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Karnataka High Court allows Shilpa Medicare petition, quashes GST under (10)
Court follows earlier rulings that struck down the contentious rule as unconstitutional
The has granted relief to M/s Shilpa Medicare Ltd by quashing a (SCN) issued under (10) of the . Justice S.R. Krishna Kumar, presiding over the single bench, allowed the writ petition on , relying on a series of judgments from multiple high courts that had declared the rule and unenforceable.
The dispute over IGST refunds
Shilpa Medicare, a pharmaceutical firm based in Raichur, Karnataka, had exported goods on payment of Integrated Goods and Services Tax (IGST) and subsequently claimed a refund. However, on , the issued a proposing to deny the refund on the ground that the petitioner had availed benefits under certain exemption notifications, allegedly barring it from claiming IGST refund under (10) of the CGST Rules.
The petitioner challenged the SCN along with the constitutional validity of (10), arguing that the provision was and inconsistent with . It sought a to quash the notice and a directing the authorities to process its refund claim.
A rule already struck down and omitted
The controversy centred on (10), which prohibited exporters who had received supplies under specified exemption notifications from claiming a refund of IGST paid on exports. The in Sance Laboratories Private Limited v. Union of India (2024) had struck down the rule as Section 16 of the IGST Act and . Prior to that judgment, the government itself had omitted (10) with effect from via , albeit without a for pending proceedings.
Following the Kerala ruling, several high courts – including Uttarakhand, Gujarat, Delhi, and Bombay – held that the omission of the rule without a savings clause meant all pending proceedings based on it stood . In , decided on , the Karnataka High Court itself had quashed an identical SCN and directed refund of IGST amounting to ₹75.55 lakh along with interest.
Court’s reasoning: and
Justice Krishna Kumar noted that the issue was “directly and squarely covered” by the Hikal Ltd judgment. Drawing extensively from the ’s decision in Hikal and the ’s analysis in Sance Laboratories , he observed that (10) had been omitted unconditionally, and no savings clause existed to protect proceedings that were not “”.
The court quoted from Hikal Ltd : “ Following the omission… in the absence of any saving clauses or the benefit of , all pending proceedings… are not preserved and will stand lapsed. ” It also adopted the finding that the rule created “” between exporters who sought refund under read with and those under read with .
Since the SCN had not culminated in a final order that could be considered a closed transaction, the court held that it could not survive.
Final order: SCN quashed, refund directed
The court allowed the petition in terms of its earlier order in Hikal Ltd . Consequently, the impugned dated and all further proceedings were quashed. The respondent authorities were directed to refund IGST amounting to ₹75,55,123 along with applicable interest to the petitioner “as expeditiously as possible and at any rate within a period of three months from the date of receipt of a copy of this order”.
Key Observations
The court underscored that the omission of (10) without a rendered the rule a “” for all pending proceedings. It reiterated that the rule’s restrictions were never intended by Parliament and that continuing such proceedings would be “”.
Implications for exporters
The decision reinforces the position that IGST refund claims cannot be denied on the basis of (10) for the period between (when the rule came into effect) and (when it was omitted). Exporters with pending SCNs or refund denials based on this rule can expect similar relief, subject to the facts of their cases.
