Rule 96(10) of CGST Rules is ultra vires of section 16 of IGST Act: Kerala HC

Sance Laboratories Private Limited Vs Union Of India (Kerala High Court)

Kerala High Court held that rule 96(10) of the Central Goods and Services Tax Rules, 2017 [CGST Rules] as inserted by notification 53/2018-CT dated 09-10-2018 effective from 23-10-2017 is ultra vires of provisions of section 16 of the Integrated Goods and Services Tax Act, 2017 [IGST Act].

Facts- These writ petitions are filed challenging the validity of Rule 96(10) of the Central Goods and Services Tax Rules, 2017 (CGST Rules) primarily on the ground that the Rule is ultra vires the provisions of Section 16 of the Integrated Goods and Services Tax Act, 2017 (IGST Act).

Conclusion- Held that Rule 96(10) of the CGST Rules, as inserted by notification 53/2018-CT dated 09-10-2018 w.e.f. 23-10-2017 is declared ultra vires the provisions of Section 16 of the IGST Act and unenforceable on account of being manifestly arbitrary. As a consequence of the above declaration, any action that has been initiated by the issuance of a show cause notice or otherwise or has culminated in an order against the petitioners in these writ petitions on the basis of the provisions contained in Rule 96(10) of the CGST Rules, as inserted by notification No.53/2018-CT dated 09-10-2018 w.e.f. 23-10-2017, will stand quashed.

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

These writ petitions are filed challenging the validity of Rule 96(10) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the ‘CGST Rules’) primarily on the ground that the Rule is ultra vires the provisions of Section 16 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the ‘IGST Act’). It is not necessary for the purposes of disposal of these writ petitions to refer to the facts of individual cases except where it may be necessary to show how the working of the Rule has affected an individual exporter. Therefore, this judgment does not attempt to analyse the individual facts of each case, and it will be confined to the examination of the question as to whether Rule 96(10) of the CGST Rules as it presently stands is legally sustainable or is liable to be struck down on the following grounds:

(i) That it is ultra vires the provisions of Section 16of the IGST Act;

(ii) Whether the introduction of the conditions inthat Rule has taken away the vested right of thepetitioners to claim a refund of IGST paid on export of goods; and

(iii) Is the Rule violative of the provisions of Articles14, 19(1)(g) and 265 of the Constitution of Indiaand/or is it ‘manifestly arbitrary’ in the sense the term is understood in Shayara Bano v. Union of India; (2017) 9 SCC 1?

Facts (in brief):-

2. The petitioners in these cases are exporters who are entitled to claim a refund of taxes paid on input services and input goods or the Integrated Goods and Services Tax (hereinafter referred to as ‘the IGST’) paid on exports by virtue of the provisions contained in Section 16 of the IGST Act. The concept of zero-rated supply in the provisions of Section 16 of the IGST Act, 2017, read with the provisions of Section 54 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act) indicate that there is to be no export of taxes and on the goods being exported the exporter is entitled to a refund of the IGST paid on the export of goods or to the refund of taxes paid on input goods and input services used in the manufacture of goods or provision of services that are ultimately exported. Section 16 of the IGST Act (as it stood till amendment by Act 13 of 2021 (Brought into force w.e.f. 01-10-2023 vide Notification No. 27/2023-C.T., dated 31-07-2023)) contemplated two methods to enable the exporter to claim a refund of taxes on input goods and input services used in the manufacture of goods exported or services exported. The two methods were:-

(a) Through the supply (export) of goods or services (or both) under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and a resultant claim for refund of unutiised input tax credit arising from the payment of tax on goods or services used in making the export; or

(b) Through the supply (export) of goods or services (or both) on payment of integrated tax (by the utilisation of input tax credit arising from the payment of tax on goods or services used in making the export or otherwise) and a resultant claim for refund of such tax paid, subject to such conditions, safeguards and procedure as may be prescribed.

Both these methods were subject to the provisions of Section 54 of the CGST Act. The first method contemplated a consideration of the claim under Rule 89 of the CGST Rules while the second method contemplated a consideration of the claim in terms of Rule 96 of the CGST Rules. The provisions of Rule 96(10) of the CGST Rules have undergone a series of amendments, and the Rule as it presently stands imposes certain restrictions in the matter of refund of IGST and provides that if certain inputs have been availed after taking the benefit of certain notifications referred to therein, the exporter is not entitled to claim refund of IGST. It is also not in dispute that the working of the Rule as it is presently worded results in a situation where even if, for example, only 10% of the inputs have been procured after availing the benefit of any of the notifications mentioned in Rule 96(10) of the CGST Rules, the entirety of the refund is denied to exporters on the ground that they have availed the benefit of the notifications in respect of 10% of the inputs. It is also submitted before me that there are cases where the refund has been questioned or denied where it has been found that the exporter has, in respect of some earlier consignment availed the benefit of the notifications referred to in Rule 96(10) of the CGST Rules and has not availed such benefit in respect of the consignment in question. It is also pointed out from the facts of WP(C)No.20672/2024 that where some inputs have been procured after availing the benefit of the notifications mentioned in Rule 96(10) of the CGST Rules in respect of a unit of the petitioner (in that writ petition) situated in the State of Tamil Nadu, the right to claim refund of IGST in respect of exports effected from the unit of the petitioner situated in the State of Kerala with a different registration number has been questioned on the premise that the unit in Tamil Nadu has procured inputs after availing the benefit of the notifications mentioned in Rule 96(10) of the CGST Rules.

3. I have heard Sri. G. Shivadas, the learned Senior Counsel appearing for the petitioner in W.P (C) No.17447/2023 on the instructions of Sri. Shaji Thomas, Sri. K. Srikumar, the learned Senior Counsel, appearing for the petitioners in W.P(C) Nos. 26040/2023 and 25969/2023 on the instructions of Smt. Ammu Charles, Sri. Anil D. Nair, the learned Senior Counsel, appearing for the petitioners in W.P (C) Nos.4389/2024, 6653/2024 and 25134/2024 on the instructions of Smt. Aditya Unnikrishnan, Sri. M. Balagopal, the learned counsel appearing for the petitioner in W.P (C) No.20672/2024, Sri. K.N. Sreekumaran, the learned counsel appearing for the petitioners in W.P (C) Nos.20442/2023 and W.P (C) Nos.22051/2023, Sri. Sherry Samuel Oommen, the learned counsel appearing for the petitioners in W.P (C) Nos.39776/2023, 148/2024, 3065/2024, 3124/2024, 3250/2024, 3503/2024, 5412/2024 and 9516/2024, Sri. Sergi Joseph Thomas, the learned counsel appearing for the petitioner in W.P (C) No.4 1 106/202 3, Sri. Shameem Ahamed, the learned counsel appearing for the petitioners in W.P (C) Nos.42356/2023, 42395/2023 and 21909/2024, Smt. Krishna K, the learned counsel appearing for the petitioners in W.P (C) Nos.33125/2023, 42313/2023, 42370/2023, 42334/2023, 42717/2023 and 44146/2023, Sri. A Krishnan, the learned counsel appearing for the petitioners in W.P (C) Nos.24230/2022 and 32103/2023 and Sri. Akhil Suresh, the learned counsel appearing for the petitioner in W.P (C) Nos.43142/2023. Sri. P.G. Jayashankar, the learned Senior Standing Counsel for the Central Board of Indirect Taxes & Customs addressed arguments for the Central Revenue. Sri. Mohammed Rafiq, the learned Special Government Pleader (Taxes) appeared for the State.

Submissions for the petitioners:-

4. Referring extensively to the provisions of Section 16 of the IGST Act, Section 54 of the CGST Act and the provisions contained in Rule 89 and Rule 96 of the CGST Rules it is contended that the provisions of Rule 96(10) of the CGST Rules as presently worded effectively takes away the right of an exporter to claim refund of IGST which is a right which granted by the substantive provisions of the IGST Act. It is pointed out that Rule 89 of the CGST Rules contemplates the conditions upon which an exporter opting to export goods by filing a letter of undertaking/bond and opting to seek a refund of tax paid on unutilized input tax credit on inputs (both goods and services) used in providing export goods/export services while the provisions of Rule 96 of the CGST Rules deals with a methodology for claiming refund after paying full IGST on the exported goods/services after utilizing the available credit. It is pertinently pointed out that while the provisions of Rule 89 of the CGST Rules do not restrict the right of an exporter to claim a refund even if certain inputs have been procured after availing the benefits of the notifications referred to in Rule 96(10) of the CGST Rules, whereas the provisions of Rule 96(10) of the CGST Rules seeks to deny the benefit of refund completely if certain inputs have been procured after availing the benefits of the notifications referred to in Rule 96(10) of the CGST Rules, leading to an anomalous situation where an exporter who is otherwise on the same footing even will get the benefit of refund of taxes paid if he opts for the letter of undertaking/bond route but will not get such refund when he opts to pay the IGST and seek a refund of the IGST on account of the restrictions placed by the provisions of Rule 96(10) of the CGST Rules. Sri. G. Shivadas, the learned Senior Counsel appearing for the petitioner in W.P (C) No.17447/2023 referred to paragraph 28 of the judgment of the Supreme Court in Ispat Industries Ltd. v. Commissioner of Customs, Mumbai; (2006) 12 SCC 583, to the decision of the Supreme Court in Cellular Operators Association of India and Ors. v. TRAI and Ors., (2016) 7 SCC 703 and to the decision of the Supreme Court in Shayara Bano (supra) to contend that subordinate legislation has to be subservient to plenary legislation and the introduction of restrictions as now contended in Rule 96(10) of the CGST Rules goes contrary to the express provisions of Section 16 of the IGST Act. He also referred to paragraph Nos. 28 to 31 of the judgment of the Supreme Court in Union of India v. Intercontinental Consultants and Technocrats (P) Ltd.; (2018) 4 SCC 669 in support of his contention. The learned Senior Counsel has also referred to the judgment of the Supreme Court in Union of India v. VKC Footsteps India Pvt. Ltd.; (2022) 2 SCC 603 to contend that a restriction on the right to claim a refund of IGST paid can only be justified if it is explicitly contemplated by the plenary law. Sri. K. Srikumar, the learned Senior Counsel, referred to the judgment of the Supreme Court in Kerala State Electricity Board and others v. Thomas Joseph and others; (2023) 11 SCC 700 to contend that delegated legislation cannot travel beyond the parent statute. The learned Senior Counsel also referred to the judgment of the Supreme Court in K.P Varghese v. Income Tax officer; (1981) 4 SCC 173 to contend that even in respect of plenary legislation where the application leads to an absurd consequence it is within the power of the Court to interpret the law in a manner that makes it reasonable. He states that the Supreme Court recognised the principle that where a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even ‘do some violence’ so as to achieve the obvious intention of the Legislature and produce a rational construction. Sri. K.N. Sreekumaran submits that the subordinate legislation must strictly answer to the plenary legislation. It is submitted that a comparison of the provisions of Rule 89 of the CGST Rules with the provisions of Rule 96 of the CGST Rules will itself show that there has been an unreasonable classification among exporters who may opt to seek a refund of unutilized credit by filing a letter of undertaking/bond in terms of the provisions in Rule 89 of the CGST Rules and exporters who opt to pay the IGST and then claim a refund of IGST in terms of the provisions in Rule 96 of the CGST Rules. It is pointed out that such distinction was never authorised by the statute and for this short reason alone the provisions of Rule 96(10) as it stands at present are liable to be struck down as ultra vires the Section 16 of the IGST Act as also manifestly arbitrary and unreasonable. Sri. M. P. Shameem Ahamed, the learned counsel appearing for the petitioners in W.P(C)Nos.42356/2023, 42395/2023 and 21909/2024 would submit that the term ‘subject to such conditions, safeguards and procedure as may be prescribed’ in Section 16 of the IGST Act does not refer to condition safeguards and procedure regulating the right to refund and only provides that sufficient condition safeguards and procedure may be prescribed by the Rule making authority to ensure that there is no leakage of revenue. He submits that the provisions of Section 54(3) and 54(6) of the CGST Act also do not authorize the imposition of a restriction as contemplated by the provisions of Rule 96(10) of the CGST Rules. The learned counsel appearing on behalf of the petitioners in the other Writ Petitions made submissions substantially along the same lines. Therefore, for the sake of brevity and to avoid repetition, those submissions are not recorded.

Submissions for the Revenue:-

5. The learned Senior Standing Counsel appearing for the Central Revenue refers to the counter affidavit filed in W.P (C) No.17447/2023 to explain the genesis of the provisions in Rule 96(10) of the CGST Rules. He submits that the right of refund under Section 16 of the IGST Act is always subject to the provisions of Section 54 of the CGST Act and sub-section (3) of Section 54 permits the imposition of conditions in claiming refund. The learned counsel has extensively referred to the judgment of the Supreme Court in VKC Footsteps (supra) to contend that the said judgment covers the issue raised (against the petitioners) and the Supreme Court has categorically found that the right to refund is not absolute and the State may, in contemplation of its fiscal objectives, seek to impose a restriction on the right to refund. The learned counsel refers to paragraph 99 of the judgment of the Supreme Court in VKC Footsteps (supra) in support of his contention. He has also placed a compilation of the relevant notifications and referred to the minutes of the 39^th GST Council meeting to explain why a restriction of the nature contemplated by Rule 96(10) of the CGST Rules was deemed necessary. Sri. Mohammed Rafiq, the learned Special Government Pleader (Taxes) has also referred to the provisions of Section 16 of the IGST Act and placed great emphasis on the words ‘subject to such conditions, safeguards and procedures as may be prescribed’ in Section 16 of the IGST Act both before and after its amendment and also to sub-section (6) of Section 54 to state that refund of IGST where zero-rated supply of goods/services are made will always be subject to such conditions, limitations and safeguards as may be prescribed. In other words, it is his contention that Rule 96(10) is fully in conformity with the provisions of Section 16 of the IGST Act and Rule 96(10) of the CGST Rules is not ultra vires Section 16 of the IGST Act. It is submitted that the Parliament has consciously given to the rule-making authority the right to impose such conditions, limitations and safeguards as may be necessary in the light of fiscal objectives and the court must not lightly tinker with the working of a Rule in the nature of Rule 96(10) of the CGST Rules. He further referred to paragraph Nos. 21 to 32 of the judgment of the Supreme Court in VKC Footsteps (supra) (see SCC report). He also submitted that a right to refund is not an absolute right based on the judgment of the Supreme Court in VKC Footsteps (supra). He states that the provisions of the impugned Rule must be interpreted in the manner that this Court interprets an exemption notification. He refers to the judgment of the Supreme Court in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and others; (2018) 9 SCC 1 to contend that in case of any doubt, the interpretation of an exemption must be in favour of the Revenue. He referred to the judgment of the Supreme Court in Union of India and others v. Willowood Chemicals Pvt. Ltd. and another; (2022) 9 SCC 341 to contend that a refund can be granted only in accordance with the Rules and not dehors the Rules. He has referred to the scheme of Rule 89 and Rule 96 of the CGST Rules to show that while a person opting to claim refund of IGST in terms of the provisions contained in Rule 96 of the CGST Rules will be entitled to claim the benefit of credit arising out of the purchase of capital goods such right is not available to persons who may opt to file a letter of undertaking/bond and seek a refund of taxes paid on input goods and inputs services by following the procedure contemplated by Rule 89 of the CGST Rules. It is therefore submitted that it is at the option of the exporter to adopt either of the Rules contemplated by the provisions of Section 16 and it is for him to decide which is the method more beneficial to him.

6. Sri. G. Shivadas, the learned Senior Counsel appearing for the petitioner in W.P (C) No.17447/2023 would submit, in reply, that the judgment of the Gujarat High Court in Zenith Spinners v. Union of India, 2005 SCC OnLine Guj 601 which was affirmed by the Supreme Court in Union of India & Ors v. Zenith Spinners,(2020) 14 SCC 520 is authority for the proposition that the phrase “conditions, safeguards and procedures” mentioned in Section 16(3)(b) of the IGST Act read with the phrase “conditions, limitations and safeguards” in Section 54(6) of the CGST Act, cannot be interpreted to empower the Government to impose a complete restriction so as to take away the right provided under the Act.

Analysis:-

7. Having heard the learned Senior Counsel and other counsel appearing for the petitioners, the learned Senior Standing Counsel appearing for the Central Revenue and the learned Special Government Pleader (Taxes) appearing for the State of Kerala, I am of the view that the petitioners are on a strong footing when they contend that the provisions of Rule 96(10) of the CGST Rules as they stand presently appear to be ultra vires the provisions contained in Section 16 of the IGST Act.

8. Section 16 of the IGST Act as it stood prior to the amendment w.e.f. 01-10-2023 reads as follows :

“16. Zero-rated supply.-

(1) “zero-rated supply” means any of the following supplies of goods or services or both, namely:––

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

(2) Subject to the provisions of sub‑ section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax maybe availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.

(3) A registered person making zero‑ rated supply shall be eligible to claim refund under either of the following options, namely:–

(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or

(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules madethereunder.”

Section 16 of the IGST Act has been amended w.e.f. 01-10-2023 by the provisions of the Finance Act, 2021, and now reads thus:

“16. Zero-rated supply

(1) “zero-rated supply” means any of the following supplies of goods or services or both, namely:–

(a) export of goods or services or both; or

(b) supply of goods or services or both for authorised operations to a Special Economic Zone developer or a Special Economic Zone unit.

(2) Subject to the provisions of sub‑ section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax maybe availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.

(3) A registered person making zero‑ rated supply shall be eligible to claim refund of unutilised input tax credit on supply of goods or services or both, without payment of integrated tax, under bond or letter of undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed:

Provided that the registered person making zero rated supply of goods shall, in case of non-realisation of sale proceeds, be liable to deposit the refund so received under this sub‑ section along with the applicable interest under section 50 of the Central Goods and Services Tax Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 (42 of 1999) for receipt of foreign exchange remittances, in such manner as may be prescribed.

(4) The Government may, on the recommendation of the Council, and subject to such conditions, safeguards and procedures,by notification, specify–

(i) a class of persons who may make zero rated supply on payment of integrated tax and claim refund of the tax so paid;

(ii) a class of goods or services which may be exported on payment of integrated tax and the supplier of such goods or services may claim the refund of tax so paid”.

Though the issues arising in all these writ petitions relate to a period prior to the amendment of Section 16 of the IGST Act w.e.f. 01-10-2023, it may be noted that in substance the provisions of Section 16 IGST Act (both before amendment and after amendment) do not restrict the right of an exporter to claim a refund of either IGST paid on exports or tax paid on input services or input goods used in the export of goods or services subject to the provisions of Section 54 of the CGST Act and the Rules made thereunder. However, it may be noted that after the amendment w.e.f. 01-10-2023, Section 16 of the IGST Act empowers the Government, on the recommendation of the GST Council, and subject to such conditions, safeguards and procedures as may be prescribed, by notification, specify a class of persons who may make zero-rated supply on payment of integrated tax and claim refund of the tax so paid or a class of goods or services which may be exported on payment of integrated tax and the supplier of such goods or services may claim refund of the tax so paid. In other words, after the amendment w.e.f 01-10-2023, a person who may opt for the method contemplated by the provisions of Section 16(3)(b) of the IGST Act (as it originally stood) will now be governed by the provisions of sub-section (4) of Section 16 of the IGST Act which was introduced by way of the amendment and the Government may specify a class of persons who may make a zero-rated supply on payment of IGST or a class of goods or services which may be exported on payment of IGST, which provision was not available prior to amendment w.e.f. 01-10-2023. It may be stated here that following the amendment to Section 16 of the IGST Act w.e.f. 01-10-2023, a notification has been issued, namely notification No.1/2023 – Integrated Tax dated 31-07-2023, which was replaced by notification No.5/2023 – Integrated Tax dated 26-10-2023, notifying that the class of persons or class of goods or services which are not permitted to be exported on payment of IGST. Though it is not relevant for the purposes of this case, it may be noted that none of the goods or services that are subject matter of these writ petitions find a place in the notifications referred to above.

9. Section 54 of the CGST Act, to which reference is made by Section 16 of the IGST Act, to the extent relevant¹, reads thus:

“54. Refund of tax.

(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:

Provided………

(2)……….

(3) Subject to the provisions of sub-section

(10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than–

(i) zero rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.

(4) ……..

(5) ……..

(6) Notwithstanding anything contained in sub-section (5), the proper officer may, in the case of any claim for refund on account of zero-rated supply of goods or services or both made by registered persons, other than such category of registered persons as may be notified by the Government on the recommendations of the Council, refund on a provisional basis, ninety per cent. of the total amount so claimed, in such manner and subject to such conditions, limitations and safeguards as may be prescribed and thereafter make an order under sub-section (5) for final settlement of the refund claim after due verification of documents furnished by the applicant.

(7) to (15)²……. ”

Section 20 of the IGST Act provides that, subject to the provisions of the IGST Act and the Rules made thereunder, the provisions of the CGST Act relating to matters set out as serial Nos.1 to 25 of Section 20 shall mutatis mutandis apply so far as may be in relation to Integrated Tax, as they apply in relation to Central Tax and as if those provisions are enacted in the IGST Act. Clause 13 of the list of matters regarding which the provisions of the CGST Act are made applicable to the IGST Act refers to ‘refunds’. However, even in the absence of this provision, since the provisions of Section 16 of the IGST Act expressly refer to the provisions of Section 54 of the CGST Act, the provisions of Section 54 shall be applicable in the matter of refunds under Section 16 of the IGST Act also. Rule 2 of the Integrated Goods and Services Tax Rules, 2017, correspondingly provides that the CGST Rules, 2017, in so far as they apply to matters set out in Section 20 of the IGST Act shall also apply in relation to Integrated Tax as they apply in relation to Central Tax.

10. The provisions of Rule 96 of the CGST Rules have been amended from time to time and presently provide thus:

“96. Refund of Integrated tax paid on goods or services exported out of India –

(1) The shipping bill filed by an exporter of goods shall be deemed to be an application for refund of Integrated tax paid on the goods exported out of India and such application shall be deemed to have been filed only when:-

(a) the person in charge of the conveyance carrying the export goods duly files a departure manifest or an export manifest or an export report covering the number and the date of shipping bills or bills of export; and

(b) the applicant has furnished a valid return in Form GSTR-3B:

Provided that if there is any mismatch between the data furnished by the exporter of goods in Shipping Bill and those furnished in statement of outward supplies in Form GSTR‑1, such application for refund of integrated tax paid on the goods exported out of India shall be deemed to have been filed on such date when such mismatch in respect of the said shipping bill is rectified by the exporter,

(c) the applicant has undergone Aadhaar authentication in the manner provided in rule 10-B:

(2) The details of the relevant export invoices in respect of export of goods contained in Form GSTR-1 shall be transmitted electronically by the common portal to the system designated by the Customs and the said system shall electronically transmit to the common portal, a confirmation that the goods covered by the said invoices have been exported out of India:

(3) Upon the receipt of the information regarding the furnishing of a valid return in Form GSTR-3-B from the common portal, the system designated by the Customs or the proper officer of Customs, as the case may be, shall process the claim of refund in respect of export of goods and an amount equal to the Integrated tax paid in respect of each shipping bill or bill of export shall be electronically credited to the bank account of the applicant mentioned in his registration particulars and as intimated to the Customs authorities.

(4) The claim for refund shall be withheld where:-

(a) a request has been received from the jurisdictional Commissioner of Central tax, State tax or Union territory tax to withhold the payment of refund due to the person claiming refund in accordance with the provisions of sub-section (10) or sub-section (11) of section54; or

(b) the proper officer of Customs determines that the goods were in violation of the provisions of the Customs Act, 1962 or

(c) the Commissioner in the Board or an officer authorised by the Board, on the basis of data analysis and risk parameters, is of the opinion that verification of credentials of the exporter, including the availment of ITC by the exporter, is considered essential before grant of refund, in order to safeguard the interest of revenue.

(5-A) Where refund is withheld in accordance with the provisions of clause (a) or clause (c) of sub-rule (4), such claim shall be transmitted to the proper officer of Central tax, State tax or Union territory tax, as the case may be, electronically through the common portal in a system generated Form GST-RFD-01 and the intimation of such transmission shall also be sent to the exporter electronically through the common portal, and notwithstanding anything to the contrary contained in any other rule, the said system generated form shall be deemed to be the application for refund in such cases and shall be deemed to have been filed on the date of such transmission.

(5-B) Where refund is withheld in accordance with the provisions of clause (b) of sub-rule (4) and the proper officer of the Customs passes an order that the goods have been exported in violation of the provisions of the Customs Act, 1962 (52 of 1962), then, such claim shall be transmitted to the proper officer of Central tax, State tax or Union territory tax, as the case may be electronically through the common portal in a system generated Form GST RFD-01 and the intimation of such transmission shall also be sent to the exporter electronically through the common portal, and notwithstanding anything to the contrary contained in any other rule, the said system generated form shall be deemed to be the application for refund in such cases and shall be deemed to have been filed on the date of such transmission.

(5-C) The application for refund in Form GST RFD-01 transmitted electronically through the common portal in terms of sub-rules (5-B) and (5-B) shall be dealt in accordance with the provisions of rule 89.

(8) The Central Government may pay refund of the Integrated tax to the Government of Bhutan on the exports to Bhutan for such class of goods as may be notified in this behalf and where such refund is paid to the Government of Bhutan, the exporter shall not be paid any refund of the Integrated tax.

(9) The application for refund of integrated tax paid on the services exported out of India shall be filed in Form GST RFD-01 and shall be dealt with in accordance with the provisions of rule 89.

(10) The persons claiming refund of integrated tax paid on exports of goods or services should not have‑

(a) received supplies on which the benefit of the Government of India, Ministry of Finance notification No. 48/2017-Central Tax, dated the 18th October, 2017, published in the Gazette of India, Extraordinary, Part II, section sub-section (i), vide number G.S.R. 1305(E), dated the 18th October, 2017 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme or notification No. 40/201 7- Central Tax (Rate), dated the 23rd October, 2017, published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (i), vide number G.S.R. 1320(E), dated the 23rd October, 2017 or notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017, published in the Gazette of India, Extraordinary, Part II, section 3, sub‑ section (1), vide number G.S.R. 1321(E), dated the 23rd October, 2017 has been availed; or

(b) availed the benefit under notification No. 78/2017-Customs, dated the 13th October, 2017, published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (i), vide number G.S.R. 1272(E), dated the 13th October, 2017 or notification No. 79/2017-Customs, dated the 13th October, 2017, published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (1), vide number G.S.R. 1299(E), dated the 13th October, 2017 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme.

Explanation.- For the purpose of this sub‑ rule, the benefit of the notifications mentioned therein shall be considered to have been availed only where the registered person has paid Integrated Goods and Services Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications.”

Rule 96 of the CGST Rules has undergone various amendments from time to time. Though the pleadings in many of these cases refer to the metamorphosis of Rule 96 of the CGST Rules into its present form, it is conceded at the bar that it may not be necessary for this Court to examine the history of the amendments and the reasons which compelled those amendments to examine whether the provisions as they presently stand are ultra vires the provisions of Section 16 of the IGST Act.

11. A reference to the provisions of Section 16 of the IGST Act both before and after its amendment suggests to me that the Section itself has not imposed any restriction in the matter of availing either refund of taxes paid on input goods and input services or claiming refund of IGST after payment of IGST on the exports. While, on the authority of the judgment of the Supreme Court in VKC Footsteps (supra), it may be possible for the Revenue to contend that the Parliament has a right to impose restrictions on the right to refund, it must be noticed that in VKC Footsteps (supra), the Supreme Court was considering a question as to whether the word ‘inputs’ used in sub-section (3) of Section 54 of the CGST Act includes ‘input goods and input services’ or ‘input goods only’. On a consideration of the matter and having regard to the definition of the word ‘input’ in Section 2(59) of the CGST Act, the Supreme Court came to the conclusion that the word ‘inputs’ used in sub-section (3) of Section 54 insofar it applies to a refund of duties/tax arising out of an inverted duty structure contemplates refund of taxes paid on input goods alone and not input services.

12. The proposition that subordinate legislation must be subservient to plenary legislation is too well settled and this proposition can be accepted even without the benefit of any authority on the point. To be fair it must be noted that the learned counsel representing the Revenue has not even attempted to contend otherwise. Instead the argument is that the provisions of Sections 16 and 20 of the IGST Act and Section 54 of the CGST Act authorise the imposition of any condition for obtaining a refund and therefore the conditions imposed in Rule 96(10) of the CGST Rules cannot be held ultra vires. In VKC Footsteps (supra), the Supreme Court reiterated the principle that in the matter of fiscal legislation, considerable latitude has to be permitted to the State to make provisions so as to achieve its fiscal objectives and it is not the duty of the Court to undertake the task of redrawing the contours of a statutory provision. It was held that this is clearly an area of the law that judicial interpretation cannot go ahead of policy making and fiscal policy ought not to be dictated through judgments of the High Courts or the Supreme Court. It was held that where clearly the provisions of sub-section (3) of Section 54 have imposed a restriction on the right to refund, the same lies in the realm of fiscal policy which should not be tinkered by the Courts. However as already pointed out in VKC Footsteps (supra), the Supreme Court was dealing with a restriction imposed by plenary legislation and not with a situation like this, in the present cases where it is evident that the subordinate legislation has travelled beyond the scope of the plenary legislation and does not answer in any manner to the plenary legislation.

13. The words “subject to such conditions, safeguards and procedure as may be prescribed” in Section 16(3)(a)&(b) of the IGST Act and the provisions of Section 20 of the IGST Act and Section 54 of the CGST Act do not authorise the imposition of restrictions in such a manner that it would completely take away the right granted under Section 16 of the IGST Act. Useful reference may be made in this regard to the judgment of the Gujarat High Court in Zenith Spinners (supra) where that Court was considering the validity of certain notifications (under the Central Excise Regime) which were impugned on the ground that they were contrary to the scheme of Rules 18 and 19 of the Central Excise Rules, 2002. It was contended that the right to a rebate of excise duty available to an exporter (in relation to duty paid on final products which are excisable goods, or in relation to duty paid on raw material used as inputs in manufacture or processing of such final products) on export of goods was taken away completely by the terms of the impugned notifications. When dealing with a contention on behalf of the Revenue that the right to rebate was subject to approval by the commissioner it was held:-

“14. There is one more reason. As can be seen from reading of sub-rule (1) and Rule (2) of Rule 19 of the Rules the opening portion grants an option to the exporter by virtue of the language used. In sub-rule (1) it is stated “Any excisable goods may be exported”, and in sub-rule (2) it is stated “Any material may be removed”. Therefore, the exporter has an option to export the final products without payment of duty or use inputs which are procured without payment of duty in the manufacture or processing of goods which are to be exported. At the other end, the later portion of sub-rules (1) and (2) of Rule 19 of the Rules grants discretion to the Commissioner to approve the option that is exercised by an exporter by use of the phrase “as may be approved”. If the interpretation which is placed on the provision by the respondent authorities by issuance of impugned Notification is accepted, it would not only take away the option granted to the exporter but also take away the discretion granted to the Commissioner by the Rule. It is settled position that by virtue of exercise of powers of issuing a notification which is for the purposes of imposing conditions, safeguards and procedure the authority cannot exceed the jurisdiction by providing for a situation which either restricts the rights granted under the Rule itself or make the Rule itself redundant.” (Emphasis is mine)

The above decision of the Gujarat High Court was affirmed by the Supreme Court in Zenith Spinners (supra).

14. In order to consider the contention that Rule 96(10) of the CGST Rules as it presently stands is manifestly arbitrary I proposed a comparison of the right to a refund flowing from Section 16(3)(a) of the IGST Act (in terms of Rule 89 of the CGST Rules) and the right to a refund flowing from Section 16(3)(b) of the IGST Act (in terms of Rule 96 of the CGST Rules). It may be noted that the reference to the statutory provisions is with reference to the provisions as they stood prior to the amendment of Section 16 w.e.f. 01-10-2023. The learned Senior Counsel appearing for the petitioner in W.P (C) No. 17447/2023 has provided the following comparison statement. A perusal of the statement shows as to how the working of Rule 96(10) of the CGST Rules has resulted in hostile discrimination amongst exporters who opt to apply for a refund under Section 16(3)(a) read with Rule 89 of the CGST Rules and those who opt to apply for a refund in the manner contemplated by Section 16(3)(b). The statement is extracted below in tabular form:-

After the amendment in Rule 96 of the CGST Rules – Insertion of Rule 96(10) and substitution of Rule 89(4A) and (4B):-

Rule 96

Shayara Bano (supra) is the authority for the proposition that when the Court finds the provisions of plenary or subordinate legislation manifestly arbitrary, those provisions must be struck down. In paragraph 101 (of the SCC report) of Shayara Bano (supra) the law is stated thus:-

“101. It will be noticed that a Constitution Bench of this Court in Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India stated that it was settled law that subordinate legislation can be challenged on any of the grounds available for challenge against plenary legislation. This being the case, there is no rational distinction between the two types of legislation when it comes to this ground of challenge under Article 14. The test of manifest arbitrariness, therefore, as laid down in the aforesaid judgments wouldapply to invalidate legislation as well as subordinate legislation under Article 14. Manifest arbitrariness, therefore, must be something done by the legislature capriciously, irrationally and/or without adequate determining principle. Also, when something is done which is excessive and disproportionate, such legislation would be manifestly arbitrary. We are, therefore, of the view that arbitrariness in the sense of manifest arbitrariness as pointed out by us above would apply to negate legislation as well under

The judgment of the Supreme Court in K.P Varghese (supra) is the authority for the proposition that where even the provisions of a plenary legislation produce a manifestly absurd and unjust result, that could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even do some violence to it so as to achieve the obvious intention of the Legislature and produce a rational construction. It was held in K.P Varghese (supra):-

“6… It is true that the consequences of a suggested construction cannot alter the meaning of a statutory provision but they can certainly help to fix its meaning. It is a well‑ recognised rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. There are many situations where the construction suggested on behalf of the Revenue would lead to a wholly unreasonable result which could never have been intended by the legislature….”

The above comparative table clearly indicates that the working of Rule 96(10) of the CGST Rules as presently worded creates a restriction not contemplated by Section 16 of the IGST Act, on the right to refund. Therefore, I am constrained to hold that Rule 96(10) of the CGST Rules as presently worded is ultra vires the provisions of Section 16 of the IGST Act, it is ‘manifestly arbitrary’ as the term is to be understood in the light of the law laid down in Shayara Bano (supra) and the provision as it stands today produces absurd results, not intended by the Legislature.

15. After this judgment was dictated (to the above extent), it was brought to my notice by the learned Standing Counsel appearing for Central Revenue that the problems associated with the working of Rule 96(10) of the CGST Rules are engaging the attention of the GST Council. Today, when these writ petitions are taken up again, it is brought to my notice that notification No.20/2024-Central Tax, dated 08-10-2024, has now been issued deleting the provisions of Rule 96(10) of the CGST Rules w.e.f. 08-10-2024. However, it is noticed that the notification is prospective and does not deal with cases where the refund of IGST has either been denied or is proposed to be denied on account of the provisions contained in Rule 96(10) of the CGST Rules. Therefore, notwithstanding the deletion of Rule 96(10) w.e.f. 08-10-2024, it falls upon this Court to declare upon its validity for the prior period.

Having regard to the findings rendered in this judgment these Writ Petitions will stand allowed as follows:-

i. Rule 96(10) of the CGST Rules, as inserted by notification 53/2018-CT dated 09-10-2018 w.e.f. 23-10-2017 is declared ultra vires the provisions of Section 16 of the IGST Act and unenforceable on account of being manifestly arbitrary;

ii. As a consequence of the above declaration, any action that has been initiated by the issuance of a show cause notice or otherwise or has culminated in an order against the petitioners in these writ petitions on the basis of the provisions contained in Rule 96(10) of the CGST Rules, as inserted by notification No.53/2018-CT dated 09-10-2018 w.e.f. 23-10-2017, will stand quashed;

iii. It is directed that no proceedings shall be taken to recover any IGST that has been refunded to the petitioners in these writ petitions by applying the provisions of Rule 96(10) of the CGST Rules for the period between 23-10-2017 and 08-10-2024;

iv. In cases where orders have been issued by the Adjudicating Authority including on issues other than those arising out of the application of Rule 96(10) of the CGST Rules, the person aggrieved may file appeals against such orders and on such issues other than those arising out of the application of Rule 96(10) of the CGST Rules within a period of two weeks from the date of receipt of a certified copy of this judgment. Since these Writ Petitions have been pending before this Court along with interim orders of protection such appeals shall be deemed to have been filed on time provided they are filed within the time permitted;

v. In cases where a show cause notice has been issued, on issues other than those arising under Rule 96(10) of the CGST Rules, the petitioners shall file their replies in response to such notices within a period of two weeks from the date of receipt of a certified copy of this judgment and all issues other than those arising out of the application of Rule 96(10) of the CGST Rules shall be adjudicated by the proper officer.