGST Act (which imposes penalties) applies to individual directors/MDs who are not themselves registered “taxable persons” remains an open, unresolved question, currently pending before the Supreme Court — this ruling does not decide it.
No tax demand was raised against the petitioners personally; only penalty exposure, which is what made the Section 107(6) penalty-only pre-deposit provision directly relevant to their appeals.
The Court’s approach — resolving the pre-deposit question while expressly declining to touch the pending Supreme Court issue — is a useful model for how practitioners should frame similar writ petitions: seek relief on settled points, and preserve rather than force a ruling on points genuinely pending elsewhere.

Practical Implications

Firms handling any GST penalty matter — whether against the corporate taxable person or against an individual director/MD — should, as a first step on intake, establish the SCN issue date and check it against 1 October 2025, since this alone determines whether the amended 10% pre-deposit proviso applies to any resulting appeal. This is especially important in personal-penalty matters against directors, where the appeal may be contemplated years after the original SCN, tempting an assumption that “today’s rules” govern the appeal — an assumption this ruling and Gaurav Jain both reject. Separately, firms should track the pending Supreme Court matter on whether Section 122(1) penalties can be imposed on individuals who are not “taxable persons,” since its resolution will directly affect the merits (though not the pre-deposit mechanics) of every similar director/MD penalty matter currently pending.

Action Checklist

For any client (corporate or individual director/MD) facing a GST penalty-only appeal, confirm the exact SCN issue date before advising on the applicable pre-deposit percentage.
Where the SCN predates 1 October 2025, advise that the appeal is governed by Section 107(6) as it stood at that time — not the amended 10% pre-deposit proviso — and cite Arun Kumar Jain and Gaurav Jain.
For directors/MDs facing personal Section 122(1) penalty proceedings, flag the pending Supreme Court question on whether such proceedings are valid against non-“taxable person” individuals, and consider whether to seek a stay or await that outcome before final adjudication.
Where a writ petition is contemplated, consider the Court’s approach here as a template: seek relief on the settled pre-deposit question via Section 107, and avoid forcing a ruling on the pending Supreme Court “taxable person” issue.
Track this matter and Gaurav Jain as the current settled Delhi High Court position on Section 107(6) prospectivity for use in any similarly-timed appeal.

Relevant Sections / Rules / Case Citation

Section 107, CGST Act, 2017 (statutory appeal to Appellate Authority)
Section 107(6), CGST Act, 2017, as amended with effect from 1 October 2025 (10% pre-deposit proviso for penalty-only orders)
Section 122(1), CGST Act, 2017 (penalty for certain offences)
Followed: Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II), CGST Delhi Zone & Anr. (Delhi High Court — same principle on Section 107(6) prospectivity)
Delhi High Court (Division Bench): Arun Kumar Jain v. Additional Commissioner, CGST Delhi West Commissionerate & Ors., CNR No. DLHC010109142025, 2026 TAXSCAN (HC) 1300, decided 13 August 2026 (Justices Anil Kshetarpal and Shail Jain)

FAQs

Q: My client’s director is facing a GST penalty appeal on an SCN issued in 2020 — does the new 10% pre-deposit rule apply?
A: No, per this ruling and Gaurav Jain. The amended Section 107(6) proviso, effective 1 October 2025, does not govern appeals arising from SCNs issued before that date — the appeal continues to be governed by Section 107(6) as it stood when the adjudicatory proceedings began.

Q: Can a company director be personally penalised under GST even though no tax demand was raised against them individually?
A: The department can propose such a penalty under Section 122(1), as happened here — but whether Section 122(1) validly applies to an individual who is not themselves a registered “taxable person” is currently unresolved and pending before the Supreme Court. This ruling did not decide that question.

Q: Does the SCN date or the appeal-filing date determine which pre-deposit regime applies?
A: The SCN date — specifically, the date the adjudicatory proceedings commenced. This ruling and Gaurav Jain both confirm that the pre-deposit regime is fixed as at that date, regardless of when the appeal is ultimately filed.

Internal Links

GST Litigation & Procedure hub — /category/gst-litigation/
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Author & Disclaimer

Prepared by Finoscape Editorial Team — contact@finoscape.com. This article is for general informational purposes and does not constitute legal or tax advice on any specific penalty or appeal matter. Readers should consult a qualified professional and verify the primary order before relying on this analysis.