Kerala HC declares Rule 96(10) of GST Rules Ultra Vires: Major Relief for Exporters on IGST Refunds [Read Order]

In a recent ruling, the Kerala High Court declared Rule 96(10) of the Central Goods and Services Tax ( CGST ) Rules ultra vires to Section 16 of the Integrated Goods and Services Tax ( IGST ) Act, providing major relief to exporters by upholding their right to Integrated Goods and Services Tax ( IGST ) refunds on exports.

Exporters filed writ petitions challenging Rule 96(10) of the Central Goods and Services Tax ( CGST ) Rules, 2017 arguing that Rule 96(10) was ultra vires to Section 16 of the Integrated Goods and Services Tax ( IGST ) Act, 2017 and violated constitutional rights by restricting the refund of IGST paid on exports.

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The exporter’s counsel argued that Rule 96(10) of the CGST exceeded its authority by imposing restrictions not authorized by Section 16 of the IGST. The rule’s condition that exporters lose refund eligibility if they have benefited from specified exemptions contradicted the IGST Act’s intention to facilitate refunds on zero-rated supplies without limitations.

The exporters' counsel argued that Section 16 of the IGST Act provides two refund methods: exporting under a bond or Letter of Undertaking ( LUT ) without payment of IGST or payment of IGST with subsequent refund claims, supporting zero-rated export principles.

Further, the exporter’s counsel argued that Rule 96(10) of the CGST unfairly restricted refunds for exporters who paid IGST upfront, unlike those using bonds/LUT, who retained refund rights despite availing certain exemptions.

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The counsel submitted that the rule was manifestly arbitrary, producing illogical results contrary to the principle laid out in the Supreme Court ruling in the case of Shayara Bano v. Union of India, which mandates that legislation should not operate capriciously.

On the other hand, the revenue counsel argued that the right to IGST refunds under Section 16 is not absolute but subject to conditions under Section 54 of the CGST Act, allowing restrictions to protect fiscal interests.

Citing VKC Footsteps v. Union of India, the revenue contended that Rule 96(10) aligns with the Act’s intent by setting safeguards against revenue loss and highlighted that exporters could choose between Rule 96 ( for IGST refund claims ) and Rule 89 ( for refunds on unutilized ITC under bond/LUT ), supporting the rule’s fairness by allowing exporters flexibility within the regulatory framework.

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The exporter’s counsel, Sri. G. Shivadas, countered by referencing the Gujarat High Court ruling in Zenith Spinners v. Union of India, a judgment upheld by the Supreme Court, which established that terms like “conditions, safeguards, and procedures” in Section 16(3)(b) of the IGST Act and “conditions, limitations, and safeguards” in Section 54(6) of the CGST Act do not permit the government to impose restrictions that effectively eliminate the rights provided by the Act.

A single bench led by Justice Gopinath P. examined Section 16 of the IGST Act, both before and after its amendment in October 2023, finding no restrictions within the IGST Act on the right to claim a refund for IGST paid on exports.

Referencing Shayara Bano, the court found Rule 96(10) “manifestly arbitrary,” as it created inequitable outcomes, punishing exporters with partial procurement from exempted sources while denying their entire refund entitlement.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

The court observed that  Rule 96(10) extended beyond the limits set by Section 16, violating the legislative intent of zero-rated supply without imposing such refund restrictions. Therefore, the court declared Rule 96(10) introduced by Notification No. 53/2018 was ultra vires to Section 16 of the IGST Act, rendering it unenforceable.

The court quashed show-cause notices or orders, proceedings based on Rule 96(10) from October 23, 2017, to October 8, 2024, and barred recovery of IGST refunds granted in this period.

To Read the full text of the Order CLICK HERE

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