In an important relief-oriented decision, the Calcutta High Court has stayed a recovery demand of approximately ₹1.96 crore, holding that a refund recovery order passed on the basis of Rule 96(10) of the CGST Rules is prima facie invalid, since the rule had already been omitted before the department acted upon it.

The Court relied on the long-standing principle laid down by the Supreme Court in Kolhapur Canesugar Works Ltd. v. Union of India, which established that when a rule is unconditionally omitted without any saving clause, all proceedings initiated under that rule must come to an end, as if the rule had never existed.

This ruling is significant for exporters and GST-registered entities who have faced denial or recovery of IGST refunds under Rule 96(10), especially in cases involving capital goods imports or procurement under concessional schemes.

Background: What Was the Dispute?

The petitioner had claimed IGST refund on export of goods under the zero-rated supply mechanism. The GST authorities later issued a demand for ₹1.96 crore, alleging violation of Rule 96(10) of the CGST Rules, 2017.

Rule 96(10), prior to its omission, restricted exporters from availing IGST refunds if they:

  • Availed benefits under Advance Authorization Scheme,

  • Claimed EPCG benefits,

  • Procured goods at concessional rates under certain notifications.

The department’s stand was that the exporter had availed benefits under a concessional import scheme and therefore was not eligible to claim refund of IGST paid on exports.

However, by the time the refund recovery order was passed, Rule 96(10) had been omitted from the statute without any saving clause.

Key Argument: Can a Demand Survive Once the Rule Is Omitted?

The petitioner’s primary contention was:

If Rule 96(10) ceased to exist, the authority cannot rely on it to deny or recover refunds. Any proceedings initiated under the omitted rule automatically lapse unless specifically saved by law.

The petitioner relied on the Supreme Court ruling in Kolhapur Canesugar Works Ltd., where it was held that:

  • When a statutory provision is omitted and there is no saving clause,

  • Rights and liabilities under that provision do not survive, and

  • Proceedings initiated under the deleted provision cannot continue.

The petitioner submitted that since the GST rule had been removed, the recovery order itself was non est in law.

Revenue’s Response

The tax department attempted to justify its action by arguing:

  • The refund was wrongly granted, and therefore the department retains the power to recover it.

  • Even though Rule 96(10) was omitted, the right to recover taxes remains under general provisions.

However, the High Court did not accept this approach at the prima facie stage, emphasising that refund recovery must be legally grounded in an existing statutory provision, not one that has been deleted.

High Court’s Findings

The Court noted that:

  1. Rule 96(10) was omitted without saving clause.

  2. The refund recovery order was passed after the omission.

  3. As per Supreme Court precedent, proceedings based on an omitted rule cannot continue unless specifically protected or saved by statute.

Thus, the High Court held that the refund demand order appeared prima facie invalid.

The Court stayed the refund recovery and restrained the department from enforcing the demand.

Why This Judgment Matters

This ruling reinforces a critical legal principle in tax law:

Once a statutory provision is omitted without saving clause, legal proceedings under it cannot survive.

This has far-reaching implications for GST litigation, particularly where authorities continue to act based on outdated rules.

Impact on Exporters

Exporters and importers who claimed IGST refunds after availing benefits under:

  • Advance Authorization (AA)

  • EPCG Scheme

  • EOU/STPI schemes

  • Concessional duty notifications

may now challenge past recovery orders issued solely under Rule 96(10).

Broader GST Significance

  • This ruling discourages tax authorities from relying on repealed or omitted provisions.

  • It strengthens the taxpayer’s right to certainty in law.

  • It clarifies that administrative circulars and internal memos cannot override statutory omissions.

What Taxpayers Should Take Away

1. Check Dates Carefully

If a refund recovery order refers to Rule 96(10) and was issued after its omission, you may have grounds to challenge it.

2. Identify Absence of Saving Clause

A key element is whether the omission included a saving clause protecting past actions.
In this case, no saving clause existed.

3. Use Supreme Court Precedents

The Kolhapur Canesugar judgment remains a powerful tool. Courts have consistently held that tax recovery powers must be supported by existing law.

4. Keep Export Documentation Updated

Even with favourable rulings, exporters should maintain:

  • Advance Authorization records,

  • EPCG compliance files,

  • Export and shipping bills,

  • Tax payment evidence.

Practical Implications
For Exporters

  • A potential pathway to contest wrongful IGST refund recoveries.

  • Ability to seek stay orders against aggressive enforcement action.

For Tax Consultants & CA Firms

  • Opportunity to review client assessments where Rule 96(10) was invoked.

  • Prepare representations and writ petitions based on this precedent.

For Government & GST Department

  • Need to reassess pending recovery notices issued under omitted rules.

  • Avoid litigation by issuing clarifications or withdrawal instructions.

FAQs

1. What was Rule 96(10) of the CGST Rules?
It prevented exporters from claiming IGST refund if they also availed certain duty exemption schemes like AA or EPCG.

2. What does omission of the rule mean?
It means the rule is removed from the law. If no saving clause is provided, rights and liabilities under it vanish.

3. Can the department still recover refunds in similar cases?
Only if recovery is supported by a current and valid legal provision, not an omitted rule.

4. Does this judgment apply across India?
High Court orders have territorial jurisdiction, but the legal principle applies nationwide, and other courts may follow it.

5. What should exporters do if they receive notices based on Rule 96(10)?
Seek legal advice immediately, and if necessary, challenge the notice citing omission and Supreme Court precedent.

Conclusion

The Calcutta High Court’s stay on the ₹1.96 crore GST recovery order marks an important reaffirmation of legal certainty in taxation. Once a rule is omitted without explicit preservation, proceedings based on it cannot survive.

For exporters facing refund disputes, this ruling offers strong judicial backing to contest demands made under obsolete provisions. It also signals to tax authorities that enforcement must strictly align with valid, current statutory provisions.

With GST law evolving rapidly, such judicial interventions ensure fair treatment for taxpayers while keeping the system legally accountable and transparent.