Rule 96 CGST Rules: IGST Export Refunds and Recent Court Decisions

Summary: Rule 96 of the CGST Rules, 2017 provides the mechanism for refund of IGST paid on exports of goods, with the shipping bill ordinarily serving as the refund application. The procedure relies on electronic matching of export details between GST returns and customs records. Exporters nevertheless face delays arising from discrepancies in GSTR-1, GSTR-3B and shipping bills, bank-account validation, refund withholding and procedural objections. The article examines the statutory framework under Section 16 of the IGST Act, Sections 54 and 56 of the CGST Act, and Rules 89, 96 and 96A. It also discusses litigation concerning the omission of Rule 96(10), the effect of that omission on pending proceedings, the relationship between substantive refund entitlements and procedural requirements, interest on delayed refunds and limitation. Judicial decisions including Goodluck India Limited, Kolhapur Canesugar Works, Mafatlal Industries and VKC Footsteps illustrate the legal issues arising in export refund disputes. The article concludes with practical measures for exporters, including reconciliation of GST and customs data, maintenance of export documentation, verification of bank details and timely pursuit of withheld refunds.

Rule 96 of the CGST Rules, 2017 and Recent Case Law- A practitioner’s guide to IGST refunds on exports and how the courts have shaped them

1. Introduction

Exports are zero-rated under the GST regime. Section 16 of the Integrated Goods and Services Tax Act, 2017 gives an exporter two options: export under bond or Letter of Undertaking (LUT) without paying IGST and claim a refund of un-utilized input tax credit, or export on payment of IGST and claim a refund of the IGST so paid. Rule 96 of the Central Goods and Services Tax Rules, 2017 governs the second route. It sets up an automated, customs-driven mechanism under which the shipping bill itself works as the refund application.

In practice, this rule has produced a good deal of litigation: refunds withheld on mismatches between returns, disputes over the now-omitted Rule 96(10), and questions about limitation and interest. This article explains the framework and the main themes in the case law.

2. The Statutory Framework

Rule 96 operates alongside the following provisions:

• Section 16 of the IGST Act, 2017 treats exports as zero-rated supplies and permits either refund route.
• Section 54 of the CGST Act, 2017 provides for refunds, including the two-year limitation period, interest for delayed refunds under Section 56 and the power to withhold refunds in specified situations.
• Rule 89 covers refund applications generally, including refunds on exports under LUT, which are claimed in Form GST RFD-01.
• Rule 96 covers refund of IGST paid on exports of goods, without a separate application in most cases.
• Rule 96A covers exports under bond or LUT without payment of IGST.

3. How Rule 96 Works

3.1 The shipping bill as the refund application

Under Rule 96(1), the shipping bill filed by an exporter is deemed to be an application for refund of the IGST paid on the goods exported. The deeming takes effect when two conditions are met:

• The person in charge of the conveyance carrying the export goods files the export manifest or export report, covering the number and date of the shipping bills or bills of export.
• The exporter has furnished a valid return in Form GSTR-3B.

3.2 The data-matching process

The export invoice details furnished in Form GSTR-1 are transmitted electronically from the GST common portal to the customs system (ICEGATE). The customs system confirms the export of the goods back to the portal. Refund is then processed on the basis of this electronic exchange of data, and the customs authorities credit the refund to the exporter’s bank account registered with the GST portal, without any manual filing by the exporter.

3.3 Grounds for withholding

The rule contemplates that refund may be withheld in certain cases, in particular where:

• the jurisdictional tax authority requests that the refund be withheld under Section 54(10) of the CGST Act, which applies where the claimant has an outstanding tax demand or has not furnished a return; or
• the proper officer of customs determines that the goods were exported in violation of the Customs Act, 1962.

3.4 Rule 96(10) (now omitted)

The version of Rule 96(10) in force for several years barred the refund of IGST paid on exports for exporters who had imported goods under certain concessional notifications, such as Advance Authorisation or EPCG schemes, or who had availed specified exemptions or credit-restricted inputs. It was amended several times and was a frequent source of disputes. It was later omitted by notification with retrospective effect from 1 October 2022, with the effect that the restriction no longer applies for the period after that date. Practitioners should confirm the exact notification and its retrospective reach before advising on a particular period.

4. Common Practical Problems

Mismatch between GSTR-1 and the shipping bill. Errors in invoice number, date, value or GSTIN between the shipping bill and GSTR-1 cause the refund to be held up by the system. The CBIC has issued circulars setting out procedures for rectification, and the exporter typically has to approach the jurisdictional officer to correct the data.

Mismatch between GSTR-1 and GSTR-3B. Where the IGST liability paid through GSTR-3B is less than that shown in GSTR-1, the refund is restricted to the lower figure, and a deficiency memo or a system flag is raised.

Missing or incorrect bank details. Refunds cannot be credited if the bank account on the portal is not validated.

Delay and interest. Even though the process is automatic, delays are common, and exporters then seek interest under Section 56.

5. Recent Case Law: Principal Themes

• Omission Without a Saving Clause: In Goodluck India Limited & Anr. v. Union of India & Ors., the Supreme Court confirmed that the omission of Rule 96(10) via Notification No. 20/2024-Central Tax (effective October 8, 2024) applies to all pending refund proceedings and ongoing adjudications.
• Inapplicability of General Clauses Act to Subordinate Legislation: Relying on principles such as the Constitution Bench ruling in Kolhapur Canesugar Works Ltd. v. Union of India, courts (including the Supreme Court and High Courts like Bombay and Kerala) noted that Section 6 of the General Clauses Act, 1897 does not automatically save pending proceedings when a subordinate legislation (like a rule) is omitted or deleted without an explicit saving clause.
• Lapsing of Pending Proceedings: In the absence of a saving clause, pending recovery notices, show-cause notices, or challenges tied to Rule 96(10) lapse and cannot be sustained further against exporters.
• Challenges to Vires and Arbitrariness: Earlier High Court decisions (such as those in Kerala and Gujarat) examined whether Rule 96(10) exceeded the substantive scope of Section 16 of the IGST Act, 2017. Courts noted that restrictions creating unequal treatment or hindering the core right to export refund without double-benefit justification raised questions of manifest arbitrariness under Article 14 of the Constitution.

5.1 Challenges to the validity of Rule 96(10)

Several High Courts were approached by exporters who argued that Rule 96(10) went beyond the rule-making power conferred by Section 16 of the IGST Act and Section 54 of the CGST Act, since zero-rating is a statutory entitlement. The courts examined whether a subordinate rule could take away a refund the Act allowed. The later retrospective omission of the sub-rule reduced the live controversy, but the reasoning remains useful for any future restriction introduced by rule or notification.

5.2 Technical errors and procedural lapses should not defeat substantive refund rights

High Courts have repeatedly directed refunds where the claim was denied because of clerical mismatches, wrongly declared fields or delays in uploading data, when the export itself and the payment of tax were not in doubt. The general line is that procedural requirements are directory when they serve the machinery of verification and cannot override the exporter’s substantive entitlement.

5.3 Withholding of refunds under Section 54(10)

Courts have examined whether a refund can be withheld simply because some other proceeding is pending against the exporter. Decisions generally require that the power to withhold be exercised on recorded reasons and only within the limits of the statute, and that the officer pass a speedy order rather than leave the refund pending indefinitely.

5.4 Interest on delayed refunds

Where refunds are delayed beyond the statutory period, courts have granted interest under Section 56, treating it as compensation for the time value of money. The Supreme Court’s wider jurisprudence on refunds, such as the principle of unjust enrichment discussed in Mafatlal Industries Ltd. v. Union of India (1997), is also frequently cited, although in the export context the incidence of tax is generally not passed on to the buyer.

5.5 Limitation

The two-year period under Section 54 has been the subject of litigation, particularly in relation to the period excluded by the Supreme Court’s orders on limitation during the COVID-19 pandemic, which were later followed by notifications under the GST law. Exporters whose claims straddle that window should check how courts have applied the exclusion.

5.6 Interpretation of refund provisions

In Union of India v. VKC Footsteps India Pvt. Ltd. (Supreme Court, 2021), which concerned the refund formula in Rule 89(5) and not Rule 96 directly, the Supreme Court upheld the validity of the formula and emphasised that refund is a statutory right to be exercised within the framework the legislature has laid down. Taxpayers and authorities alike now cite the decision when the extent of the court’s power to read down a refund rule is in question.

6. Practical Takeaways for Exporters

• Reconcile GSTR-1, GSTR-3B and the shipping bill data every month, before the export documents are finalised.
• Make sure the shipping bill carries the correct GSTIN, invoice number and date.
• Confirm that the bank account on the GST portal is validated.
• Keep proof of export, including the export manifest and the Export General Manifest, until the refund is credited.
• Where a refund is withheld, ask for a reasoned order and consider writ remedies if the delay is unexplained.
• Claim interest under Section 56 where the refund is delayed.
• For any period affected by the old Rule 96(10), check the retrospective omission before treating the restriction as applicable.

7. Conclusion

Rule 96 was designed to make IGST refunds on goods exports automatic and swift. The case law shows that, where the machinery breaks down, the courts have tended to protect the exporter’s substantive right, in particular where the denial rests on a technical mismatch or on a rule that exceeds the Act. At the same time, the authorities retain the power to withhold refunds in defined situations, and the line between the two is where most disputes are still decided. Exporters who keep clean data and a documentary trail are best placed on either side of that line.

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Disclaimer: This article is for general information and is not legal advice. Statutory provisions, notifications and circulars change frequently, so please verify the current position before relying on it.