2025 (9) TMI 806 - HC - GST

Omission of CGST Rules 89(4B) and 96(10) erases pending proceedings and lapses undisposed show-cause notices and non-final orders

Hikal Limited, Yasho Industries Limited, Prashi Pharma Private Limited, M/s. Alkem Laboratories Ltd., Undercarriage and Tractor Parts Pvt Ltd., Nevatia Steel & Alloys Pvt. Ltd., Nikhil Nevatia, Augmont Enterprises Pvt. Ltd., Bharat Wire Ropes Limited, Murarilal Ramsukh Mittal, Kairav Chemofarbe Industries Limited, Kalp Overseas, Camlin Fine Sciences Limited, DD Cotton Pvt. Ltd., Mr. Mayank Arun Sekhsaria, Tridev Resins India Private Limited, Astec LifeSciences Limited, Versus Union of India, Central Board of Indirect Taxes and Customs Ministry of Finance, Office of the Commissioner, CGST and Central Excise, Navi Mumbai, The GST Council, Joint Commissioner (Adjudication), The Assistant Commissioner CGST & C. Ex. Division – I Belapur Commissionerate.

HC held that omission of Rules 89(4B) and 96(10) of the CGST Rules by the 8 Oct 2024 notification operates to erase those provisions for all but ... Vires of Rule 89 (4B) and/or 96(10) of the Central Goods and Service Tax Rules, 2017 (CGST Rules) - omission of the Rules (impugned Rules) vide Notification dated 08 October 2024 - lapse of pending proceedings consequent upon the repeal or omission of the impugned Rules, which, the Petitioners contend. - Omission of Rules to be applied retrospectively or not - Applicability of Section 6 of the General Clauses Act. Impugned rules being ultra vires the CGST Act or otherwise unconstitutional, null and void - HELD THAT:- In matters of examining the constitutional validity of the provisions of any legislative act or even the Rules made thereunder, one of the salutary principles is that a Constitutional Court must not embark upon such an examination only because it can or it is empowered to do so. Such vital questions must be examined only if it is necessary to do so, and a Petitioner’s grievance cannot be suitably redressed without addressing such an issue of constitutional validity of a statute or the Rules framed under the statute. Ordinarily, a Court should not decide issues of constitutional validity of statutes or rules unless they are absolutely necessary and the case at hand cannot be disposed of without dealing with and resolving such issues. The Hon’ble Supreme Court has held in several cases that academic exercise in constitutional law is not for Courts but for jurists, and the Court should not enter into such issues and interpret them unless it is really necessary. Therefore, if a Petition can be disposed of on any other issue by granting at least substantially the relief which the Petitioner seeks without examining the constitutional validity of a statutory provision or even the rules made thereunder, then the Constitutional Court should not rush to examine and decide on the issue of constitutional validity, merely because it may be empowered to do so. Legal effect of the omission or repeal of the impugned Rules without protection of any savings clause or section 6 of the General Clauses Act - HELD THAT:- In the present batch of Petitions, it was not even argued that the provisions in Rule 89(4B) and 96(10) of the CGST Rules were not substantive provisions affecting the rights of importers and exporters. In any case, a review of these Rules makes it clear that they are not purely procedural but impact substantive rights of the parties. Therefore, the removal or repeal of Rules 89(4B) and 96(10) would essentially erase these Rules from existence as if they had never been enacted or passed, and they should be regarded as provisions that never existed, except in relation to “transactions past and closed”. Thus, subject to further discussion on whether this is a case of omission or repeal backed by any savings clauses, it is evident that an omission or a repeal without any savings clauses would lapse the impugned proceedings or orders unless they qualify as “transactions past and closed”. Transactions past and closed - HELD THAT:- In cases where the show cause notices did not culminate in any orders, obviously, the transaction is not covered by the expression. Not only do such show cause notices become vulnerable, but even the orders made after the date of omission or repeal, i.e. after 08 October 2024, become vulnerable. The show cause notices could not have proceeded any further post the repeal or omission of the impugned Rules i.e. beyond 08 October 2024. In some petitions, the challenge is to orders made by adjudicating authorities before October 08, 2024. However, a challenge to such orders was raised and was pending either before the Appellate Authorities or this Court. In such circumstances, even such orders could not be regarded as final for them to be included in the expression “transactions past and closed” Whether section 6 of the general clauses act is applicable and saves the pending proceedings? - HELD THAT:- In the present matter, the notification dated 8 October 2024 by which Rules 89(4B) and 96(10) of the CGST Rules stand omitted or repealed is neither the General Clauses Act nor any Central Act as defined under Section 3(7). So also, the said notification is not some “regulation” as defined under Section 3(50) of the General Clauses Act, 1897. The notification only contains the Central Goods and Services Tax (Second Amendment) Rules, 2024. Therefore, on a plain reading of Section 6 of the General Clauses Act, 1897, to an omission or repeal brought about by the notification dated 08 October 2024, which is nothing but a “Rule”, the provisions of Section 6 of the General Clauses Act, 1897 would not apply. In Rayala Corporation Pvt Ltd [1969 (7) TMI 109 - SUPREME COURT] and in Kolhapur Cane Sugar Works Ltd [2000 (2) TMI 823 - SUPREME COURT], the Constitution Benches of the Hon’ble Supreme Court have held that Section 6 of the General Clauses Act, 1897, applies to repeals of a Central Act or a Regulation [as defined under section 3(7) and 3(50)], but not to the repeal of any “Rule”. Thus, on a plain reading of Section 6 of the General Clauses Act and on the authority of the two Constitution Bench decisions, there is no scope to hold that Section 6 applies to the repeal or omission of the two rules brought about by the Notification dated 08 October 2024. By focusing on a single line in paragraph 1.18 of the Law Commission Report, which states that there can be no better testimony to the utility of the General Clauses Act than the fact that the Courts have, on considerations of equity, justice, and good conscience, extended its principles not only to subordinate legislation but also to private documents, it is not prepared to hold that the provisions of Section 6 of the General Clauses Act, as they currently stand, would cover the case of an omission or a repeal of subordinate legislation caused by another subordinate legislation. Such an interpretation would run counter to the two Constitution Bench decisions of the Hon’ble Supreme Court. Consequently, based upon the provisions of Section 6 of the General Clauses Act, 1897, the Respondents cannot assert that the show cause notices issued under the omitted or repealed Rules or the orders made in disposing of show cause notices after the Rules or the orders that had not attained finality are saved by virtue of the provisions of Section 6 of the General Clauses Act, 1897. Since the 20024 Rules by which the impugned rules were omitted/repealed were made u/s 164 of the CGST Act, can they be regarded as 'Central Act' for he purposes if section 6 of the General Clauses Act? - HELD THAT:- The expression ‘Central Act’ appearing in Section 6 of the General Clauses Act is defined under Section 3(7) of the General Clauses Act. There is no case made out to ignore this statutory definition or to elevate Rules framed under the Central Act to the status of a Central Act. There is a clear distinction between a Central Act and the Rules, which are subordinate legislation, that may be framed by exercising the powers conferred by such Central Act. The Central Act is a primary legislation enacted by the Parliament. The Rules are a subordinate legislation enacted by the Central Government in the present case. The Rules cannot be elevated to the status of a Central Act merely because they may have been enacted by exercising the powers under the Central Act. Therefore, in principle, the contention based upon Section 164 of the CGST Act cannot be accepted. The argument that the Notification dated 08 October 2024 or the Central Goods and Service Tax (Second Amendment) Rules, 2024 must be regarded as “Central Act” for the purposes of Section 6 of the General Clauses Act only because such rules were enacted in the exercise of powers conferred upon the Central Government by Section 164 of the CGST Act cannot be accepted. Similar contentions seeking to elevate rules framed under a Central Act to the status of a Central Act have been expressly rejected by the Constitution Bench. Argument based on Section 174(3) of the CGST Act - HELD THAT:- Section 174(3) of the CGST Act appears to have been enacted as a matter of abundant caution. The provisions of Section 174 must be read and construed in their entirety. Section 174(1) repeals the Acts specified therein. Section 174(2) is a savings clause qua anything done under the Acts repealed by Section 174(1). Section 174(3), by making applicable the provisions of the General Clauses Act, which would include the provisions of Section 6 of the General Clauses Act, imparts some additional protection that might have been missed by the provisions of Section 174(2) on account of the repeal of the Acts specified in Section 174(1). At least prima facie, Section 174(3) would have no application qua the repeal of any Acts not specified in Section 174(1). Therefore, Section 174(3) cannot be regarded as a savings clause to protect the pending proceedings under the impugned Rules omitted vide Notification dated 08 October 2024. If the requirements of Section 6 of the General Clauses Act are not fulfilled, because the repeal is not by any Central Act, etc., then there is no question of applying Section 6 of the General Clauses Act by referring to Section 174(3) of the CGST Act. Section 174(3), at best, makes applicable the provisions of the General Clauses Act, which would include Section 6, but surely, Section 174(3) does not operate to amend the provisions of Section 6 of the General Clauses Act. That would be an extremely tenuous or strained construction of Section 174(3) of the said Act - even the argument based on Section 174(3) of the CGST Act made on behalf of the Respondents cannot be accepted. Argument based on Clause 1(2) of the notification dated 8th October, 2024 - HELD THAT:- Clause 1(2) only provides that the CGST (Second Amendment) Rules, 2024, would come into effect from the date of their publication in the official gazette, i.e., on 08 October 2024. The issue with which we are concerned is not of prospectivity or retrospectivity. The issue with which we are concerned is the effect of such omission or repeal of Rules 89(4B) and 96(10) without there being any savings clause to protect or save pending proceedings - Clause 1(2) does not prevent the lapsing of inconclusive proceedings or even orders that have not attained finality. Only transactions “past and closed” are not affected. This protection for “past and closed” transactions is not on account of Clause 1(2) now relied upon, but because of the common law principle that remains intact where the provisions of Section 6 of the General Clauses Act do not apply or where there are no savings clauses in the repealing rules or the parent legislation under which such rules may have been enacted. Based on Clause 1(2) of the notification dated 08 October 2024, the pending proceedings or the proceedings where the impugned orders had not attained finality cannot be protected or saved. Argument based on section 166 of the CGST Act - HELD THAT:- An Analysis of Section 166 would show that its first leg provides for laying of Rules, Regulations and Notifications before the Parliament for a total period of 30 days. The second leg of Section 166 provides for consequences where both houses agree in making any modification to the Rules, Regulations and Notifications so laid or agree that such Rules, Regulations and Notifications should not have been made. In such an eventuality, the laid Rules, Regulations and Notifications as the case may be, shall “thereafter” have effect only in such modified form or be of no effect, as the case may be, so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that Rule or Regulation or Notification, as the case may be. The argument based on Section 166 of the CGST Act, apart from being misconceived, was attempted to be developed merely by claiming, without any pleading, that the notification dated 08 October 2024 was laid before Parliament. No details were provided about such laying. No information was given on whether the same was approved, modified, or annulled. Thus, following the omission or repeal of the impugned Rules, i.e., Rules 89(4B) and 96(10) of the CGST Rules via Notification dated 08 October 2024, and in the absence of any saving clauses or the benefit of Section 6 of the General Clauses Act, all pending proceedings—such as undisposed show cause notices, orders disposing of show cause notices issued after 08 October 2024, or even orders made before 08 October 2024 but not yet finalised due to appeals before the Appellate Authorities or challenges before this Court, thus not constituting “transactions past and closed”—are not preserved and will stand lapsed. The impugned show cause notices and the impugned orders in original are set aside - petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether Rules 89(4B) and 96(10) of the Central Goods and Service Tax Rules, 2017 are ultra vires the parent Act or otherwise unconstitutional, null and void? 2. What is the legal effect of the omission/repeal of Rules 89(4B) and 96(10) by notification dated 8 October 2024, in the absence of any express savings clause, on pending proceedings and orders initiated under those Rules? 3. Whether any impugned orders or show-cause proceedings constitute 'transactions past and closed' and are therefore preserved notwithstanding omission/repeal? 4. Whether Section 6 of the General Clauses Act applies to and saves pending proceedings consequent to omission/repeal effected by subordinate legislation (Rules) rather than by a Central Act or Regulation? 5. Whether Rules made under Section 164 of the CGST Act can be treated as a 'Central Act' for the purposes of attracting Section 6 of the General Clauses Act? 6. Whether Section 174(3) of the CGST Act operates to import the protections of the General Clauses Act (including Section 6) to save pending proceedings arising under omitted/repealed Rules? 7. Whether Clause 1(2) of the 2024 Amendment Rules (stating the Rules come into force on publication) or GST Council minutes operate as a savings provision preserving pending proceedings? 8. Whether Section 166 of the CGST Act (laying-before-Parliament procedure) and the process of laying the Amendment Rules before Parliament operate to save or defer the legal effect of omission/repeal so as to preserve pending proceedings? 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Constitutional validity of Rules 89(4B) and 96(10) Legal framework: Challenge raised to vires of subordinate Rules under the parent statute and to constitutional doctrines (proportionality, equality, arbitrariness). Precedent treatment: Parties relied on High Court decisions declaring similar provisions void; Court acknowledged precedential arguments but declined to decide the constitutional issue. Interpretation and reasoning: The Court applied the principle that a constitutional court should not decide vires issues unless necessary to afford effective relief. Because the petitions could be disposed of on the ground of omission/repeal without savings, the Court refrained from adjudicating the constitutional validity. Ratio vs. Obiter: The determination to avoid constitutional adjudication is ratio for this batch of petitions; any remarks on the merits of vires were expressly not decided and are obiter. Conclusion: The Court did not determine whether the impugned Rules are ultra vires or unconstitutional, reserving that question as unnecessary for disposal given the ruling on omission/repeal without savings. Issue 2 - Legal effect of omission/repeal without savings clause Legal framework: Common-law rule of repeal/omission: repeal obliterates provision except as to 'transactions past and closed'; statutory exceptions exist by way of savings clauses, notably Section 6 of the General Clauses Act. Precedent treatment: The Court relied on established authorities explaining that, absent savings, repeal/omission abates pending proceedings not finally concluded; where repeal/omission is substantive (not merely procedural) it affects accrued rights and pending actions. Interpretation and reasoning: The Amendment Rules of 8 October 2024 omitted the two Rules and contained no express savings clause preserving pending proceedings. The omitted provisions affected substantive rights (refund-related safeguards) rather than purely procedural rules; therefore, under the common-law principle, pending proceedings and inchoate rights arising solely under those Rules would lapse. Ratio vs. Obiter: Ratio - omission/repeal of substantive Rules by subordinate legislation without any savings clause results in lapsing of pending proceedings and related orders not falling within 'transactions past and closed'. Conclusion: The omission/repeal without savings causes pending show-cause proceedings and non-final orders based exclusively on alleged breach of the omitted Rules to lapse; such proceedings and orders cannot be continued or enforced. Issue 3 - Transactions past and closed Legal framework: Concept confines preservation to transactions fully completed and finally adjudicated; pending matters or orders subject to appeal are not 'past and closed'. Precedent treatment: Authorities and commentary confirm that only proceedings prosecuted to final judgment in the court of last resort qualify as past and closed for repeal purposes. Interpretation and reasoning: Respondents did not contend that the impugned show-cause notices/orders were transactions past and closed. Many matters were pending, some had orders passed but were subject to further challenge; accordingly such matters do not qualify for preservation under the past-and-closed exception. Ratio vs. Obiter: Ratio - pending proceedings or orders not finally concluded are not 'transactions past and closed' and are liable to lapse upon repeal/omission absent savings. Conclusion: Impugned show-cause notices and non-final orders are not preserved as transactions past and closed and therefore lapsed upon omission/repeal of the Rules. Issue 4 - Applicability of Section 6 of the General Clauses Act Legal framework: Section 6 preserves prior operation of repealed enactments where repeal is by 'this Act, any Central Act or Regulation', unless a different intention appears. Precedent treatment: Constitution Bench authority holds Section 6 applies to repeal by Central Act or regulation but not to repeal/omission effected by subordinate legislation (Rules) unless statutory language so provides. Interpretation and reasoning: The notification of 8 October 2024 effected omission by Rules (subordinate legislation). On a plain reading and on binding precedent, Section 6 does not apply to omission/repeal effected by Rules; consequently pending proceedings are not saved by Section 6. Ratio vs. Obiter: Ratio - Section 6 of the General Clauses Act does not apply to omission/repeal brought about solely by subordinate Rules and therefore cannot preserve pending proceedings in such circumstances. Conclusion: Section 6 is not attracted; pending proceedings under the omitted Rules are not saved by that provision. Issue 5 - Whether Rules framed under Section 164 of parent Act qualify as 'Central Act' for Section 6 Legal framework: Statutory definition distinguishes a 'Central Act' (primary legislation) from subordinate Rules; Section 3(7) limits 'Central Act' to Acts of Parliament. Precedent treatment: Decisions attempting to treat delegated Rules as Central Acts have been overruled by authoritative precedents which maintain the distinction. Interpretation and reasoning: Rules made under Section 164 remain subordinate legislation and cannot be elevated to the status of a Central Act for the purposes of Section 6 absent clear textual basis; the Constitution Bench precedent disallows such elevation. Ratio vs. Obiter: Ratio - subordinate rules, even when made under a Central Act, do not become a 'Central Act' for Section 6 purposes. Conclusion: The contention that the Amendment Rules qualify as a 'Central Act' for Section 6 is rejected; Section 6 cannot be invoked on that basis. Issue 6 - Effect of Section 174(3) of the CGST Act Legal framework: Section 174(3) states that mention of certain repeals shall not prejudice general application of Section 6 of the General Clauses Act. Precedent treatment: Section 174(3) is to be read contextually as preserving applicability of Section 6 insofar as Section 6 is otherwise applicable. Interpretation and reasoning: Section 174(3) cannot be read to amend or expand Section 6 to cover omissions/repeals effected by Rules; at best it directs courts to consider Section 6 where relevant. Where Section 6 requirements are not fulfilled, Section 174(3) cannot manufacture applicability. Ratio vs. Obiter: Ratio - Section 174(3) does not import Section 6 protections where Section 6 is not in point; it cannot convert omission by Rules into a repeal by a Central Act or Regulation for Section 6 purposes. Conclusion: Section 174(3) does not save pending proceedings resulting from omission of the impugned Rules. Issue 7 - Clause 1(2) of the Amendment Rules and GST Council minutes as a savings device Legal framework: Clause stating Rules come into force on publication determines commencement date; a savings clause must expressly preserve pending proceedings. Precedent treatment: Mere commencement/prospective language is not a substitute for a savings clause; legislative or regulatory intent to preserve pending matters must be manifest. Interpretation and reasoning: Clause 1(2) only fixes commencement and does not operate as or contain an express savings provision preserving pending proceedings. GST Council minutes noting prospective intent cannot supply an express statutory saving; therefore Clause 1(2) does not prevent lapsing of pending matters. Ratio vs. Obiter: Ratio - commencement provision without express savings cannot save pending proceedings. Conclusion: Clause 1(2) and Council minutes do not operate as a savings clause; pending proceedings lapse notwithstanding the stated prospective operation. Issue 8 - Section 166 (laying before Parliament) and effect on validity/effect of Amendment Rules Legal framework: Section 166 requires Rules be laid before Parliament and contemplates possible modification/annulment by resolution; laid Rules operate upon promulgation unless annulled. Precedent treatment: Laying procedure is generally directory; Rules come into force upon making and are subject to subsequent parliamentary action which, if taken, affects future operation without prejudicing validity of past acts done pursuant to the Rules pending annullment. Interpretation and reasoning: The Amendment Rules came into force on publication; Section 166 does not suspend their effectiveness pending parliamentary laying or approval. The protective limb of Section 166 applies only if Parliament exercises negative resolution power; absent annulment/modification by Parliament, the laying provision does not save pending proceedings affected by omission/repeal. Ratio vs. Obiter: Ratio - the laying procedure in Section 166 does not postpone commencement nor supplies a savings clause preserving pending proceedings where the Rule-making instrument itself contains no such saving. Conclusion: Section 166 does not operate to save the pending proceedings challenged in these petitions. Remedial Conclusion and Orders Interpretation and reasoning: Applying the above legal conclusions, the Court found the impugned show-cause notices and orders that rested solely on alleged breach of the omitted Rules had no surviving legal basis and thus lapsed; orders refusing refunds that were based on such omitted Rules were quashed and refund applications restored for fresh consideration. Ratio vs. Obiter: Ratio - omission/repeal without savings abates pending non-final proceedings and related orders; affected refund applications must be reconsidered in light of the omission. Conclusion: The Court quashed and set aside the impugned show-cause notices and non-final orders dependent exclusively on the omitted Rules, directed reconsideration of affected refund applications within a specified time frame, and declared the Rule absolute without costs.