Omission of Rule 66(10) of the CGST Rules renders all pending proceedings, cases, and petitions pertaining to the said rule stand abated, and petitioners are entitled to claim refunds of IGST paid on export of goods.
BRIEF FACTS OF THE CASE
- The case involves a challenge to the validity of Rule 9G(10) of the CGST Rules. Rule 9G (10) of CGST Rules allowed refund of the IGST paid on export of goods; however, it restricted the refund if the exporter had availed benefit of certain duty exemptions, e.g. Advance Authorisation.
- Taking recourse to the said rule, the refund of IGST was denied to the exporters by the Revenue Authorities.
- The Revenue Authorities issued show cause notices and in some of the cases, even orders-in-original are also passed raising the demand for recovery of refund already granted to the petitioners on the ground that the sanction of such refund was an erroneous refund.
- Accordingly, the petitions were filed before Gujarat High Court to challenge the vires of Rule 9G (10) of the CGST Rules being ultra vires to the provisions of Section 1G of the IGST Act and Section 54 (3) of the GST Act as well as breaching fundamental rights provided under Articles 14, 19 (1) (g) of the Constitution of India.
- Subsequently, Rule 9G(10) of the CGST Rules was omitted vide Notification No. 20/2024 dated October 8, 2024, based on the recommendation made by the GST Council in its 54th meeting.
The key issues before the Gujarat High Court for consideration were:
- Whether Notification No. 20/2024 dated October 8, 2024, whereby Rule 9G (10) of the CGST Rules has been omitted with effect from the date of notification, would be applicable retrospectively or not?
- If the above is answered in the negative, whether the aforesaid notification would be applicable to all the pending litigation/proceedings or not?
JUDGMENT AND CONCLUSIONS DRAWN BY THE HIGH COURT
- The High Court held that the omission of Rule 9G(10) of the CGST Rules cannot be considered curative or remedial, as it impacts the substantive rights of the petitioners to claim a refund of IGST paid on exports where duty-free inputs are used. Since the GST Council did not recommend retrospective application and, in fact, expressly recommended prospective omission, the rule cannot be applied retrospectively.
- The High Court observed that the term 'omission' would be included in the interpretation of the term 'repeal' and hence the omission of Rule 9G(10) of the CGST Rules effective from October 8, 2024, would amount to a repeal without any saving clause. Under the principles of the General Clauses Act, 1897, a repeal without a saving clause effectively obliterates the repealed provision, as if it had never existed, except for adjudication proceedings that were already concluded before the repeal of the provision.
- The High Court held that the Notification No. 20/2024 dated October 8, 2024, which has omitted Rule 9G (10) with prospective effect, would be applicable to all the pending proceedings/cases where final adjudication has not taken place.
- The High Court further directed that any action which has been already initiated by way of show cause notice or culminated in an order against the Petitioners based on Rule 9G(10) of the CGST Rules will stand quashed and and no further proceedings are required to be carried forward and petitioners would be entitled to maintain refund claims of IGST paid on export of goods.
AURTUS COMMENTS
- It is a well-established principle that taxes should not be exported along with goods or services, while countries have the power to [locally] tax the entry or import of goods. To align with this principle, Section 16 of the IGST Act enables exporters to claim refunds on exports. The restriction created by Rule 96(10) of the CGST Rules was with the intent to limit refund in instances where the input used in the manufacture of exported goods had not suffered any tax/ duties. The Revenue Authorities have given a very strict interpretation of this provision and denied the refund of tax paid in all instances where there is even the smallest utilisation of these inputs procured under the specified Notifications, without exercising an intelligible differentia.
- This landmark judgment offers significant relief to exporters by allowing them to claim refunds of IGST paid on exports following the omission of Rule 96(10), which was not accompanied by a saving clause. As a result, all pending demand/recovery proceedings related to this rule can now be dropped.
- The Gujarat High Court judgement is identical to the judgement passed Uttarakhand High Court in the case of M/s Sri Sai Vishwas Polymers Vs Union of India & Another [Writ Petition (MB) No. 103 of 2025] wherein the Uttarakhand High Court also held that since Rule 96(10) itself was omitted there cannot be any demand or proceeding against the assessee.
- It is also pertinent to note that Rules 89(4A) and 89(4B) of the CGST Rules were omitted along with Rule 96(10). Accordingly, the principle laid down in this judgment would equally apply to any pending proceedings or demands related to refund claims under Rules 89(4A) and 89(4B), thereby warranting similar relief.
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