High Court Strikes Down Rule 96(10) of CGST Rules as Ultra Vires

A multitude of writ petitions were filed by a group of exporters before the Gujarat High Court challenging the constitutional validity of Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, 2017. The rule was added by Notification No. 54/2018 with effect from 9 October 2018. The petitioners argued that this rule unlawfully and illegally limits their statutory right to claim a refund of Integrated Goods and Services Tax (IGST) paid on zero-rated exports under Section 16 of the IGST Act of 2017 and Section 54 of the CGST Act of 2017. The rule denied refunds to exporters who had availed benefits under certain exemption notifications like Advance Authorization, EPCG, or merchant exports, even if the IGST was duly paid.

The rule refused refunds to exporters who had benefited from specific exemption notifications, even if the IGST was properly paid, such as Advance Authorisation, EPCG, or merchant exports. Petitioners argued that the denial of a refund merely due to availing benefits on a portion of inputs was irrational and resulted in arbitrary discrimination, violating Articles 14 and 19(1)(g) of the Constitution.

Main Issue: Whether Rule 96(10) of the CGST Rules, 2017, is ultra vires and beyond the scope of the IGST Act and CGST Act, and whether it violates the fundamental rights of exporters.

High Court’s Decision: The Hon’ble Court held that Rule 96(10), as substituted by Notification No. 54/2018, unjustly limits exporters’ ability to receive an IGST refund on their exports, even in cases where the tax has been paid. The Court clarified that such a denial amounts to curtailing substantive rights granted by Sections 16 and 54 of the parent statutes.

The Court observed that the rule creates an unreasonable classification among exporters and lacks nexus with the object of preventing double benefits, especially when the refund claim is made only for the tax paid. Furthermore, it was observed by the Hon’ble HC that the rule lacked clarity and created procedural and interpretational irregularities. Accordingly, Rule 96(10) was declared ultra vires to the extent it denies refunds to exporters who have paid IGST on exports and complied with other conditions of the parent Acts. Thus, the writ petitions were allowed in favour of the Petitioners and no costs were imposed.