Penalty Pre-Deposit Under Section 107(6) Proviso Not Required Where Original Order Involved Tax, Interest and Penalty Together: Madras HC

The Madras High Court has set aside an appellate order that had rejected a taxpayer's appeal solely because 10% of the penalty was not pre-deposited — holding that the proviso to Section 107(6) of the CGST Act, which mandates pre-deposit of 10% of penalty, applies only where the order demands penalty without involving any demand of tax. Justice Senthilkumar Ramamoorthy, in WP No. 34361 of 2026 (M/s Kappa Chakka Kandhari Foods Private Limited, decided 07.09.2026), drew a careful distinction between the "detailed order" and the "DRC-07" to arrive at this conclusion.

The petitioner, a food company, had received a detailed order under Section 74 dated 18.12.2025 confirming demand towards CGST and SGST — tax of Rs. 1.65 crore, interest of Rs. 25.19 lakh, and penalty of Rs. 1.65 crore. The order itself recorded that tax and interest had been paid. Since only the penalty remained unpaid, a DRC-07 was issued in respect of penalty alone. When the petitioner filed an appeal under Section 107, the appellate authority rejected it on the ground that 10% of the penalty had not been pre-deposited as required under the proviso to Section 107(6).

The court held that the proviso is attracted only to cases wherein "an order demanding penalty" is made "without involving demand of any tax." In this case, the detailed order — which the court analogised to a civil court judgment — confirmed demand towards tax, interest and penalty together. The DRC-07 — analogous to a decree — was issued only for the outstanding penalty portion because the other components had been paid. The order, viewed as a whole, plainly involved a demand of tax. The proviso was therefore inapplicable, the appellate order was unsustainable, and the appeal was restored for adjudication on merits. The ruling addresses a frequent practical problem where the department issues DRC-07 for the penalty component alone, prompting appellate authorities to mechanically invoke the penalty pre-deposit proviso.

— 2026-juristway.com-1219-HC(Madras)-GST  |  High Court of Madras  |  WP No. 34361 of 2026  |  07.09.2026