Sai Vishwas Polymers Vs Union of India and Another (Uttarakhand High Court)
The Uttarakhand High Court has set aside a tax demand order issued by the Assistant Commissioner against Sai Vishwas Polymers, ruling that the order, based on a rule that had been omitted from the statute book before the order was passed, was unsustainable.
Sai Vishwas Polymers, a partnership firm involved in the manufacture of gold bar and jewellery, had filed a writ petition challenging an order dated February 3, 2025. This order confirmed a demand for alleged inadmissible/erroneous Integrated Goods and Services Tax (IGST) refund amounting to over Rs. 1.05 crore, along with interest and penalty. The demand originated from an audit conducted by the State GST Department, followed by a show cause notice issued on September 26, 2023, under Section 74(1) of the CGST Act, 2017, read with other provisions.
The show cause notice and the subsequent order were based on alleged contraventions of conditions stipulated in Rule 96(10) of the Central Goods and Services Tax Rules, 2017. This rule imposed certain conditions on persons claiming refund of integrated tax paid on the export of goods or services, primarily relating to not having availed benefits under specific notifications concerning imports or deemed exports, with certain exceptions.
Before the High Court, the petitioner’s counsel argued that Rule 96(10) itself was ultra vires relevant sections of the IGST and CGST Acts. More critically, the petitioner pointed out that Rule 96(10) was omitted from the CGST Rules with effect from October 8, 2024, vide Notification No. 20/2024-Central Tax. Citing the Supreme Court judgment in Kolhapur Canesugar Works Ltd. & Anr., v. Union of India & Ors., the petitioner contended that the omission of a rule, unlike the repeal of an enactment covered by Section 6 of the General Clauses Act, 1897, generally obliterates the rule entirely as if it never existed, unless there is a specific saving clause for pending proceedings.
The petitioner argued that since the show cause proceedings were initiated based on alleged contraventions of Rule 96(10), and the rule was unconditionally omitted before the final order was passed on February 3, 2025, the proceedings could not legally continue, and the resulting order was nonest. They also referred to similar views taken by the Bombay High Court in Aeroflex Industries Ltd. v. Union of India & Ors. and the Allahabad High Court in Saru Slver Alloys Pvt. Ltd. V. Union of India.
The respondent’s counsel contended that the deletion of Rule 96(10) should operate only prospectively, and proceedings initiated while the rule was in force should continue to be governed by it.
The High Court first noted that the Kerala High Court had already declared Rule 96(10) ultra vires in Sance Laboratories Pvt. Ltd. Vs. Union of India, and the rule had subsequently been omitted. Therefore, the petitioner’s prayer to declare it ultra vires again was redundant.
The core issue for the court became the legal effect of the omission of Rule 96(10) on the pending proceedings. Relying heavily on the Kolhapur Canesugar Works Ltd. judgment, the Uttarakhand High Court affirmed that the effect of omitting a rule without a saving clause for pending proceedings is that all actions must stop as of the date of omission. If a final order has not been passed before the omission takes effect, it cannot be passed afterwards.
The court observed that Rule 96(10) was omitted unconditionally without any saving clause for ongoing proceedings. Consequently, the court concluded that the tax authority had no legal basis to pass an order invoking the provisions of Rule 96(10) after its omission on October 8, 2024.
Based on this reasoning, the High Court allowed the writ petition and set aside the impugned order dated February 3, 2025.
FULL TEXT OF THE JUDGMENT/ORDER OF UTTARAKHAND HIGH COURT
