Kerala High Court Strikes Down Rule 96(10) of CGST Rules Retrospectively, Finds Them Ultra Vires To CGST Act

The Kerala High Court struck down Rule 96(10) of the Central Goods and Service Tax Rules holding that it was ultra vires to the Section 16 of the Integrated Goods and Service Tax Act and was manifestly arbitrary.

Justice P. Gopinath noted that Section 16 has not imposed any restriction in availing refund of taxes paid on input goods and input services or claiming refund of IGST after payment of IGST on the exports. The Court, therefore held that the restriction imposed under Rule 96(10) on claiming refund is ultravires to the Act.

“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 authorize the imposition of restrictions in such a manner that it would completely take away the right granted under Section 16 of the IGST Act.”

The Court was informed of the fact that Rule 96(10) of the Act was deleted with effect from 08/10/2024. The Court observed that the notification only strikes down the rules prospectively and the Court declared that the Rule is unenforceable even for the period prior to that.

As per Section 16 of Integrated Goods and Services Tax Act (IGST Act) read with Section 54 of the Central Goods and Services Tax Act (CGST Act) indicate that 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. An exporter can claim refund of these taxes in two ways according to Section 16 of the IGST Act before it was amended. These are:

1. 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 unutilized input tax credit arising from the payment of tax on goods or services used in making the export.
2. By claiming a refund for the integrated tax paid for the export of goods and services.

For Letter of Undertaking, the claim has to be made under Rule 89 of the CGST Rules. For the second method, the claim has to made through Rule 96 of the CGST Rules.

The Rule 96(10) has undergone a series of amendments. As it stands now, an exporter cannot claim a refund if he has received the inputs after availing the benefits of certain specified notifications. The Rule is worded in a way that even if the exporter has availed the benefit for only some of the inputs, he is fully denied from claiming any refund under Rule 96. It was submitted before the Court that there were even cases, when the claim was denied because they had availed the benefit of the specified notification for inputs in an earlier consignment. It was also brought to the notice of the Court that in one case, a claim of a Company's unit in Kerala was denied because another unit of the company with a different register number in Tamil Nadu has availed the benefit of the notification.

However, if an exporter is claiming refund under Rule 89, his claim is not rejected even if he has availed the benefit of the specified notifications.

The Counsel for Central Revenue had submitted that a person claiming refund under Rule 96 can claim benefit of credit arising out of the purchase of capital goods which is not available to persons claiming under Rule 89. The Counsel therefore argued that it is upto the exporter to choose which one is more beneficial to them.

The Court however, refused to agree to these contentions. The Court held that the Rule attempts to create restriction not contemplated by Section 16 of the Act.

Case No: WP(C) 17447 of 2024 and Connected Case

Case Title: M/s Sance Laboratories Private Limited v Union of India and Others & Connected Cases

Citation: 2024 LiveLaw (Ker) 685