Penalty-Only GST Orders Now Carry a 10% Pre-Deposit —and your notice date may decide whether you pay it

Not every GST order demands tax. A substantial share of what the department issues is penalty alone — a penalty on a director or a person said to have facilitated a wrongful input tax credit, a penalty after goods are detained in transit, a penalty for a record-keeping failure. For years, the practical position was that appealing such an order cost a business nothing upfront, because the pre-deposit was calculated as a percentage of the tax in dispute, and in these cases the tax in dispute was nil. That changed on 1 October 2025. It now costs ten per cent of the penalty to walk through the appellate authority's door — and a pair of recent decisions has held that whether you owe that ten per cent turns on the date printed on your show-cause notice, not the date of the order.

What a "penalty-only" order looks like

The phrase is not a term of art, but it describes a familiar document. The order determines a penalty and demands nothing by way of tax. Common examples include a penalty imposed under Section 122 of the CGST Act on a person alleged to have retained the benefit of a fraudulent transaction, a penalty confirmed under Section 129(3) after goods and a conveyance are detained in transit, and a general penalty under Section 125. In each case the operative demand in the order is a penalty figure standing on its own.

That distinction used to be worth a great deal. Section 107(6) requires an appellant to pay, in full, whatever part of the tax, interest, fine, fee and penalty in the order he actually admits — and then a sum equal to ten per cent of the remaining amount of tax in dispute, subject to a ceiling of ₹20 crore. Where an order demanded no tax at all, ten per cent of the disputed tax was ten per cent of nothing.

What changed on 1 October 2025

Section 129 of the Finance Act, 2025 substituted the proviso to Section 107(6) of the CGST Act. The Central Government appointed the commencement date by Notification No. 16/2025–Central Tax dated 17 September 2025, which brought the relevant provisions into force from 1 October 2025. The proviso now reads:

Two consequences follow, and they pull in opposite directions depending on the kind of order you hold.

For most penalty-only orders — a Section 122 penalty, for instance — this is a new financial condition where none previously existed. On a penalty of ₹40 lakh, an appeal that once required no percentage deposit now requires ₹4 lakh to be paid before the appeal can be registered.

For detention matters, the movement is the other way. The proviso that stood in the statute between 1 January 2022 and 30 September 2025 applied only to appeals against orders under Section 129(3), and it required twenty-five per cent of the penalty. That older proviso has been replaced. A transporter or consignee appealing a Section 129(3) detention order now deposits ten per cent rather than twenty-five — a meaningful difference when the penalty under Section 129(1) can run to two hundred per cent of the tax payable on the goods, or fifty per cent of the value of the goods where the owner does not come forward.

The date that decides: the notice, not the order

This is where the live dispute sits. Many businesses are holding orders passed in 2026 that arise from show-cause notices issued well before October 2025. Does the new ten per cent condition apply to them?

In Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II), CGST Delhi Zone (W.P.(C) 8414/2026, neutral citation 2026:DHC:6124-DB), decided on 31 July 2026, the Delhi High Court answered no. The petitioners had received a show-cause notice dated 25 June 2025 proposing penalty under Section 122(1A) with no corresponding tax demand; the order-in-original followed on 16 December 2025, after the amendment. The Court held that a right of appeal is a substantive vested right which attaches at the commencement of the lis — in tax adjudication, the date the show-cause notice is issued — and that it cannot be burdened by a later amendment in the absence of clear legislative intent to that effect. The appeal was directed to be entertained without the ten per cent deposit on penalty, subject to payment of any admitted liability under Section 107(6)(a).

The reasoning has been applied at the Tribunal stage as well. In Reddy Veeranna Constructions Pvt. Ltd. (APL/623/HYD/2026), the Hyderabad Bench of the GST Appellate Tribunal took the same view of the corresponding proviso to Section 112(8) in an order reported in late July 2026, noting that the amendment carried no indication of retrospective application.

A condition on the right to appeal is not a mere procedural formality. Where it is imposed after the dispute has already begun, the question is always whether Parliament said so plainly.

The Tribunal stage adds a second ten per cent

If the first appeal fails and the matter goes to the GST Appellate Tribunal, Section 112(8) requires ten per cent of the remaining disputed tax in addition to what was paid under Section 107(6), subject to the same ₹20 crore ceiling. Section 130 of the Finance Act, 2025 inserted a matching proviso, also with effect from 1 October 2025: for a penalty-only order, a further sum equal to ten per cent of the penalty is payable at the Tribunal stage, over and above the amount payable under the proviso to Section 107(6).

Read together, a penalty-only dispute carried to the Tribunal can require twenty per cent of the penalty to be funded before the case is heard on merits. That is a working-capital question as much as a legal one, and it is worth answering before the limitation period runs rather than after.

What to check in your own file

A necessary caution

Two points deserve emphasis. First, the statutory position from 1 October 2025 onward is settled: for a penalty-only order arising from a notice issued on or after that date, the ten per cent is payable, and there is no serious argument otherwise. What is being litigated is only the treatment of proceedings that straddle the amendment. Second, a High Court decision on a question of this kind may be carried further, and different High Courts may not speak with one voice until the issue is settled at the level of the Supreme Court. If you intend to file without the deposit in reliance on this reasoning, the position should be verified as on the date of filing and the grounds pleaded properly, because an appeal rejected as defective for short pre-deposit can cost you the limitation period as well.

For a business in Lucknow or elsewhere in Uttar Pradesh holding a penalty order from a notice of 2024 or early 2025, the practical question is narrow and answerable: what does the notice say, when was it issued, and what does that mean for the money you must find before you can be heard.