IMPORTANT POINT
Rule 96(10) of the CGST Rules was declared ultra vires Section 16 of the IGST Act for imposing unjust restrictions on exporters' right to claim IGST refunds.

JUDGMENT :

Gopinath P., J.

These writ petitions are filed challenging the validity of Rule 96(10) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the 'CGST Rules') primarily on the ground that the Rule is ultra vires the provisions of Section 16 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the ‘IGST Act’). It is not necessary for the purposes of disposal of these writ petitions to refer to the facts of individual cases except where it may be necessary to show how the working of the Rule has affected an individual exporter. Therefore, this judgment does not attempt to analyse the individual facts of each case, and it will be confined to the examination of the question as to whether Rule 96(10) of the CGST Rules as it presently stands is legally sustainable or is liable to be struck down on the following grounds :

(i) That it is ultra vires the provisions of Section 16 of the IGST Act;

(ii) Whether the introduction of the conditions in that Rule has taken away the vested right of the petitioners to claim a refund of IGST paid on export of goods; and

(iii) Is the Rule violative of the provisions of Articles 14, 19(1)(g) and 265 of the Constitution of India and/or is it ‘manifestly arbitrary’ in the sense the term is understood in Shayara Bano v. Union of India; (2017) 9 SCC 1?

Facts (in brief):-

2. The petitioners in these cases are exporters who are entitled to claim a refund of taxes paid on input services and input goods or the Integrated Goods and Services Tax (hereinafter referred to as 'the IGST') paid on exports by virtue of the provisions contained in Section 16 of the IGST Act. The concept of zero-rated supply in the provisions of Section 16 of the IGST Act, 2017, read with the provisions of Section 54 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act) indicate that there is to be no export of taxes and on the goods being exported the exporter is entitled to a refund of the IGST paid on the export of goods or to the refund of taxes paid on input goods and input services used in the manufacture of goods or provision of services that are ultimately exported. Section 16 of the IGST Act (as it stood till amendment by Act 13 of 2021 (Brought into force w.e.f. 01-10-2023 vide Notification No. 27/2023-C.T., dated 31-07-2023)) contemplated two methods to enable the exporter to claim a refund of taxes on input goods and input services used in the manufacture of goods exported or services exported. The two methods were:-

(a) Through the supply (export) of goods or services (or both) under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and a resultant claim for refund of unutilised input tax credit arising from the payment of tax on goods or services used in making the export; or

(b) Through the supply (export) of goods or services (or both) on payment of integrated tax (by the utilisation of input tax credit arising from the payment of tax on goods or services used in making the export or otherwise) and a resultant claim for refund of such tax paid, subject to such conditions, safeguards and procedure as may be prescribed.

Both these methods were subject to the provisions of Section 54 of the CGST Act. The first method contemplated a consideration of the claim under Rule 89 of the CGST Rules while the second method contemplated a consideration of the claim in terms of Rule 96 of the CGST Rules. The provisions of Rule 96(10) of the CGST Rules have undergone a series of amendments, and the Rule as it presently stands imposes certain restrictions in the matter of refund of IGST and provides that if certain inputs have been availed after taking the benefit of certain notifications referred to therein, the exporter is not entitled to claim refund of IGST. It is also not in dispute that the working of the Rule as it is presently worded results in a situa