Supreme Court Settles The Law: Omission Of Rule 96(10) Without A Saving Clause Extinguishes All Pending Proceedings

BRIEF FACTS OF THE CASE

• Rule 96(10) of the CGST Rules, 2017 restricted the refund of IGST paid on exports where the exporter had received supplies or imported inputs by availing specified concessional or dutyfree benefits under the relevant GST notifications.
• Rule 96(10) was omitted from 8 October 2024 without incorporating any saving clause for pending proceedings.
• Notably, proceedings against various assessees alleging violation of Rule 96(10), including demands, refund rejections, and matters in appeal, were still pending as on the date of omission.
• Several High Courts held that, in the absence of a saving clause, the omission would also apply to proceedings pending as on that date. In other words, once the rule stood omitted, no proceeding initiated under it could survive or continue.
• The Union of India challenged these rulings before the Supreme Court.

HON’BLE SUPREME COURT OBSERVATIONS:

• The Supreme Court relied upon Constitution Bench decision in Kolhapur Canesugar Works Ltd. v. Union of India [(2000) 2 SCC 536], which held that proceedings initiated under an omitted rule can continue only if a saving provision or statutory legal fiction expressly permits their continuation.
• Since Rule 96(10) was omitted without any saving or sunset clause, the restriction it contained could not continue to apply to proceedings pending on the date of its omission. The Court held that the GST Council's recommendation to omit the provision prospectively was merely advisory and did not bind the rule-making authority. The actual notification omitting Rule 96(10) contained no stipulation preserving its application to pending proceedings.
• The Court also noted the GST Council's own reason for recommending the omission, namely that Rule 96(10) was creating "unnecessary complications without any intended benefit being served." It held that the omission was meant to end such complications, not preserve them for pending proceedings.
• The Supreme Court dismissed Revenue's appeals and directed that all matters pending before various High Courts on the omission of Rule 96(10) be placed before the appropriate Benches promptly, to bring finality to the litigation.
• This ruling settles a long-standing controversy. Its impact is not confined to Rule 96(10). Rules 89(4A), 89(4B) and 96(10) were part of the same refund restriction framework and were omitted together by Notification No. 20/2024-Central Tax dated 8 October 2024, on the same GST Council recommendation. This supports the position that the restriction was removed as a class, and not by way of a rule-specific correction.
• The absence of a saving clause is decisive. If pending proceedings or past liabilities were intended to survive, the notification ought to have said so. In its absence, the same principle should apply to Rules 89(4A) and 89(4B), consistent with the Bombay High Court ruling in Hikal Limited v. Union of India. The legal consequence is clear: a proceeding resting only on an omitted rule cannot survive, unless the liability or proceeding is expressly saved. The ruling also gives finality to the favourable High Court line of authority, including Messrs Addwrap Packaging Pvt. Ltd. & Anr. v. Union of India and Hikal Limited v. Union of India. These decisions can now be relied upon as part of a consistent judicial position culminating in binding precedent.
• The reliance on Kolhapur Canesugar is significant. The issue has been treated as one of general statutory interpretation, not as a GST-specific relaxation. This materially narrows the Department’s scope to distinguish the ruling, except where it can establish an independent statutory basis, a separate factual default or a specifically saved liability.
• Accordingly, show cause notices, refund rejection orders, demands, recovery proceedings and appeals based substantially on Rule 96(10), or the parallel restrictions under Rules 89(4A) and 89(4B), are vulnerable. The relevant test is whether the cause of action survives independently of the omitted rule. If not, the proceeding should be open to withdrawal, being set aside or quashed.
• Taxpayers should review pending refund claims, refund rejections, demands, recovery actions and appeals founded on erstwhile Rules 96(10), 89(4A) or 89(4B). The ruling should be placed on record with a specific prayer for sanction or restoration of refund, withdrawal of recovery, dropping of notice, setting aside of demand or quashing of proceedings, as applicable.