Constitutional Validity of Rules 89(4A), 89(4B) and/or 96(10) of CGST Rules

Introduction

Most recently, in September 2025, the Bombay High Court ruled that the government’s omission of Rules 89(4B) and 96(10) of the CGST Rules, 2017, effectively caused all pending proceedings under these rules to lapse. This decision, based on the legal principle that repealing a rule without a savings clause nullifies it from inception, provided relief to numerous exporters.

Background on the rules

Purpose: These rules restricted the GST refund options available to exporters who used inputs on which a duty exemption was availed. The intention was to prevent a “double benefit”.

Rule 96(10): Barred exporters from claiming a refund of Integrated Goods and Services Tax (IGST) paid on exported goods, if they had received inputs or input services under certain specified duty exemption notifications, such as those related to the Advance Authorization or Export Promotion Capital Goods (EPCG) schemes.

Rules 89(4A) and 89(4B): Provided an alternative pathway for exporters affected by Rule 96(10) to claim a refund of unutilized Input Tax Credit (ITC). These rules were also considered procedurally complex and led to complications for exporters.

Rules 89(4B) and 96(10) were meant to prevent a “double benefit” for exporters who had already availed duty exemptions on their imported inputs under schemes like Advance Authorisation or as Export Oriented Units (EOUs). The rules imposed restrictions on claiming IGST refunds (Rule 96(10)) or adjusting input tax credit (Rule 89(4B)). This was widely challenged by exporters who experienced working capital blockages and argued the rules were contrary to the zero-rating principle of exports under the GST law.

Key rulings prior to the omission

Before the rules were omitted, several High Courts ruled on their constitutional validity, with differing outcomes:

• Kerala High Court (Sance Laboratories Private Limited):In a November 2024 judgment, the Kerala High Court declared Rule 96(10) ultra vires Section 16 of the IGST Act, holding it to be manifestly arbitrary and unconstitutional. The court noted the government’s prospective deletion of the rule but found it unconstitutional for the period it was in force (2017-2024).
• Gujarat High Court: In contrast, a 2018 Gujarat High Court ruling in the case of Cosmo Films had initially upheld the validity of Rule 96(10) prospectively from October 9, 2018.

Omission of rules and effect on pending cases

Following recommendations by the GST Council, the government officially omitted Rules 89(4A), 89(4B), and 96(10) through Notification No. 20/2024-Central Tax on October 8, 2024.

The Bombay High Court’s ruling in Hikal Limited v. Union of India, issued in September 2025, dealt with the effects of this omission: 

Bombay HC in a batch of writ petitions with lead petition filed by Hikal Limited examines the legal effect and scope of the omission of Rule 89(4B) and 96(10) of the Central Goods and Services Tax Rules, 2017 (CGST Rules). High Court has quashed SCNs/orders which were issued based on omitted Rule 96(10) of the CGST Rules. High Court observes that in the absence of any saving clause or the benefit of Section 6 of General Clauses Act. 1897 (General Clauses Act), all pending proceedings (unless they qualify as “transactions past and closed”) following the omission or repeal of said Rule lapses.

Facts of the case

• In this batch of writ petitions, Petitioners, who are exporters of goods, have challenged the constitutional validity of Rules 89(4B) and/or 96(10) of the CGST Rules.
• Show Cause Notices were issued on the premise that IGST refund claimed by the Petitioner is in violation of Rule 89(4B) or Rule 96(10).
• During the pendency of these petitions, the impugned Rules were omitted vide Notification No. 20/2024 dated October 08, 2024 and the Petitioner, therefore, amended the Petition to bring on record said facts.

Contention of the Petitioner

• In the absence of savings clause, SCNs or orders citing non-compliance with the omitted or repealed Rules, are invalid, ex facie without jurisdiction.
• The common law principle as laid down in various settled precedents is that an omitted or repealed provision is entirely obliterated from the statute book, as if it had never been enacted.
• Said principle applies with full force to the present case, except regarding “transactions past and closed” (i.e. proceedings which have been brought to finality before repeal/reached a final Judgment in the Court of last resort).

Judgment

• Rules which stand omitted 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”.

Hence, the proceedings pending in respect of the show cause notices/orders could not have taken any further post the repeal or omission of the Rules i.e. beyond October 08, 2024. Further, no immunity or protection can be claimed under the provisions of Section 6 of the General Clauses Act.

• Only transactions “past and closed” are not affected. This protection for “past and closed” transactions is because of the common law principle that remains intact.
• Show cause notices which did not culminate in any orders and even such orders made by adjudicating authorities before October 08, 2024 which was pending (either before the Appellate Authorities or this Court) could not be regarded as final for them to be included in the expression “transactions past and closed”.
• The provisions of Section 6 of the General Clauses Act, does not apply to Notification dated October 8, 2024, as Notification is neither the “General Clauses Act” or “Central Act” or “Regulation”. The Notification (vide which Rules stand repealed) only contains the Central Goods and Services Tax (Second Amendment) Rules, 2024.
• 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. There is a clear distinction between a Central Act and the Rules. Rules are subordinate legislation, that may be framed by exercising the powers conferred by such Central Act.
• Repeal and Saving provisions contained in Section 174 of the CGST Act also cannot protect the pending proceedings under the impugned Rules omitted vide Notification dated 08 October 2024. No general retrospective effect has been given to the Notification dated October 8, 2024 otherwise even the transactions past and closed will have no immunity.
• No savings clause: The court noted that the government’s notification omitting the rules did not contain an express “savings clause” to preserve pending actions.
• Effect on pending proceedings: Citing Supreme Court precedents like Kolhapur Canesugar Works, the court held that without a savings clause, the omitted rules were “obliterated from the statute book”.
• Result: This means that all pending show-cause notices, adjudication orders that had not been finalized, and recovery proceedings initiated under the omitted rules have lapsed. The court ordered the restoration of refund applications that were rejected based on these rules.

Current status

The legal position, affirmed by the recent Bombay High Court ruling, is that pending matters regarding Rules 89(4B) and 96(10) are nullified due to their omission without a saving clause. While challenges to the constitutional validity of these rules are largely addressed by their deletion, the Bombay High Court’s decision brings finality to a large number of disputes over past refund claims. The issue for past cases is now settled, though appeals could still be filed to the Supreme Court.