Landmark Judgment by Kerala High Court on Rule 96(10) of the CGST Rules

 

The Kerala High Court recently delivered a significant judgment, declaring Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, 2017, ultra vires the provisions of Section 16 of the Integrated Goods and Services Tax (IGST) Act, 2017.

Key Legal Provisions in Dispute:

– Rule 96(10) of the CGST Rules, 2017: Imposed certain conditions restricting exporters from claiming refunds of the IGST paid on exports if they had availed specific benefits.

– Section 16 of the IGST Act, 2017: Mandates a zero-rated supply mechanism, allowing exporters to claim a refund of IGST paid on exported goods or on input services used in the manufacture of export goods.

Contentions of the Petitioners:
The petitioners argued that Rule 96(10) is inconsistent with Section 16 of the IGST Act, which aims to ensure that exports remain tax-free. The Rule was claimed to violate the vested right of exporters to claim IGST refunds on exports, which is fundamental to the concept of zero-rated supply.

Stand of the Respondents:
The Respondents contended that Rule 96(10) was introduced to prevent the misuse of refund provisions. They argued that the Rule aimed to balance the export incentives while curbing potential revenue leakage.

Final Judgment:
The Kerala High Court ruled that Rule 96(10), 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 vs. Union of India (2017) 9 SCC 1 and the provision as it stands today produces absurd results, not intended by the Legislature. The Court held that the Rule is also inconsistent with constitutional principles under Articles 14, 19(1)(g) and 265. The judgment emphasized the need to align subordinate legislation with the enabling Act’s objectives and ensure exporters’ rights remain protected.

Many exporters are still contesting the Show Cause Notices for issues pertaining to Rule 96(10) or the demand orders passed therein. The above judgment, coupled with the recent omission of Rule 96(10) w.e.f. 08/10/2024, holds great significance for putting across a potent defense. This judgment will also hold significance for ongoing disputes concerning Rule 89(4A) and 89(4B), which too have been omitted prospectively w.e.f. 08/10/2024.

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The copy of the order is as under:

21570017447202323-568680