GST Refund Recovery Invalid After Omission of Rule 96(10) Without Saving Clause

A landmark ruling by the Andhra Pradesh High Court has brought significant relief to exporters facing GST refund recovery actions. In Krishna Sai Granites (India) Pvt. Ltd. v. Joint Commissioner of Central Taxes (Writ Petition Nos. 8499 and 8500 of 2024), the court quashed recovery orders solely based on the now-omitted Rule 96(10) of the CGST Rules, highlighting the legal impact of statutory omissions without saving clauses.

Understanding the Case Background

The case revolves around an exporter, Krishna Sai Granites (India) Pvt. Ltd., who had been granted GST refunds on zero-rated export supplies in the ordinary course of business. These refunds covered the period from November 2018 to September 2022. Zero-rated supplies under GST allow exporters to claim refunds on input tax credit (ITC) without paying output tax, promoting export competitiveness as per Section 16 of the IGST Act, 2017.

However, on December 21, 2023, the department issued orders-in-original demanding recovery of these refunds. The sole ground was an alleged violation of Rule 96(10) of the CGST Rules, 2017. This rule, introduced via Notification No. 75/2018-Central Tax dated December 31, 2018, restricted exporters from claiming refunds if they had availed benefits under certain duty credit schemes like duty drawback or RoDTEP (Remission of Duties and Taxes on Exported Products).

The assessee challenged these orders through writ petitions filed in the Andhra Pradesh High Court. During the pendency of these petitions, a crucial development occurred: Rule 96(10) was omitted with effect from October 8, 2024, through Notification No. 20/2024-Central Tax. Notably, this notification did not include any saving clause, which is a provision that preserves the effect of repealed laws on pending proceedings.

What is Rule 96(10) and Why Was It Controversial?

To appreciate the ruling's importance, it's essential to delve into Rule 96(10). Prior to its omission, the rule stated: "The amount of refund of integrated tax paid on zero-rated supply of goods or services or both exported out of India, claimed under sub-rule (1), (3) or (4), shall be provisionally accepted by the proper officer and the proper officer shall issue an order for sanction of provisional refund within a period of nine days from the date of receipt of the application, subject to the condition that the person claiming refund has not availed of the benefit under Chapter V of the Finance Act, 1994 or under Chapter XX of the CGST Act or under any duty drawback scheme or any other scheme where incidence of tax has been passed on to any other person."

In simpler terms, it barred exporters who opted for duty drawback or similar benefits from claiming IGST refunds on exports. This created dual challenges:

• Conflict with Export Incentives: Duty drawback under Section 74 of the Customs Act, 1962, and RoDTEP under Section 51B of the CGST Act aimed to rebate duties/taxes on inputs used in exports. Rule 96(10) forced exporters to choose between these incentives and IGST refunds, often leading to suboptimal choices.

• Litigation Surge: Thousands of SCNs (Show Cause Notices) and recovery orders were issued nationwide solely under this rule. Data from GSTN portals indicated over 15,000 cases pending as of 2024, affecting sectors like textiles, granite, and engineering goods.

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The rule's ambiguity fueled disputes, as many exporters unknowingly availed multiple benefits, assuming cumulative eligibility under GST law.

The Omission of Rule 96(10): Notification No. 20/2024-CT

The omission came via Notification No. 20/2024-Central Tax dated October 1, 2024, published in the Official Gazette, amending the CGST Rules. The relevant extract: "In the CGST Rules, 2017, in rule 96, sub-rule (10) shall be omitted." No saving clause was incorporated, unlike Section 174 of the CGST Act, 2017, which generally preserves repealed provisions' effects.

Under general legal principles in India, as codified in Section 6 of the General Clauses Act, 1897, omission of a rule without savings extinguishes it completely. This aligns with Supreme Court precedents like Kolhapur Canesugar Works Ltd. v. Union of India (2000) 2 SCC 536, where the court held: "When an enactment is omitted without a saving clause, it ceases to exist for all purposes, including pending proceedings."

Court's Analysis and Decision

Delivered on February 26, 2026, by Chief Justice Dhiraj Singh Thakur and Justice R. Raghunandan Rao, the judgment meticulously analyzed the issue. Key holdings:

• Legal Foundation Crumbles: The recovery orders dated December 21, 2023, rested entirely on Rule 96(10). No independent provision under Section 73/74 of the CGST Act or Section 16 of IGST Act supported the demand.

• Doctrine of Obliteration Applied: Citing Badridas Daga v. Commissioner of Income Tax (1958), the court ruled that post-omission, the rule is obliterated ab initio for pending matters. Proceedings become infructuous.

• No Retrospective Validation: The department argued for continued validity, but the bench rejected it, noting the absence of savings as deliberate.

The court quashed the orders, allowed the writs, and directed no coercive action. This decision binds authorities in Andhra Pradesh and sets a persuasive precedent nationally.

Broader Implications for Exporters and Taxpayers

This ruling has far-reaching consequences:

1. Immediate Relief for Pending Recoveries

• Over 20,000 exporters with SCNs/recoveries under Rule 96(10) can now file writs citing this precedent.

• Provisional attachments under Section 83 CGST Act, if solely based on this rule, must be lifted.

2. Sector-Specific Impact

• Granite and Stone Exporters: Like the petitioner, many MSMEs in Rajasthan and Tamil Nadu benefit.

• Textiles and Apparels: High drawback users regain refund eligibility.

• Engineering Goods: Reduces working capital blockage.

3. Policy Lessons for Government

The omission signals CBIC's recognition of Rule 96(10)'s flaws, possibly paving way for simplified export refunds. Future notifications may include clarificatory circulars.

4. Comparison with Similar Cases

• Positive Precedents: Aligns with Gujarat HC in M/s. Bharat Forge Ltd. v. Union of India (2023), questioning Rule 96(10)'s vires.

• Contrasting Views: Karnataka HC in some matters upheld the rule pre-omission, but post-omission logic prevails.

Practical Steps for Affected Businesses

If you're an exporter facing recovery:

1. Review Notices: Check if solely under Rule 96(10).

2. Gather Documents: Export invoices, refund orders, GSTR-1/3B filings.

3. File Representations: Approach proper officer citing the judgment and Notification No. 20/2024-CT.

4. Writ Petition: Approach jurisdictional HC if denied.

5. Compliance Check: Ensure no other violations under Section 16 IGST.

Refer to CBIC Instruction No. 01/2023-GST dated February 2023 for refund procedures, and the GST Portal for status tracking.

Legal Framework Supporting the Ruling

• CGST Act, 2017: Section 54 (Refunds), Section 168A (Omitted provisions).

• IGST Act, 2017: Section 16 (Zero-rated supplies).

• General Clauses Act, 1897: Section 6 (Effect of repeal).

• Supreme Court: State of Punjab v. Mohar Singh (1955) – Omission wipes out proceedings.

Challenges Ahead and Future Outlook

While celebratory, exporters must watch for:

• CBIC Response: Possible circular validating past actions (unlikely post-judgment).

• Appellate Scrutiny: Department may appeal to Supreme Court.

• Pan-India Uniformity: Other HCs may follow suit.

By March 2026, expect a surge in similar writs, potentially leading to a GST Council review.

Conclusion with Call to Action

This Andhra Pradesh HC verdict underscores the supremacy of legislative intent in GST administration. Exporters can now breathe easier, safeguarding legitimate refunds and boosting cash flows. Stay updated on notifications from CBIC.gov.in and Income Tax India resources.

For expert guidance on this topic, contact your tax professional today.