Pending Export Refund Claims Must Be Decided Without Applying the Omitted Rule 96(10)

Export Refund Restrictions and the Controversy Following Omission of Rule 96(10)

Under GST law, exports are zero-rated supplies, so goods and services exported from India ordinarily do not bear the burden of domestic indirect taxes. Section 16 of the IGST Act, 2017 provides the statutory framework for zero-rated supplies, while the CGST Rules prescribe the procedure for claiming refunds. However, exporters procuring raw materials under Advance Authorisation without paying customs duty and IGST faced difficulties obtaining refunds of IGST paid on exports because of restrictions under Rule 96(10) of the CGST Rules, 2017.

Rule 96(10) restricted the refund of IGST paid on exports in specified circumstances where the exporter or its supplier had availed certain exemptions or benefits. The provision generated considerable litigation over refunds already granted, their recovery, and exporters' entitlement to claim them. Recognising these difficulties, the Central Government omitted Rule 96(10) through Notification No. 20/2024-Central Tax dated 08.10.2024. However, the notification contained no saving provision preserving proceedings initiated under the omitted rule.

This legislative development raised an important legal question: Could the Department continue proceedings based on Rule 96(10) after its omission merely because the relevant exports or refund claims related to an earlier period? The Supreme Court examined this controversy in Goodluck India Ltd. v. Union of India, 2026 (8) TMI 719 - Supreme Court. Subsequently, the Gujarat High Court applied the settled legal position in M/s Sudeep Industries v. Union of India & Others, 2026 (10) TMI 1457 - GUJARAT HIGH COURT, and set aside the rejection of an export refund claim exceeding Rs. 2.72 crore.

How the Export Refund Dispute Arose

The petitioner, M/s Sudeep Industries, held various Advance Authorisations for procuring raw materials used in manufacturing export goods. Such imports were exempt from customs duty and IGST under Notification No. 79/2017-Customs dated 13.10.2017. The petitioner claimed refunds under Rule 89(4) or Rule 96(10) of the CGST Rules, 2017. By letter dated 28.06.2023, the Department sought details of IGST refunds claimed in relation to exports involving Advance Authorisation imports. The petitioner submitted detailed replies on 09.10.2023, 30.10.2023, 06.03.2024 and 28.03.2024, disclosing Rs. 2,79,70,923 as repayable against such exports.

An amount of Rs. 84,02,935 relating to the financial year 2018-19 was subsequently re-credited to the petitioner's Electronic Credit Ledger through an order dated 26.02.2024 in Form GST PMT-03/3A, issued under Rule 86(4A), read with CBIC Circular No. 174/06/2022-GST dated 06.07.2022. However, no corresponding re-credit was granted for the financial years 2019-20 to 2021-22. Following the Gujarat High Court's decision in Addwrap Packaging Private Limited v. Union of India, 2025 (6) TMI 1156 - GUJARAT HIGH COURT, and the omission of Rule 96(10), the petitioner sought refund of the remaining amounts. The petitioner filed the final refund application on 19.10.2025, claiming IGST of Rs. 1,95,67,986, interest of Rs. 68,74,547, and penalty of Rs. 8,40,294, aggregating to Rs. 2,72,82,827.

The Department issued a show cause notice in Form GST RFD-08 dated 03.12.2025 proposing rejection of the refund claim. The petitioner submitted a detailed reply on 18.12.2025 and requested a personal hearing. However, the Proper Officer rejected the entire claim through an order in Form GST RFD-06 on the same date. Aggrieved by this rejection, the petitioner approached the Gujarat High Court seeking cancellation of the order and directions for refund.

The Omission of Rule 96(10) Raised an Important Question of Law

Notification No. 20/2024-Central Tax dated 08.10.2024 omitted Rule 96(10) of the CGST Rules, 2017. The significance of this amendment was not limited to removing restrictions on future export transactions. It also raised the question whether proceedings already initiated under the omitted provision could continue after 08.10.2024. The Department's position was that the omission was intended to operate prospectively and therefore should not affect disputes concerning earlier periods.

The distinction between an amendment's prospective operation and the continuation of pending proceedings is important. An amendment may operate from a specified date without necessarily preserving proceedings initiated under the earlier provision. Whether such proceedings survive depends on the statutory framework and any saving provision that protects their continuation. Therefore, the fact that Rule 96(10) applied when the exports were made did not conclusively determine whether proceedings founded on that rule could continue after its omission.

The absence of a saving clause became the central issue. The notification did not expressly preserve pending proceedings or provide any statutory mechanism to continue enforcing the omitted restriction. The Supreme Court later examined the legal consequences of this omission in Goodluck India Ltd., which laid the foundation for resolving the petitioner's refund dispute.

The Supreme Court Clarifies the Effect of Omission Without a Saving Provision

The Supreme Court examined the controversy in Goodluck India Ltd. v. Union of India, 2026 (8) TMI 719 - Supreme Court. The principal question was whether omitting Rule 96(10) would benefit exporters whose refund proceedings were already pending on 08.10.2024. The Department relied on the recommendation made at the 54th GST Council meeting on 09.09.2024 that the rule should be omitted prospectively. However, the Supreme Court observed that the GST Council's recommendation was advisory and did not bind the rule-making authority. The actual notification had omitted Rule 96(10) without incorporating any saving or sunset clause.

The Supreme Court relied upon the Constitution Bench judgment in Kolhapur Canesugar Works Ltd. v. Union of India, 2000 (2) TMI 823 - Supreme Court. In that case, the Court had explained that proceedings initiated under an omitted rule could continue only where a saving provision or another statutory mechanism permitted their continuation. Applying this principle, the Supreme Court held that, in the absence of a saving provision, the restrictions imposed by Rule 96(10) could not continue to govern proceedings pending on the date of its omission. The fact that the rule operated before 08.10.2024 did not, by itself, justify continuing proceedings under its restrictions after that date.

The Supreme Court also examined the purpose behind the amendment. The Government omitted Rule 96(10) because it created unnecessary complications without serving the intended benefit. The Court reasoned that the omission was meant to end these complications rather than preserve them through pending litigation. Accordingly, it declined to interfere with the Gujarat High Court's judgment and expressed the expectation that pending disputes would receive finality. The essential legal principle is that the omission of Rule 96(10) applies to proceedings pending on 08.10.2024, notwithstanding the recommendation that the amendment should operate prospectively.

CBIC Accepts the Supreme Court's Interpretation of the Omitted Rule

An important subsequent development was the issuance of Office Memorandum F. No. CBIC-20010/21/2026-GST dated 24.08.2026 by the GST Policy Wing of the Central Board of Indirect Taxes and Customs (CBIC). The memorandum examined the Supreme Court's judgment in Goodluck India Ltd. and acknowledged that, without a saving provision, the omission of Rule 96(10) applies to proceedings pending on 08.10.2024. Consequently, the restrictions contained in the omitted rule cannot continue to be enforced in such proceedings.

The CBIC also referred to the Constitution Bench judgment in Kolhapur Canesugar Works Ltd. and explained the significance of statutory saving provisions. It noted that the Central Excise Act, 1944, and the Customs Act, 1962, incorporated specific provisions through Sections 38A and 159A, respectively, to address the consequences of amendments and omissions. However, the GST law contains no corresponding saving provision. The memorandum therefore recognised that, without such protection, proceedings pending under Rule 96(10) could not continue to be governed by its restrictions.

Significantly, the CBIC, with the Member (GST) 's approval, accepted the Supreme Court's judgment. This administrative acceptance reinforces departmental authorities' obligation to apply the settled legal position when deciding pending proceedings and related refund claims. However, the memorandum does not dispense with verifying the amounts claimed or complying with other applicable statutory requirements. Its significance is that the Department cannot continue to reject refund claims merely by invoking the restrictions contained in the omitted Rule 96(10).

Consistent Judicial Decisions Resolve the Controversy Concerning Pending Proceedings Under Rule 96(10)

The Gujarat High Court initially examined the effect of omitting Rule 96(10) in Addwrap Packaging Private Limited v. Union of India, 2025 (6) TMI 1156 - GUJARAT HIGH COURT. That decision subsequently formed the basis of other judgments concerning export refund disputes arising under the omitted provision. The same legal approach was followed in MAC Industry v. Union of India, 2026 (9) TMI 799 - GUJARAT HIGH COURT, and Maldeep Catalysta Pvt. Ltd. v. Union of India, 2026 (9) TMI 76 - GUJARAT HIGH COURT.

The Supreme Court's decision in Goodluck India Ltd. finalised this controversy. By declining to interfere with the Gujarat High Court's interpretation, the Supreme Court established the governing legal position on applying the omission to pending proceedings. Consequently, when the Gujarat High Court heard Sudeep Industries' petition, the principal legal issue had already been settled.

The High Court observed that these judicial precedents covered the petitioner's case. Significantly, the Department's counsel could not dispute the petitioner's entitlement to the refund claim given the settled legal position. The Court therefore did not undertake a fresh interpretation of Rule 96(10). Instead, it applied the principles already established by the Supreme Court and the earlier Gujarat High Court judgments.

Refund of IGST, Interest and Penalty Requires Proper Consideration

An important feature of the present dispute is that the petitioner's refund claim was not confined to IGST alone. It comprised Rs. 1,95,67,986 towards IGST Rs. 68,74,547 towards interest and Rs. 8,40,294 towards penalty. The petitioner sought a refund of these amounts on the ground that the underlying dispute was resolved after the omission of Rule 96(10) and subsequent judicial pronouncements.

This distinction deserves attention because refund of tax and refund of interest or penalty may involve different statutory considerations. Ordinarily, entitlement to a refund depends on the legal basis of the original payment, the nature of the amount deposited, and the applicable statutory provisions. Where interest or penalty has been paid in connection with proceedings founded on Rule 96(10), the Supreme Court's ruling becomes relevant to whether those amounts can lawfully be retained.

In the present case, the High Court recorded the composition of the refund claim but did not separately examine the statutory basis for refunding each component. Instead, it quashed the rejection order and directed the Department to process the claim in accordance with the settled legal position. Therefore, the judgment should not be interpreted as an independent ruling that interest and penalty must automatically be refunded in every case involving Rule 96(10). The actual amounts payable remain subject to appropriate verification and the applicable legal requirements.

Departmental Authorities Must Follow the Settled Legal Position

The present judgment also sends an important message to departmental authorities handling pending proceedings and refund applications. Once the Supreme Court has authoritatively interpreted the consequences of omitting Rule 96(10) and the CBIC has accepted that interpretation, the Department cannot continue to enforce the omitted restriction in proceedings covered by that ruling. Adjudication must proceed in accordance with the Supreme Court's interpretation of the law.

At the same time, acceptance of the legal principle does not eliminate the requirement to verify the refund claim. The Proper Officer may examine the relevant payment records, amounts already re-credited, refund applications and other statutory requirements. However, such verification must be distinguished from reopening the settled controversy concerning the continued application of Rule 96(10). The Department cannot use the verification process to revive a restriction that no longer governs the pending proceedings.

The judgment thus draws a practical distinction between determining legal entitlement and verifying the amount refundable. The Supreme Court has settled the former for proceedings covered by the omission of Rule 96(10), while the latter requires an examination of the taxpayer's records. This approach protects legitimate revenue interests without permitting continued enforcement of a restriction that the law no longer preserves.

Final Decision and Directions for Refund

The Gujarat High Court has allowed the writ petition and set aside the order dated 18.12.2025 rejecting the petitioner's refund claim of Rs. 2,72,82,827. The Court directed the Department to process the claim within twelve weeks of receiving the judgment. However, the Court has not separately determined the admissibility of IGST, interest and penalty or expressly sanctioned the entire amount. The Department must therefore verify the claim in accordance with law, without applying the restrictions of the omitted Rule 96(10) of the CGST Rules, 2017.

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