"Win… But Don't Relax Yet": How GST Appeals Make Even Favourable Orders Feel Provisional

Introduction - When "Winning" Isn't Really Winning

Under the GST regime, a taxpayer who walks out of adjudication with a favourable order might expect to sleep peacefully. On paper, the demand is dropped or reduced; the officer has accepted their submissions; the cloud appears to have lifted.

But Section 107 of the CGST Act, 2017 quietly keeps the door open. Unlike the Income-tax Act, where the first appellate right is reserved exclusively for the assessee, GST allows both the taxpayer and the department to file a first appeal against an adjudication order.

The result is a structurally different litigation environment: no order in favour of the taxpayer is truly safe for at least six months, and sometimes longer. The system is designed so that even a "win" comes with a footnote-subject to departmental appeal.

This article unpacks that design, contrasts it with the Income-tax model, and argues for a more balanced, certainty-oriented framework.

I. The Legal Design: How Section 107 Really Works

1. Taxpayer's Right of First Appeal - Section 107(1)

Every person aggrieved by an order of an adjudicating authority under GST can approach the Appellate Authority. The broad features are:

• Who can appeal? Any "person aggrieved" - typically the registered person.

• Time limit:

○ 3 months from the date of communication of the order.

• Pre-deposit (Section 107(6)):

○ 100% of the admitted tax liability, and

○ 10% of the disputed tax (subject to the statutory cap).

So, for the taxpayer, the right to appeal is time-bound and capital-intensive. Litigation at the first stage already locks up working capital.

2. Department's Right of First Appeal - Section 107(2)

The same provision quietly creates a parallel lane for the department:

• The Commissioner can call for and examine records of any proceedings.

• If he concludes that the order is not legal or proper, he may direct a subordinate officer to file an appeal.

• Time limit:

○ 6 months from the date of communication of the order.

• The departmental appeal is filed on specific points identified by the Commissioner.

Here, the department is not a passive respondent; it becomes an active appellant against its own officer's decision.

3. Income-tax Act: One-Sided First Appeal

Under the Income-tax Act, 1961, the structure is fundamentally different:

• First appeal (Section 246A):

○ Can be filed only by the assessee against an order of the Assessing Officer.

• The department does not get a right of first appeal.

• If the order is considered prejudicial to revenue, the remedy lies in revision:

○ Section 263 (revision by the Principal CIT/CIT against orders prejudicial to revenue).

○ Section 264 (revision in favour of the assessee).

In other words, Income-tax law deliberately avoids putting the assessee in the crosshairs of a departmental first appeal.

4. CGST vs Income-tax - The Core Contrasts

Put simply:

• Who can file first appeal?

○ GST: Taxpayer and department.

○ Income-tax: Only assessee.

• Time available:

○ GST:

■ 3 months - taxpayer

■ 6 months - department

○ Income-tax:

■ 30 days - assessee (for first appeal);

■ No first appeal for department; only revision.

• Nature of departmental remedy:

○ GST: First appeal under Section 107(2) plus revision under Section 108.

○ Income-tax: Revision only under Sections 263/264.

This is not a cosmetic difference in drafting; it creates an entirely different litigation culture.

II. The Real-World Effects: Why Taxpayers Feel Perpetually "On Appeal"

1. Asymmetry of Appeal Rights

In GST, both sides can appeal-but not on equal terms.

• The taxpayer has a short 3-month window and must lock in a 10% pre-deposit on the disputed tax.

• The department has a longer 6-month window and faces no monetary pre-deposit burden.

In practice, this means that revenue can sit back, watch how the taxpayer reacts, and still has double the time to decide whether to challenge its own officer's order. The equilibrium is tilted in favour of the State from the very first appellate step.

2. Double Scrutiny: Appeal + Revision

The taxpayer's victory at adjudication can be reopened in two distinct ways:

1. Departmental First Appeal - Section 107(2):

○ Commissioner directs filing of an appeal on specified grounds.

2. Revision - Section 108:

○ Revisional authority can interfere with orders that are erroneous and prejudicial to revenue.

Even if the Commissioner chooses not to appeal, the shadow of revision remains. Conceptually, the assessee's favourable order is exposed to two vertical reviews by the very department that passed it.

This is a far cry from the idea of finality at the first stage.

3. Signal of Distrust Within the Department

There's also an institutional message embedded in this architecture.

The adjudicating authority (often an AC/DC) is part of the same department. When the Commissioner frequently invokes Section 107(2), it conveys that superior authorities are not willing to repose confidence in the quasi-judicial judgment of their own officers.

From the taxpayer's lens, this looks like:

"Even if I convince the adjudicating officer, someone higher up may simply not like the outcome and drag me into appeal."

Such internal distrust, when expressed through appeals, becomes an external burden on the assessee.

4. Unequal Procedural Timelines

The timeline mismatch is not a small design choice; it directly affects planning and risk.

• The taxpayer must decide within 3 months whether to appeal, arrange funds for pre-deposit, and brief counsel.

• The department gets 6 months to re-open even a favourable order.

So, for half a year after adjudication, the taxpayer lives in suspense:

• Will the department appeal?

• Will my favourable order be turned into a contested issue?

• Should I provision for litigation costs and potential higher demand at appellate stage?

This uncertainty contradicts the commitment to ease of doing business and tax certainty that GST was supposed to embody.

5. Economic Cost of "Fighting on Two Fronts"

Consider a scenario:

• Adjudicating officer drops most of the demand but sustains a small portion.

• The assessee appeals against the confirmed part, depositing 10% of that component.

• Later, the department files its own appeal against the portion dropped.

The taxpayer now faces:

• His own appeal (with pre-deposit already locked).

• A departmental appeal where the dropped part of the demand is back on the table.

This two-front litigation substantially raises:

• Compliance costs (legal fees, time, documentation).

• Working-capital stress (because pre-deposits add up if matters escalate).

• Business risk (uncertainty over final tax outgo for past periods).

Winning at adjudication, therefore, does not translate into commercial comfort.

III. Are There Any Checks on Departmental Appeals?

To be fair, Section 107(2) is not an unfettered licence. Some constraints exist-though they are largely internal.

1. Commissioner's Satisfaction Is a Precondition

A departmental appeal doesn't arise automatically. The Commissioner must:

• Examine the record, and

• Form an opinion that the order is not legal or proper.

This is meant to prevent routine appeals in every case. However, this safeguard is administrative, not judicial. The taxpayer:

• Has no right to be heard at the stage when the Commissioner decides to direct filing of an appeal.

• Cannot challenge the Commissioner's internal satisfaction except indirectly in the course of the appellate proceedings.

So while there is a filter, it is not a transparent or participatory one.

2. Appeal Limited to Issues Arising from the Order

Another check is that the departmental appeal must be restricted to:

• Points arising out of the adjudicating authority's order, and

• The specific grounds identified by the Commissioner.

This theoretically bars the department from:

• Raising entirely new grounds not part of the adjudication process, or

• Expanding the dispute into fresh issues at the first appellate stage.

Yet, from a taxpayer's standpoint, this is a modest comfort. The issue is not how wide the appeal can roam; the issue is that the appeal exists at all against an order that was already favourable.

3. Coexistence with Revision - Overlapping Powers

Finally, revision under Section 108 continues to exist alongside appeal. While jurisprudence will eventually delineate the boundaries between these two remedies, the coexistence itself heightens anxiety:

• Is an order safe from revision simply because no appeal was filed?

• Or can both remedies be used in different factual permutations?

Until the law is clarified by courts or the legislature, the taxpayer remains in a state of "extended vulnerability".

IV. Rethinking the Architecture: Possible Policy Responses

If the goal of a modern tax system is to balance revenue protection with taxpayer certainty, the current GST appellate model needs recalibration. Some possible reforms:

1. Harmonise Appeal Timelines

At the very least, procedural equality should be restored:

• Give taxpayer and department the same time limit-say, 3 months-for filing appeals.

• Alternatively, if 6 months is considered reasonable for proper scrutiny, extend that to both sides.

Equal time limits send a clear message: the system does not privilege one party's convenience over the other's.

2. Restrict Departmental Appeals to Exceptional Cases

Section 107(2) could be operationalised through:

• Monetary thresholds for departmental appeals (only above a certain demand).

• Issue-based filters (for example, where:

○ there is a recurring legal issue of broad revenue impact;

○ the order conflicts with Board circulars or settled law;

○ a principle of law needs authoritative clarification).

CBIC could exercise its power to issue clear instructions or guidelines on when departmental appeals should be filed, making the process more predictable and less arbitrary.

3. Strengthen Pre-Adjudication & Internal Review

One way to reduce the need for departmental appeals is to improve what happens before the order is passed:

• Robust pre-show-cause consultations in appropriate cases.

• Internal review of draft orders in high-stake matters.

• Better training and accountability of adjudicating officers.

If orders are well-reasoned, consistent with Board guidance, and legally sound, the department's own appetite to challenge them will naturally shrink.

4. Consider the Income-tax Model: No Departmental First Appeal

A more radical-and arguably cleaner-solution is to emulate the Income-tax structure:

• No departmental first appeal against adjudication orders.

• Revenue concerns to be addressed through revisionary powers or internal review, not adversarial appeals against taxpayers.

Advantages of this model:

• The adjudication stage regains significance and dignity.

• Taxpayers gain reasonable finality when they succeed.

• The department retains a corrective tool (revision) in truly prejudicial cases, without converting every "disagreement" into litigation.

5. Introduce Taxpayer Safeguards Around Departmental Appeals

Even if departmental appeals are retained, some taxpayer-centric safeguards can be added:

• Mandatory prior intimation to the taxpayer when the Commissioner proposes to direct an appeal.

• Opportunity to make a brief representation before the decision is finalised.

• Requirement to record speaking reasons justifying why a favourable order deserves to be dragged into litigation.

Such measures would infuse transparency and restore some confidence in the system.

V. Conclusion - Finality as a Missing Value in GST

Section 107(2) of the CGST Act creates a peculiar imbalance:

• A taxpayer gets 3 months to challenge an adverse order and must part with 10% of the disputed tax as pre-deposit.

• The department enjoys 6 months and can challenge even a fully favourable order without bearing any comparable financial burden.

The outcome is a culture of double scrutiny, unequal rights, and prolonged uncertainty. An assessee who "wins" at adjudication cannot treat that win as final-not until the six-month clock has run out and the spectre of revision has receded.

This raises hard but necessary questions:

• Should the State enjoy more generous and flexible appellate rights than the citizen it taxes?

• Is it fair that internal distrust within the department is cured by externalising its cost onto the taxpayer through fresh litigation?

• Does a tax system that keeps every favourable order under a cloud truly serve the objectives of simplicity, certainty, and ease of doing business?

Protecting revenue is undoubtedly legitimate. But certainty and finality are also core components of tax justice. A legislative and administrative re-look at GST appellate provisions-especially departmental first appeals-would go a long way in aligning GST with established tax jurisprudence and the broader principles of natural justice.

Until then, under GST, even when you win, you haven't really won-you've just survived the first round.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.