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An airline challenged a penalty of Rs. 12,000. Its appeal led to a remand. When the matter came back for de novo adjudication, the penalty was no longer Rs. 12,000; it was Rs. 71,29,140. That extraordinary escalation is what brought the Supreme Court, on 1 September 2026, to the doctrine of no reformatio in peius - the principle that a litigant should not be placed in a worse position merely because it used a remedy provided by law. In M/s Saudi Arabian Airlines v. Union of India, 2026 INSC 933 / 2026 LiveLaw (SC) 880, the Court held that the enhanced penalty could not be sustained.

For GST practitioners, however, the useful question begins after that holding. Section 107(11) of the CGST Act expressly permits the Appellate Authority to make certain orders that can leave an appellant worse off. The Supreme Court's ruling therefore cannot sensibly be read as an absolute immunity from enhancement. Its real value lies in a narrower proposition: an appeal cannot itself become the jurisdictional route for an adverse consequence unless the statute independently authorises that consequence and the safeguards attached to that power are followed.

What Saudi Arabian Airlines actually decided

The dispute arose under the Foreign Travel Tax provisions of the Finance Act, 1979. The airline had deposited tax late on six occasions. The Supreme Court held, on the language and scheme of the legislation, that delayed deposit was not the same thing as a "failure to pay" attracting Section 38(3), and that penalty did not follow automatically merely because a statutory timeline had been breached.

The appellate point came later in the judgment. At paragraphs 51 to 54, the Court asked whether a person could be made worse off by approaching an appellate forum or a court. It referred to Jyoti Plastic Works Pvt. Ltd. v. Union of India, Jawal Neco Ltd. v. Commissioner of Customs and the Supreme Court's 2025 decision in Nagarajan v. State of Tamil Nadu. The common idea was straightforward: a statutory remedy should not aggravate the position of the person who invokes it merely because that person appealed.

The qualification matters just as much as the principle. Saudi Arabian Airlines did not interpret the CGST Act, nor did it hold that every appellate enhancement is forbidden. GST has its own text, and that text must do the controlling work.

GST writes enhancement into the appellate structure

Under Section 107(11) of the CGST Act, the Appellate Authority may confirm, modify or annul the decision appealed against. The first proviso expressly contemplates enhancement of a fee, penalty or fine in lieu of confiscation, confiscation of goods of greater value, or reduction of refund or input tax credit. But it couples that power with a condition: the appellant must first receive a reasonable opportunity to show cause against the proposed adverse order.

The second proviso is more exacting where the appellate authority proposes additional tax liability or concludes that input tax credit was wrongly availed or utilised. A notice to show cause against the proposed demand is required, and the resulting order must be within the limitation prescribed under Sections 73, 74 or 74A, as applicable. This is not a drafting nicety. It is the statutory line between a lawful enhancement and a new demand appearing for the first time in the appellate order.

That is why Saudi Arabian Airlines should not be used as a slogan that "liability can never increase in an assessee's appeal". The better question is: what is the source of the increase? If the answer is Section 107(11), the authority must satisfy Section 107(11) in substance, not merely invoke its general power to modify the order.

Calcutta High Court shows what a real enhancement notice requires

Two Calcutta High Court decisions make the point concrete. In Hriday Kumar Das v. State of West Bengal, decided on 24 September 2024, the adjudicating authority had quantified tax at Rs. 2,58,536.80. In the assessee's appeal, the appellate authority suo motu enhanced the tax liability without following Section 107(11). The Division Bench held that the appellate order, to that extent, was not tenable in law.

The point became even sharper in Lakshmi Narayan Shah v. State of West Bengal, decided on 14 January 2026. The appellate authority introduced an issue concerning alleged excess zero-rated supply that had not formed part of the adjudication. On that basis it added Rs. 27,16,811 to taxable turnover and determined further CGST and SGST. The High Court held that the second proviso to Section 107(11) was attracted and set aside that part of the appellate order.

These cases expose a practical distinction that often gets lost in appellate files. A hearing on the grounds raised by the taxpayer is not the same as notice of a proposed enhancement. If the authority intends to introduce a new adverse basis or increase liability, the taxpayer must know what that basis is before the order is made and must have a meaningful chance to answer it.

Revenue is not left without a remedy

There is another reason not to treat the taxpayer's appeal as an all-purpose reopening mechanism. Section 107(2) already gives the Commissioner a revenue-side appellate route. The Commissioner may examine an adjudication order for legality or propriety and, within six months from communication of that order, direct a subordinate officer to approach the Appellate Authority on specified points. Section 108 separately provides revisional jurisdiction, subject to its own conditions and exclusions.

That statutory design does not take away the Appellate Authority's independent power under Section 107(11). It does, however, sharpen the question where a favourable finding in the original order was never challenged by Revenue. The taxpayer's own appeal should not casually become a substitute for a revenue appeal that was never filed. If an appellate authority nevertheless proposes to move adversely on an unchallenged issue, the legal basis and the procedural route need to be identifiable.

Customs tells much the same story

The Customs Act contains a comparable structure. Under Section 128A(3), the Commissioner (Appeals) may confirm, modify or annul the order appealed against and may remand only in the categories specified by the provision. The first proviso permits enhancement of penalty or fine, confiscation of goods of greater value, or reduction of refund only after a reasonable opportunity to show cause. The second proviso requires notice within the Section 28 limitation where additional customs duty is proposed.

The Bombay High Court decision in Commissioner of Customs NS-III v. Synergic Trailer and Auto Solutions Pvt. Ltd. (30 July 2025) is useful for the same reason. The Court noted that the legislature had conferred specific enhancement powers through the provisos to Section 128A(3), subject to preconditions, and held that a finding favourable to the assessee could not ordinarily be reversed in the assessee's appeal when Revenue had not challenged it.

A four-question check before accepting an appellate enhancement

After Saudi Arabian Airlines, a GST appellant confronted with a higher liability should not stop at saying that the result is "worse than before". Four questions are more useful. First, what exactly has been enhanced: an existing penalty, refund or ITC consequence, or a new tax demand? Second, was the proposed enhancement specifically put to the appellant before the order? Third, does the increase fit within Section 107(11), including the second proviso and the applicable limitation? Fourth, if the authority is reopening a finding that Revenue never appealed, what independent statutory basis permits it to do so?

The Supreme Court's decision is therefore best understood as a rule against appellate retaliation, not as immunity from every statutory enhancement. GST expressly preserves enhancement powers. What Saudi Arabian Airlines adds is a reminder that the mere act of appealing cannot itself supply the jurisdiction to make the appellant worse off. The worse result must come from law, through the route the law prescribes.

That distinction is important for both sides. Revenue retains its statutory remedies where an adjudication order is legally or factually deficient. Taxpayers, in turn, are entitled to know the case they must meet before an appellate order creates a new or greater burden. An appeal should remain a remedy that can be invoked without the fear that an unnotified issue will emerge only in the final order.

Author is an Advocate practicing at Calcutta High Court. Views are personal. 

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