Invalidity of Pending SCNs Under Omitted GST Rules: Karnataka High Court Quashes Proceedings in Shilpa Medicare Case

The legal landscape surrounding the refund of Integrated Goods and Services Tax (IGST) on exports has witnessed a monumental shift following the omission of restrictive provisions within the Central Goods and Services Tax Rules, 2017. The Karnataka High Court, in a recent judicial pronouncement, has reinforced the principle that the unconditional omission of a statutory rule obliterates it from the statute book, thereby rendering any pending proceedings based on such an omitted rule legally unsustainable.

In the landmark case of Shilpa Medicare Ltd Vs Union of India, the Kalaburagi Bench of the Karnataka High Court decisively quashed a show cause notice issued to the assessee, relying heavily on a consolidated pan-India judicial consensus regarding the defunct status of the controversial refund restriction mechanism. This article provides a comprehensive summary and legal analysis of the High Court's decision, the factual matrix of the dispute, and the underlying judicial precedents that shaped the outcome.

Factual Matrix of the Dispute

The assessee, Shilpa Medicare Ltd, approached the Karnataka High Court by way of a writ petition seeking the quashing of a specific show cause notice bearing No. 50/2023-24 GST PREV dated 18.01.2024. This notice was issued by the GST preventive authorities, challenging the refund route utilized by the assessee for the integrated tax paid on export transactions.

The core of the dispute revolved around the restrictions embedded in Rule 96(10) of the Central Goods and Services Tax Rules, 2017. The assessee challenged the constitutional validity of this rule, specifically as it was amended via Notification No.54/2018 – CT dated 09.10.2018. The petitioner argued that the provision was ultra vires Section 16 of the IGST Act and violated fundamental constitutional rights.

In addition to seeking the invalidation of the show cause notice, the assessee prayed for a writ of mandamus directing the revenue authorities to formally consider its detailed reply dated 25.02.2025. Furthermore, the petitioner requested the court to direct the authorities to process its reassessment request concerning IGST on imports, along with the payment of applicable interest and the subsequent processing of refund claims in alignment with the newly evolved legal framework and relevant circulars issued by the Central Board of Indirect Taxes and Customs (CBIC).

The primary legal question before the High Court was whether a show cause notice and subsequent proceedings could survive if the underlying statutory rule granting the authority to initiate such proceedings was omitted without a saving clause.