IGST Refund Proceedings After Omission of Rule 96(10) Quashed: Karnataka High Court

The Karnataka High Court has quashed show cause notices and related proceedings initiated under Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, holding that such actions cannot survive after the rule’s omission from the statute book and in view of consistent High Court jurisprudence striking it down as unconstitutional. The bench of Justice S.R. Krishna Kumar in a writ petition filed by an exporter challenging Notifications No. 53/2018-CT and 54/2018-CT dated 9 October 2018, a subsequent show cause notice issued in October 2020, and the denial of refund of Integrated GST (IGST) paid on exports. The controversy arose from the insertion of Rule 96(10) into the CGST Rules with retrospective effect from 23 October 2017. The rule restricted exporters from claiming refund of IGST paid on exports if they had availed benefits under certain concessional or exemption notifications, including those relating to deemed exports, merchant exporters, and customs duty exemptions. Relying on this rule, tax authorities issued show cause notices seeking to deny or recover IGST refunds already granted to exporters. The petitioner challenged both the rule itself and the consequential proceedings, contending that the restriction was arbitrary, ultra vires the IGST Act, and contrary to the statutory scheme governing zero-rated supplies. The Karnataka High Court placed substantial reliance on the Kerala High Court’s judgment in Sance Laboratories Pvt. Ltd. v. Union of India, which had declared Rule 96(10) unconstitutional as being “manifestly arbitrary” and ultra vires Section 16 of the IGST Act. The Kerala High Court had held that the rule created hostile discrimination between exporters opting for refund of unutilised input tax credit and those seeking refund of IGST paid on exports, a distinction not contemplated by the parent statute. Notably, the Kerala High Court had also taken cognisance of Notification No. 20/2024-Central Tax dated 8 October 2024, by which Rule 96(10) was omitted prospectively. Despite the prospective nature of the omission, the Kerala High Court ruled that all proceedings initiated or pending under the rule for the period between 23 October 2017 and 8 October 2024 would stand quashed. The Karnataka High Court observed that the Kerala decision had since been followed by multiple High Courts, including the Uttarakhand, Gujarat, Delhi, and Bombay High Courts. In particular, the Bombay High Court, in the petitioner’s own case, held that the omission of Rule 96(10) without any saving clause resulted in the lapsing of all pending proceedings, making it unnecessary even to examine the constitutional validity of the rule afresh. Courts have consistently applied the principle that an unconditional omission of a rule, without a saving clause, obliterates it from the statute book. Consequently, pending proceedings based solely on such a rule cannot continue unless they have already attained finality as “transactions past and closed”. The Karnataka High Court held that the show cause notice and all proceedings initiated pursuant to Rule 96(10) were unsustainable in law. The Court noted that, following the omission of the rule on 8 October 2024 and in light of authoritative judicial pronouncements, there was no legal basis to continue or revive proceedings seeking to deny or recover IGST refunds under the deleted provision. The Court quashed the show cause notice dated 7 October 2020 and all consequential actions. It also directed that the petitioner’s claim for refund of IGST paid on exports be considered in accordance with law, without reference to the deleted Rule 96(10) Case Details Case Title: M/S Hikal Limited Versus UOI Case No.: Writ Petition No.15251 Of 2020 (T-Res) Date: 09/12/2025 Counsel For Petitioner: G. Shivadass, Senior Counsel Counsel For Respondent: Jyoti M. Maradi Click Here To Read Order Read More: Reassessment Invalid Where Income Reopened U/s 68 but Ultimately Taxed as Anonymous Donations U/s 115BBC: ITAT

IGST Refund Proceedings After Omission of Rule 96(10) Quashed: Karnataka High Court

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