Omission of Rule 96(10) CGST Rules bars further proceedings; pending actions, pre-deposits entitled to unrestricted refunds

HC held that, following the omission of Rule 96(10) of the CGST Rules with effect from 8.10.2024 and its declaration as unconstitutional by other HCs, no proceedings can be continued or initiated under the said rule. All pending SCNs, orders and appeals founded on Rule 96(10) are not treated as closed transactions and must be given the benefit of the omission. As the present matter was only at the summons stage, the HC quashed the summons, the SCN and all consequential orders. The petitioner, already having made the additional 10% pre-deposit for appeal, was entitled to refund benefits without restriction under Rule 96(10). Petition allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether, upon omission of Rule 96(10) of the Central Goods and Services Tax Rules, 2017 by Notification No. 20/2024-Central Tax dated 8 October 2024, proceedings (including summons, show cause notices, adjudication orders and appeals) based on Rule 96(10) can continue in respect of periods prior to the omission.

(2) Whether any saving can be derived, either from Notification No. 20/2024-Central Tax or from Section 6 of the General Clauses Act, 1897, so as to preserve or validate pending proceedings initiated under the omitted Rule 96(10).

(3) Consequentially, whether the summons and show cause notices issued, and proceedings initiated, against the petitioners under Rule 96(10) of the CGST Rules are liable to be quashed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Effect of omission of Rule 96(10) of the CGST Rules on pending proceedings

Legal framework (as discussed):

(a) Rule 96 of the CGST Rules governs refund of integrated tax paid on export of goods or services. Sub-rule (10), as it earlier stood, restricted refund of IGST where specified exemption/concessional notifications on inputs were availed.

(b) In the 54th meeting of the GST Council, it was expressly recorded that operation of Rule 96(10) was "leading to unnecessary complications without any intended benefit being served" and the Law Committee recommended that Rule 96(10), Rule 89(4A) and Rule 89(4B) be omitted prospectively, with consequential amendments.

(c) In pursuance of this recommendation, Notification No. 20/2024-Central Tax dated 8 October 2024 (Central Goods and Services Tax (Second Amendment) Rules, 2024) omitted Rule 96(10) with effect from the date of its publication, i.e., 8 October 2024.

Interpretation and reasoning:

(d) The Court noted that the GST Council's recommendation itself records that Rule 96(10) leads to "unnecessary complication, without any intended benefit", which is a relevant circumstance demonstrating that the continuance of that rule was not warranted.

(e) The Court took into account the judgment of the Kerala High Court holding Rule 96(10) ultra vires Section 16 of the IGST Act and "manifestly arbitrary", in that the restriction on refund under the Rule was not contemplated by the parent statute.

(f) The Court then considered a consistent line of decisions of different High Courts (Kerala, Calcutta, Uttarakhand, Gujarat, Bombay) rendered after the omission of Rule 96(10), which have:

- either declared Rule 96(10) unconstitutional and unenforceable (Kerala), or

- held that, following its omission without a saving clause, proceedings under Rule 96(10) cannot continue and must lapse, applying the principles in Kolhapur Canesugar Works Ltd. v. Union of India, and

- in particular, held that pending proceedings (including show cause notices and orders not yet attaining finality) are not "transactions past and closed" and therefore cannot be sustained after omission of the Rule.

(g) The Court specifically relied on the view, shared by other High Courts, that omission of Rule 96(10) without a saving clause results in the rule being treated as removed from the rule-book, and, in the absence of a saving for pending proceedings, actions under the omitted rule cannot be carried forward.

(h) The Court accepted the principle, reaffirmed by multiple High Courts following Kolhapur Canesugar Works, that:

- where a rule is unconditionally omitted without a saving clause for pending proceedings, the normal effect is to obliterate it from the statute book, and

- all actions based on such a provision "must stop where the omission finds them", and if final relief has not been granted before the omission takes effect, it cannot be granted thereafter.

(i) The Court further noted that the Bombay High Court has held that Section 6 of the General Clauses Act, 1897 does not apply to omission of rules, and that, in the absence of any saving clause, all pending proceedings under the omitted rules (including show cause notices, non-final orders, and appeals) lapse unless they qualify as "transactions past and closed".

(j) On a "conjoint reading" of the above precedents, the Court held that omission of Rule 96(10) from 8 October 2024 extends to all pending proceedings and that no proceedings can be continued under that Rule in matters where adjudication has not attained finality.

Conclusions:

(k) Rule 96(10) of the CGST Rules having been omitted from 8 October 2024, and there being no saving clause for pending proceedings, the rule cannot be invoked for continuation or initiation of proceedings in any matter that has not reached the stage of "transaction past and closed".

(l) All pending show cause notices, orders and appeals based solely on Rule 96(10) fall within the category of non-final proceedings and cannot be sustained after such omission.

Issue (2): Applicability of saving clauses or Section 6 of the General Clauses Act to omitted Rule 96(10)

Legal framework (as discussed):

(a) Clause (2) of Notification No. 20/2024-Central Tax provides that, save as otherwise provided, the amendment rules shall come into force on the date of their publication in the Official Gazette.

(b) The Department contended that: (i) omission of Rule 96(10) is only prospective; (ii) the "saving clause" in the notification and the intent of the GST Council preserve prior and pending proceedings; and (iii) refund claims (where shipping bills were filed prior to notification) cannot be covered by the benefit of omission.

(c) Various High Courts, particularly the Bombay High Court, discussed the inapplicability of Section 6 of the General Clauses Act, 1897 to an omission of rules and reiterated the distinction between repeal of an Act and omission of a rule.

Interpretation and reasoning:

(d) The Court considered the Department's reliance on the wording of Notification No. 20/2024 to assert that omission of Rule 96(10) is purely prospective and that pending proceedings are protected.

(e) The Court observed that other High Courts, applying Kolhapur Canesugar Works, have held that Section 6 of the General Clauses Act does not apply to omission of a rule, and that, in the absence of an express saving clause, pending proceedings under the omitted rule cannot be continued.

(f) In particular, the Court noted and accepted the Bombay High Court's reasoning that:

- omission or repeal of the impugned rules without any savings clause does not attract Section 6 of the General Clauses Act, and

- show cause notices and orders under the omitted rules, which have not attained finality, are not saved and must lapse.

(g) The Court also noted the consistent approach of the Calcutta, Uttarakhand, and Gujarat High Courts holding that omission of Rule 96(10) "unconditionally, without a saving clause in favour of the pending proceedings" requires that all actions under that rule from the date of omission must stop.

(h) By aligning with these authorities, the Court implicitly rejected the contention that Notification No. 20/2024 contains any saving clause capable of preserving pending proceedings under Rule 96(10), or that Section 6 of the General Clauses Act can be invoked to the same effect.

Conclusions:

(i) Notification No. 20/2024-Central Tax does not contain any express saving clause preserving pending proceedings under Rule 96(10) after its omission on 8 October 2024.

(j) Section 6 of the General Clauses Act, 1897 is inapplicable to the omission of Rule 96(10) and cannot be relied upon to save show cause notices or orders issued thereunder which had not attained finality by the date of omission.

(k) Consequently, all non-final proceedings initiated or continued under Rule 96(10) after its omission are unsustainable in law.

Issue (3): Validity of summons, show cause notices and proceedings against the petitioners under Rule 96(10)

Interpretation and reasoning:

(a) Applying the above principles, the Court treated all the proceedings in the three petitions as "pending" and not "transactions past and closed".

(b) In the first petition, the matter was only at the stage of summons issued under Rule 96(10), seeking details of IGST refunds and calling for appearance; no show cause notice had resulted in a final adjudication.

(c) In the second petition, show cause notices had been issued and adjudicated upon, with the petitioner already in the process of filing appeal and having made the required additional pre-deposit; hence, the orders had not attained finality.

(d) In the third petition, summons had been issued and an enquiry commenced, but the show cause notice was yet to be issued; proceedings were clearly at an incipient stage.

(e) In view of the omission of Rule 96(10) and the settled legal position that pending proceedings thereunder cannot continue, the Court held that:

- no proceedings under Rule 96(10) could be pursued against the petitioners, and

- all steps already taken under that rule in these matters must be annulled.

Conclusions:

(f) In the first petition, the summons and all proceedings initiated under Rule 96(10) are quashed; no proceedings can continue against the petitioner under the omitted rule.

(g) In the second petition, the show cause notices and all orders emanating therefrom, passed under Rule 96(10), are quashed, notwithstanding the pendency of appeal and pre-deposit made by the petitioner.

(h) In the third petition, the show cause notice (when issued) and all proceedings emanating from it under Rule 96(10) stand quashed.

(i) All writ petitions are allowed on the basis that, post-omission of Rule 96(10) without any saving clause, pending proceedings under that rule cannot be sustained.

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