Omission of GST Rules 89(4B) & 96(10) Without Saving Clause: Bombay HC’s Ruling in Hikal Ltd. Case

The Court examined whether proceedings initiated solely under these rules could survive post their omission, especially in the absence of a savings clause or statutory backing. For exporters and refund claimants whose claims were challenged by the revenue authorities under the contested regulations, the decision has broad implications.

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FACTS OF THE CASE

Hikal Limited, the lead petitioner, is engaged in the manufacture of chemical intermediates, specialty chemicals, and active pharmaceutical ingredients used in human and animal healthcare. The company exported finished goods both with and without payment of IGST. For exports made with payment of IGST, it claimed refunds under Section 54 of the CGST Act read with Section 16 of the IGST Act, which were sanctioned by the Department without challenge.

However, in 2022, the Department initiated investigations for 2017-18 to 2019-20, suspecting violation of Rule 96(10)(restricting refunds if imports were made under advance authorisation). This culminated in a show cause notice dated 04.08.2024 proposing a demand of ₹67.11 crores against Hikal Limited.

The petitions challenged both the constitutional validity of the impugned rules and the continuation of proceedings after their omission by Notification dated 08 October 2024 (Central Goods and Service Tax (Second Amendment) Rules, 2024).

ISSUES CONSIDERED BY THE COURT

Based on the pleadings and rival contentions, the following main issues arise for determination in this batch of Petitions: -

(i) Whether the impugned Rules are ultra vires the CGST Act or otherwise unconstitutional, null and void?

(ii) What is the legal effect of the omission of the impugned Rules vide Notification dated 08 October 2024 (without any protection of Section 6 of the General Clauses Act or savings clauses in the Rules or the parent Act, as contended by the Petitioners) on all the proceedings and orders impugned in these Petitions?

(iii) Whether any of the impugned orders could be regarded as “transactions past and closed”?

(iv) Whether, as contended by the Respondents, Section 6 of the General Clauses Act saves the impugned pending proceedings or orders?

(v) Whether, as contended by the Respondents, Section 6 of the General Clauses Act applies to the omission or repeal of the impugned Rules because the 2024 Amendment Rules are enacted by exercising the powers under Section 164 of the CGST Act, and therefore, the Rules qualify to be regarded as “Central Act” at least for the purposes of Section 6 of the General Clauses Act?

(vi) Whether, as contended by the Respondents, the provisions of Section 6 of the General Clauses Act are attracted to the present omission or repeal of the impugned Rules, given the provisions of Section 174(3) of the CGST Act?

(vii) Whether, as contended by the respondents, Clause 1(2) of the Notification dated 08 October 2024 purporting to give prospective effect to the omission or repeal of the impugned Rules saves all pending proceedings commenced before 08 October 2024?

(viii) Whether, as contended by the Respondents, the pending proceedings as on the date of omission or repeal of the impugned Rules stand saved by virtue of Section 166 of the CGST Act?

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ARGUMENTS OF THE PETITIONER

The petitioners, led by senior counsel V. Sridharan, advanced the following key contentions :

Constitutional Validity

Petitioners contended that Rules 89(4B) and 96(10) of the CGST Rules were ultra vires the parent statute. It was submitted that the rules were said to be manifestly arbitrary, violative of the doctrine of proportionality, and frustrating legislative as well as executive policy objectives. The impugned rules created discrimination and infringed Article 14 of the Constitution.

The Counsel referred M/s. Sance Laboratories Pvt. Ltd. v. Union of India, where Rule 96(10) was struck down as ultra vires and unconstitutional. Since no contrary view existed and the Revenue had not challenged this ruling, petitioners argued it was binding across India.

Omission of Rules

The counsel of the petitioner submitted that the 2024 Amendment Rules (Notification dated 08 October 2024) omitted the impugned rules without a savings clause. The Petitioners pointed out that in over 64 other notifications, express savings clauses had been inserted, but here omission was deliberate and conspicuous. Thus, pending proceedings were not saved, and Section 6 of the General Clauses Act was inapplicable because omission of rules is not equivalent to repeal of a Central Act.

Transactions Past and Closed

According to the counsel of the petitioner, once a rule is omitted or repealed without a savings clause, it is treated as entirely obliterated from the statute book, as if it had never existed. Accordingly, show cause notices or orders citing non-compliance with such omitted rules are invalid and unenforceable.

The counsel relied on Keshavan Madhava Menon Vs State of Bombay, to explain the concept of “transactions past and closed”. He stated that passages from commentaries by Craies and Crawford on the interpretation of statutes, referred to in the said decision. He also relied on a passage from Wall Vs. Chesapeake and Ohio Ry. Co.10, in which it was held that transactions past and closed would imply proceedings which have reached a final Judgment in the Court of last resort.

The counsel, building on the earlier submissions, argued that all show cause notices pending on 08 October 2024, the date on which Rules 89(4B) and 96(10) were omitted, automatically lapsed, since the very foundation for such proceedings ceased to exist. He further submitted that even the orders passed pursuant to such show cause notices but still under challenge before the Court could not be sustained, as they had not attained finality and therefore could not be regarded as “transactions past and closed.”

According to him, the principle of repeal or omission required extending the benefit not only to pending notices but also to non-finalised orders. Consequently, he urged that both the impugned show cause notices and the consequent orders deserved to be quashed and set aside in their entirety.

ARGUMENTS OF THE RESPONDENTS

Validity of Rules and Binding Nature of Kerala HC

The Respondents argued that there was nothing unconstitutional or ultra vires about Rules 89(4B) and 96(10) of the CGST Rules. They argued that the Kerala High Court’s decision striking down Rule 96(10) did not bind the Bombay High Court, which remained free to uphold the rule’s validity.

It was pointed out that the impugned rules were fiscal measures, they submitted that in taxation matters the rule-making authorities are entitled to greater latitude, and therefore the challenge to their constitutionality or ultra vires character ought to be rejected outright.

Applicability of Section 6, General Clauses Act

The Respondents contended that Section 6 of the General Clauses Act applied because the 2024 Amendment Rules were framed under Section 164 of the CGST Act, and therefore such rules should be treated as a “Central Act” for purposes of Section 6.

On this basis, they argued that omission of Rules 89(4B) and 96(10) would not affect pending proceedings. To support this, they relied on Chandpaklal Shah v. Reliance Industries Ltd., State of Punjab v. Mohar Singh, Highpoint Hotels Pvt. Ltd. v. Excise Commissioner, Karnataka, and Laxmi Board and Paper Mills Pvt. Ltd. v. Union of India.

They further invoked Section 174(3) of the CGST Act, which incorporates the general application of the General Clauses Act, to contend that the provisions or at least the principles of Section 6 were applicable, ensuring that all pending proceedings remained preserved despite the omission of the impugned rules.

Prospective Operation of 2024 Amendment Rules and GST Council’s Intent

The Respondents stated Rule 1(2) of the 2024 Amendment Rules, which provided that the rules would come into force on the date of their publication in the Official Gazette, unless otherwise specified.

They argued this clearly indicated a prospective operation, making it impermissible for the Court to give the omission any retrospective effect as urged by the Petitioners. Further, they submitted that the GST Council had clarified that the omissions of the impugned rules were intended to apply only prospectively.

On this basis, they contended that Rule 1(2) itself functioned as a savings clause, thereby preventing application of the common law principle of obliteration relied upon by the Petitioners.

Section 166 of CGST Act

The Respondents relied on Section 166 of the CGST Act, arguing that its savings clause was broad enough to preserve all pending proceedings despite the omission or repeal of the impugned rules. They also pointed out that the 2024 Amendment Rules were laid before Parliament, and one counsel, Mr. Adik, went so far as to contend that until such approval by Parliament, the Rules had not even come into force. In any case, they submitted that the savings protection under Section 166 was sufficient to ensure that proceedings already initiated would continue unaffected.

SCNs are u/s 73 - Sections not Omitted

Mr. Subir Kumar, another counsel argued that the impugned show cause notices were issued under Section 73 of the CGST Act, read with Section 20 of the IGST Act, 2017, both of which remain intact and have not been omitted or repealed.

Therefore, he submitted that the omission of Rules 89(4B) and 96(10) would have no impact on the validity of the notices or the consequential orders. While several decisions were referenced in his written submissions, during oral arguments he relied specifically on Jayanthilal Amrathlal v. Union of India.

JUDICIAL DECISION

Vires of GST Rules 89(4B) and 96(10)

The Court noted that although the petitions questioned the constitutionality and vires of Rules 89(4B) and 96(10) of the CGST Rules, it was unnecessary to decide this issue since the cases could be disposed of on the narrower ground of omission of the rules without a savings clause.

The bench noted that constitutional validity should not be examined unless absolutely necessary, as courts are not meant to undertake academic exercises in constitutional law. While recording that the Kerala High Court had already struck down Rule 96(10) in M/s Sance Laboratories Pvt. Ltd., which in terms of Kusum Ingots and subsequent precedents could have nationwide effect, the Court observed that Respondents were unable to show any challenge to that ruling.

Some coordinate benches had supported the view that striking down by one High Court binds authorities across India in the absence of contrary decisions, though another bench in Thana Electricity Supply Ltd. had taken a different view.

Ultimately, the Court clarified that it was not adjudicating the constitutional validity of the impugned rules in this batch of petitions, since relief was already warranted on the ground that their omission, without any effective savings clause, caused all pending proceedings to lapse.

Legal effect of Impugned Rules Omitted without Section 6, General Clauses Act

On this, the Court observed that by Notification dated 08 October 2024, issued under Section 164 of the CGST Act, Rules 89(4B) and 96(10) stood omitted. While the fact of omission was undisputed, the real controversy lay in its effect petitioners contending that, absent a savings clause, the rules must be treated as obliterated, and respondents arguing that pending proceedings were saved.

While referring to commentaries such as Justice G.P. Singh’s Principles of Statutory Interpretation, Halsbury’s Laws of England, and Crawford on Interpretation of Laws, the Court reiterated the common law principle that repeal or omission, unless backed by a savings clause, completely obliterates the provision as if it never existed, save for “transactions past and closed.”

The Court noted precedents including Keshavan v. State of Bombay, Mohar Singh, Qudrat Ullah, Mangilal Pindwal, Mohan Raj, and Gammon India Ltd., which confirmed that pending or inchoate proceedings abate upon repeal unless expressly saved.

Also, the Court held that Rules 89(4B) and 96(10) were not merely procedural but impacted substantive rights of importers and exporters, and therefore, their removal erased them from existence, subject only to concluded cases. Thus, in the absence of an effective savings clause, all pending proceedings or orders based on these Rules would lapse, unless already finalized as “transactions past and closed.”

Transactions Past and Closed

The court also briefed on the issue of transactions past and closed. It was noted that the Respondents did not even attempt to argue that the impugned show cause notices or the challenged orders qualified as “transactions past and closed.”

Where show cause notices had not culminated in any orders, they clearly fell outside this expression and became unsustainable after the omission of the rules on 08 October 2024. Likewise, even orders passed before that date but under challenge before appellate forums or the Court lacked finality and could not be treated as closed transactions.

According to Gujarat High Court’s ruling in M/s Add Wrap Packaging Pvt. Ltd., the Court noted that omission of Rule 96(10) nullifies all pending proceedings where adjudication is incomplete, entitling petitioners to maintain refund claims.

Also, as per Keshavan Menon v. State of Bombay and authoritative commentaries, it reaffirmed the principle that repeal or omission, without a saving clause, obliterates the provision as if it had never existed, except for proceedings fully concluded.

As illustrated in Wall v. Chesapeake & Ohio Ry. Co., pending judicial proceedings based on a repealed statute cannot continue, and even appellate courts must dispose of cases in accordance with the law as it exists at the time of judgment, noted the court. Thus, both the SCNs and non-finalised orders stood vitiated.

Section 6 of General Clauses Act - Its Applicability and Saving of Proceedings

The Court examined Section 6 of the General Clauses Act, 1897, which saves rights, liabilities, and pending proceedings upon repeal of a Central Act or a Regulation, but not when rules are repealed or omitted by subordinate legislation. It noted that the Notification dated 08 October 2024, which omitted Rules 89(4B) and 96(10), was neither a Central Act nor a Regulation but merely a Rule, and therefore Section 6 was inapplicable.

The Court confirmed that omission or repeal of rules by another rule does not attract Section 6, as these precedents had categorically excluded subordinate legislation from its scope. It rejected the Respondents’ reliance on the Law Commission’s report, holding that extending Section 6 to subordinate legislation would run contrary to binding constitutional bench rulings.

Consequently, it held that pending show cause notices, orders passed thereafter, or orders under challenge but not final, could not be saved under Section 6, and thus lapsed with the omission of the impugned rules.

Clause 1(2) of Notification Dated 8th October 2025

The court noted the Respondents' argument that Clause 1(2) of the 2024 Amendment Notification should be treated as a savings clause, giving only prospective effect to the omission of Rules 89(4B) and 96(10), and relied on GST Council minutes to support this.

However, the Court rejected this contention, clarifying that Clause 1(2) merely states the Rules would come into effect from 08 October 2024 and does not operate as a savings clause.

The real issue was not prospectivity or retrospectivity, but the effect of omission without any saving provision. In such cases, the common law rule of obliteration applies, meaning omitted rules are treated as if they never existed, save for transactions “past and closed”, said the court.

Since neither Section 6 of the General Clauses Act nor any express savings clause applied, pending proceedings or non-finalised orders could not be preserved by relying on Clause 1(2) or GST Council observations. The Court also noted that the absence of retrospective effect avoided unsettling concluded matters, but it did not protect pending proceedings, which therefore lapsed.

Section 166 of CGST Act - Will Pending Proceedings stand?

The Court rejected the Respondents’ reliance on Section 166 of the CGST Act to argue that the 08 October 2024 Notification was ineffective until laid before Parliament or that its savings clause protected pending proceedings.

The bench going through the plain language of Section 166 and texts, explained that this provision only provides a laying procedure with negative resolution, meaning rules come into force upon publication and remain valid unless modified or annulled by both Houses.

The so-called savings clause in Section 166 applies only to acts done between publication and any subsequent modification or annulment, and thus had no application in the present case, where no such parliamentary action was shown.

The Court further held that Section 166 cannot be equated with a Central Act for invoking Section 6 of the General Clauses Act. According to Atlas Cycle Industries Ltd. v. State of Haryana and Vineet Agrawal v. Union of India, laying provisions are directory, not mandatory, and cannot be used to claim that rules lack force until parliamentary approval. Accordingly, the argument that Section 166 saved pending proceedings was found to be misconceived and untenable.

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Additional Observations by the Court

The Court noted that both the Gujarat High Court in Addwrap Packaging Pvt. Ltd. and the Uttarakhand High Court in Sri Sai Vishwas Polymers had already held that the omission of Rules 89(4B) and 96(10) by the Notification dated 08 October 2024 was not supported by any savings clause, nor did Section 6 of the General Clauses Act apply, thereby quashing pending proceedings and non-final orders.

The Court also stated that nearly 64 prior notifications had included explicit savings clauses, demonstrating that omission here without one was a conscious policy choice. It rejected the argument that SCNs could survive under Section 73 CGST Act, since they contained no allegation independent of the omitted rules.

FINAL RULING - THE CONCLUSION BY THE COURT

The court, after going through all necessary submissions, legal aspects and facts, it concluded with the omission of Rules 89(4B) and 96(10) of the CGST Rules by Notification dated 08 October 2024, and in the absence of any savings clause or applicability of Section 6 of the General Clauses Act, all pending proceedings, including undisposed show cause notices, orders passed after the date of omission, and even pre-omission orders still under challenge and thus not “transactions past and closed” stood lapsed.

Consequently, the Bombay high court quashed the impugned SCNs and original orders, as well as orders refusing refund applications. It directed that refund applications be restored and reconsidered by the authorities in light of this declaration, with disposal to be completed within four months after giving the petitioners a fair hearing.

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