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This note presents a concise research digest of the judicial decision, summarising the key issues, findings, and outcome. The judgment is analysed in the context of its factual background, issues framed, and conclusions reached by the Court.
2025 (9) TMI 806 - BOMBAY HIGH COURT
A batch of writ petitions under Article 226 of the Constitution challenged proceedings and adverse orders founded solely on alleged non-compliance with Rule 89(4B) and/or Rule 96(10) of the Central Goods and Services Tax Rules, 2017 (CGST Rules). During the pendency of the disputes, Rule 89(4B) and Rule 96(10) came to be omitted by the Central Goods and Services Tax (Second Amendment) Rules, 2024, issued under Section 164 of the Central Goods and Services Tax Act, 2017 (CGST Act). The central question was whether, in the absence of an express saving clause (and with Section 6 of the General Clauses Act, 1897 asserted to be inapplicable), pending show cause notices, adjudication orders, and proceedings in appeal or in writ jurisdiction would stand preserved or would lapse, except for matters that qualify as transactions past and closed.
The Court disposed of the batch by holding that the omission of Rule 89(4B) and Rule 96(10), not being backed by any saving clause and not attracting Section 6 of the General Clauses Act, 1897, results in lapsing of pending proceedings and non-final orders founded solely on those omitted rules. The impugned show cause notices and orders were quashed, and certain refund applications that had been rejected by invoking the omitted rules were directed to be reconsidered within a stipulated timeframe, after hearing.
The petitioners comprised multiple taxpayers, including exporters and entities claiming refunds. The disputes were connected by a common factual thread: show cause notices and/or adjudication orders were issued on the sole allegation that the taxpayer had not complied with conditions prescribed in Rule 89(4B) and/or Rule 96(10) of the CGST Rules. The revenue authorities were called upon to verify whether the impugned notices and orders contained any allegation beyond breach of Rule 89(4B)/Rule 96(10). Except in a small number of cases that were separated, the revenue could not dispute that the only basis of action was the alleged non-compliance with the impugned rules.
In the lead factual narrative (treated as representative for disposal), the taxpayer was an exporter-manufacturer that had claimed refund of integrated tax paid on exports under Section 54 of the CGST Act read with Section 16 of the Integrated Goods and Services Tax Act, 2017 (IGST Act). The refunds had been sanctioned earlier. Subsequently, investigation and proceedings were initiated on the basis that the refund availed violated Rule 96(10), allegedly because of imports under specified authorisations/benefits. A substantial tax demand (along with interest and penalty) was proposed and thereafter confirmed in adjudication. The taxpayer challenged (i) the validity of Rule 96(10), (ii) the show cause notice, and later (iii) the adjudication order.
During the pendency of the writ petitions, the Central Goods and Services Tax (Second Amendment) Rules, 2024 omitted Rule 89(4B) (and Rule 89(4A)) and omitted Rule 96(10). The omission was effected through a notification issued under Section 164 of the CGST Act, which also contained a clause stating that the amendment rules would come into force on the date of publication in the Official Gazette (save as otherwise provided).
After the omission, the petitioners contended that, regardless of the constitutional challenge, the proceedings founded only on the omitted rules could not continue absent an express saving clause, and therefore stood lapsed (subject to transactions past and closed). In certain petitions, taxpayers also alleged coercive recovery by invoking the impugned rules and sought refund/restoration of refund claims without reference to those omitted provisions.
The principal issues addressed were:
The constitutional validity of Rule 89(4B) and Rule 96(10), including challenges under Article 14 and doctrines such as proportionality and manifest arbitrariness, was raised; however, the Court considered whether it was necessary to decide constitutionality where the matters could be disposed of on the legal effect of omission and saving.
The Court declined to adjudicate upon the constitutional validity of Rule 89(4B) and Rule 96(10), applying the settled principle that courts ordinarily should not decide constitutional questions unless necessary for disposal.
On the effect of omission, the Court held that omission/repeal of Rule 89(4B) and Rule 96(10) by the Central Goods and Services Tax (Second Amendment) Rules, 2024, issued under Section 164 of the CGST Act, was not accompanied by any saving clause to preserve pending proceedings. The Court applied the common law principle that, except as to transactions past and closed, a repealed provision is treated as obliterated, as if it never existed, and pending proceedings do not survive unless saved by statute or an express saving clause.
The Court further held that Section 6 of the General Clauses Act, 1897 does not apply where the repeal/omission is brought about by a rule/notification (i.e., subordinate legislation) as opposed to repeal by this Act (the General Clauses Act), a Central Act (as defined in Section 3(7) of the General Clauses Act), or a Regulation (as defined in Section 3(50) of the General Clauses Act). Since the omission was effected by amendment rules/notification (subordinate legislation), Section 6 did not save the pending proceedings.
The Court rejected the contention that the amendment rules, merely because they were made under Section 164 of the CGST Act, could be treated as a Central Act for purposes of Section 6 of the General Clauses Act.
The Court also rejected reliance on Section 174(3) of the CGST Act as a saving clause for these proceedings, holding that it does not operate to save proceedings relating to omission of the impugned rules and, at most, directs attention to Section 6 of the General Clauses Act which was held inapplicable on its terms.
The prospective commencement clause in the amendment notification was held not to be a saving clause, and not capable of preserving pending proceedings in the absence of express saving language.
The argument based on Section 166 of the CGST Act was also rejected as a basis to save pending proceedings; the provision was treated as relating to laying and parliamentary control, and not as a mechanism that preserves proceedings founded on omitted rules absent modification/annulment by Parliament. The Court also noted the lack of pleaded factual foundation on laying, modification, or annulment.
Applying these conclusions, the Court held that the following categories were not preserved and therefore lapsed: (i) undisposed show cause notices founded solely on alleged non-compliance with Rule 89(4B)/Rule 96(10); (ii) orders disposing of such show cause notices passed after the omission; and (iii) even orders passed before the omission but not having attained finality due to pending appeals or pending writ challenges (thus not qualifying as transactions past and closed).
The Court quashed and set aside the impugned show cause notices and impugned orders. It also quashed orders rejecting certain refund applications by invoking the omitted rules, restored those refund applications to the file of the competent authorities, and directed reconsideration and disposal after granting a fair hearing, within a stipulated period. A request to stay the judgment was rejected, and it was clarified that there was no direction for immediate refund; only a direction to dispose of refund applications within the specified timeframe.
Avoidance of constitutional determination: The Court reiterated the settled judicial discipline that constitutional validity of statutes/rules should not be decided as an academic exercise when a matter can be disposed of on other grounds that substantially redress the grievance.
Omission/repeal and obliteration principle: The Court treated omission/repeal without a saving clause as attracting the common law consequence: the omitted provision is to be regarded as non-existent for the future and (except for transactions past and closed) cannot support continuation of pending proceedings. This was applied to proceedings and orders founded solely on the omitted rules.
Transactions past and closed as a narrow exception: The Court noted that the revenue did not meaningfully contend that the impugned notices/orders were transactions past and closed. The Courts reasoning treated pendency in appeal or pendency under writ challenge as preventing finality for this purpose.
Section 6 of the General Clauses Act, 1897 confined to its text: Section 6 was analysed with emphasis on the statutory triggersrepeal by this Act, a Central Act, or a Regulation. Omission of rules by rules/notification was held outside the scope of Section 6, and the Court declined to extend Section 6 to cover subordinate legislation in a manner contrary to the statutory text and the binding constitutional-bench line discussed in the judgment.
Rules under Section 164 are not elevated to a Central Act: The Court stressed the doctrinal distinction between primary legislation enacted by Parliament (Central Act) and delegated legislation (rules). Delegated legislation does not become a Central Act merely because it is made under authority of a Central Act.
Section 174(3) of the CGST Act not a free-standing saving clause: The Court treated Section 174(3) as relating to the effect of repeal in the transition context addressed by Section 174(1) and Section 174(2), and not as an omnibus saving clause for every omission of subordinate legislation under the GST regime.
Section 166 of the CGST Act and laying procedure: The Court held that Section 166 concerns laying and possible modification/annulment by Parliament, and does not postpone commencement of rules until approval. It also treated the without prejudice to validity of anything previously done phrase as operating in the limited scenario of subsequent modification/annulment, not as a mechanism to save proceedings under omitted rules.
Proceedings under Section 73/Section 20 of the IGST Act argument rejected on facts: Where a show cause notice is nominally issued under Section 73 of the CGST Act read with Section 20 of the IGST Act, but the only allegation is breach of the omitted Rule 89(4B)/Rule 96(10), omission of those rules leaves nothing substantive to survive. The Court proceeded on the admitted position that there were no other allegations in the impugned notices/orders (subject to limited detagged exceptions).
Inter-High Court effect of a striking-down (not decided finally here): The judgment recorded contentions on whether a declaration of unconstitutionality of a rule by another High Court would operate beyond territorial limits in the absence of a contrary view, with reference to Article 226(2). The Court noted there were differing observations in prior jurisprudence on binding versus persuasive effect, but did not decide the batch on that basis since the matters were disposed of on omission/saving.
Pending refund-recovery disputes tied solely to Rule 96(10)/Rule 89(4B): For taxpayers facing proceedings where the sole foundation is non-compliance with Rule 96(10) or Rule 89(4B), this decision supports the proposition that, after omission of those rules by the Central Goods and Services Tax (Second Amendment) Rules, 2024, and absent an express saving clause, such proceedings cannot be continued unless the matter is truly final (transactions past and closed).
Scope of finality becomes decisive: The practical dividing line is whether the action has achieved finality. The decision treats proceedings pending at any stageadjudication, appeal, or writ challengeas not being past and closed, and therefore vulnerable to lapse where founded solely on omitted rules.
Drafting and adjudication strategy: The reasoning underscores that where a notice/order is entirely rule-dependent, omission of the rule without saving clauses can be jurisdictionally fatal. Conversely, where proceedings are independently sustainable under a substantive charging/penal provision on allegations not confined to the omitted rule, the outcome may differ (the judgment distinguishes that scenario in principle).
Limits of relying on Section 174(3) and Section 166 of the CGST Act: The decision cautions against treating Section 174(3) (general application of Section 6 of the General Clauses Act) and Section 166 (laying) as broad saving devices for proceedings linked to omission of delegated legislation. For research and litigation, the precise statutory hook for saving must be identified in the repealing instrument or the parent statute.
Refund applications earlier rejected by invoking omitted rules: Where refund claims were declined solely due to alleged breach of Rule 96(10)/Rule 89(4B), the decision indicates that such rejection orders are vulnerable, and that refund applications may require reconsideration without reference to the omitted conditions, subject to other applicable requirements under Section 54 of the CGST Act and related provisions (as relevant on the facts of each case).
Unsettled areas not resolved by this decision: The constitutional validity of Rule 89(4B) and Rule 96(10) was expressly left open. Likewise, broader debates on the binding effect of another High Courts declaration of unconstitutionality were noted but not conclusively determined as the dispositive basis. These questions remain outside the ratio of the decision and, where relevant, would require independent assessment on the governing jurisprudence.
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