Supreme Court Ruling on Omitted Rule 96(10): Final Word on Pending GST Export Refund Cases

1. Background: Why Rule 96(10) Became Controversial

Rule 96 of the CGST Rules, 2017 governs refund of integrated tax (IGST) paid on export of goods and services. Exports are treated as zero-rated supplies under Section 16 of the Integrated Goods and Services Tax Act, 2017, with the clear policy objective that the tax burden should not be exported.

Rule 96(10) was introduced as a restriction within this framework. Its basic premise was:

  • If an exporter, or its supplier, had availed specified exemption or concessional schemes, then
  • The exporter could not claim refund of IGST paid on exports through the route envisaged under Rule 96.

Such exporters were effectively pushed to:

  • Export under bond or Letter of Undertaking (LUT), and
  • Seek refund of unutilised input tax credit instead, subject to statutory conditions.

In practice, this hit exporters importing inputs under schemes like Advance Authorisation particularly hard. Many of them:

  • Imported inputs without payment of customs duty under Advance Authorisation;
  • Exported finished goods on payment of IGST and claimed refund;
  • Subsequently faced demands for recovery of such refunds, stalled refunds, and show-cause notices citing Rule 96(10).

Frequent amendments to Rule 96(10), disputes over whether changes were retrospective, and doubts about the rule’s compatibility with the zero-rated regime led to extensive litigation across High Courts.

2. Policy Shift: Omission of Rule 96(10) by Notification No. 20/2024

A decisive shift came with Notification No. 20/2024-Central Tax dated 8-10-2024, by which the Government:

  • Omitted Rule 96(10) from the CGST Rules, 2017; and
  • Simultaneously removed Rule 89(4A) and Rule 89(4B) to streamline the refund framework.

The omission was driven by GST Council deliberations acknowledging that the restriction was generating operational difficulties without delivering commensurate benefits. The removal of Rule 96(10) was therefore not a minor technical modification; it signaled an intentional rollback of a restrictive condition in the export refund architecture.

Once the rule was omitted, a critical practical issue arose:

What happens to proceedings based on Rule 96(10) that were not yet concluded as on 8-10-2024?

These included:

  • Pending refund applications where the restriction was in dispute;
  • Show-cause notices proposing denial/recovery of refunds;
  • Adjudication orders in appeal;
  • Writ petitions challenging demands or the very validity of Rule 96(10).

3. Prospectivity vs. Effect on Pending Proceedings

The Revenue repeatedly argued that:

  • The GST Council recommended that omission of Rule 96(10) should be prospective;
  • Therefore, exports made before 8-10-2024 must still be governed by the old rule;
  • All disputes relating to earlier periods should continue unaffected.

Courts, however, drew a crucial distinction:

  • Prospective operation determines from which date a provision ceases to exist;
  • It does not automatically decide whether ongoing proceedings under that provision can survive once the provision is omitted.

Three conceptual situations were identified:

  1. The amendment operates retrospectively (applies to past periods and past transactions);
  2. The amendment operates prospectively only for future transactions and proceedings;
  3. The amendment is prospective from a particular date, but also applies to all proceedings still pending on that date, so such proceedings cannot continue under an omitted provision.

High Courts, particularly the Gujarat High Court in Addwrap Packaging (P.) Ltd. v. Union of India, chose the third view:

  • Omission of Rule 96(10) is prospective from 8-10-2024;
  • However, from that date onwards, there is no statutory backing to continue proceedings that had not yet attained finality;
  • As a result, pending proceedings under Rule 96(10) should cease, and exporters can pursue refund of IGST under Rule 96 without the omitted restriction.

This approach does not confer retrospective effect on the omission. Instead, it analyses the legal status of pending proceedings when the very rule supporting them has been removed, without a saving clause.

4. Constitutional Framework: Kolhapur Canesugar Principle

The leading authority on the effect of omission of a statutory provision is the Constitution Bench judgment in:

Kolhapur Canesugar Works Ltd. v. Union of India, (2000) 2 SCC 536 : 2000 (119) E.L.T. 257 (S.C.)

In that case, proceedings had been initiated under Rules 10 and 10A of the Central Excise Rules, which were later omitted. The Supreme Court held:

  • When a provision is unconditionally omitted, and
  • There is no saving clause preserving pending proceedings,
  • Then proceedings under the omitted provision generally cannot continue, unless saved by some other law.

The Court observed that in the case before it:

  • Neither the notification omitting the rules nor any subsequent enactment continued or validated proceedings under the omitted rules;
  • Consequently, pending proceedings lapsed.

This principle lies at the heart of the controversy on Rule 96(10):