Whether the proposed Amendment to proviso to Section 107(6) of CGST Act, 2017 will be tenable in the eyes of law?

By, Adv. Bhargav N. Ganatra

Background: –

• As We Know, Circular No. 171/03/2022-GST clarifies on issues relating to applicability of demand and penalty provisions under the CGST Act, 2017 in respect of transactions involving fake invoices. Accordingly, some of the issues leads to imposition of penalty u/s. 122 of CGST Act, 2017.

• However, due to imposition of “only penalty” u/s. 122 of CGST Act, 2017, Non-Genuine Taxpayer or We can say fraudster were happy as he had not to face any pre-deposit requirements u/s. 107 of CGST Act, 2017 to file the appeal before First Appellate Authority. 

• Thus, To Curb this undue advantage, Relevant Amendment has been proposed in Finance Bill, 2025, to substitute the proviso to sub-section (6) of section 107 of CGST Act, 2017, and to provide the requirement of pre-deposit of ten percent of the penalty amount for filing an appeal before the Appellate Authority against an order which involves demand of penalty without involving any demand of tax. 

• Hence, A Key Question has been raised that Whether the proposed Amendment to proviso to Section 107(6) of CGST Act, 2017 will be tenable in the eyes of law? 

Why Question has been raised to the tenability of the proposed Amendment to proviso to Section 107(6) of CGST Act, 2017?

• In My Humble Opinion, this proposed Amendment to proviso to Section 107(6) of CGST Act, 2017 is without the recommendation of GST Council and therefore needs to be scrutinized that whether the same is tenable in the eyes of law or not!

• For this, the relevant extract of proviso to Section 107(6) of CGST Act, 2017, 55^th GST Council’s recommendation & proposed Amendment to proviso to Section 107 (6) of CGST Act, 2017 is reproduced as under: –

• Thus, the above 55^th GST Council’s recommendation is very clear to reduce the pre-deposit requirement from twenty-five percentages to ten percentages for an order under sub-section (3) of section 129, Whereas proposed Amendment to proviso to Section 107(6) of CGST Act, 2017 is all about introducing a pre-deposit requirement for “all orders” which involves demand of penalty without involving any demand of tax.

• Hence, Proposed Amendment to proviso to Section 107(6) of CGST Act, 2017 is not in same line with what was recommended in 55^th GST Council Meeting and therefore the same shall be termed as without the recommendation of GST Council.

Whether the Recommendation of GST Council was Mandatory?

• In My Humble Opinion, A Big Yes! For this, reliance has been placed on Article 279A (4) of Constitution of India. The relevant extract is reproduced for your kind perusal: –

“279A. Goods and Service Tax Council. – 

(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on— 

(a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax; 

(b) the goods and services that may be subjected to, or exempted from, the goods and services tax; 

(c)model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply; 

(d)the threshold limit of turnover below which goods and services may be exempted from goods and services tax; 

(e)the rates including floor rates with bands of goods and services tax ; 

(f)any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; 

(g)special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and 

(h) any other matter relating to the goods and services tax, as the Council may decide.” 

• Moreover, reliance is also placed on the judgement of Hon’ble Supreme Court of India in the case of Union of India & Anr. Versus M/s Mohit Minerals Pvt. Ltd. Through Director [Civil Appeal No. 1390 of 2022], Wherein it was held that The Government while exercising its rule-making power under the provisions of CGST Act and IGST Act is bound by the recommendations of the GST Council.

• Hence, Recommendation of GST Council was Mandatory!

CONCLUSION: –

• There is no doubt about that proposed Amendment to proviso to Section 107(6) of CGST Act, 2017 was need of the hour!

• However, something which may be morally right may not be legally permissible!

(Author is an Advocate practicing on litigations)