The amendments in Rule 89 and Rule 96 in relation to export refunds and their impact on pending proceedings and investigations are examined in the light of recent High Court orders. The road ahead provides certainty and clarity for exporters from the technical and procedural rigors of the refund formula.
The Make in India initiative emphasizes the crucial role of exporters in transforming India into a global manufacturing hub. Exports play a key role in achieving the ambitious goal of a $5 Trillion economy. To promote export-driven manufacturing, the Government has launched various initiatives such as the Production-Linked Incentive (PLI) scheme, PM Gati Shakti for unified infrastructure & logistics modernization, the liberalization of Foreign Direct Investment (FDI) policies, etc. The objective is to boost domestic production and integrate Indian exporters into global supply chains.
However, frequent changes in Goods and Services Tax (GST) laws related to export refunds, procedural rigors of refund formula, and the stringent conditions under Foreign Trade Policy (FTP) schemes have posed significant challenges for exporters. GST regulations have led to financial strain, procedural hurdles and multiple investigations. In response, many exporters contested the validity of these restrictions before various High Courts. As part of the Ease of Doing Business (EoDB) initiative, the GST council has simplified the refund process for the future from 2024. The amendment was not made retrospective by legislature, unlike the amendment made related to ‘plant or /and machinery’. The Sword of Damocles was on the exporters in relation to past refund claims and pending investigations. This article examines the retroactive impact of the amendment for the past in the light of recent High Court decisions.
The omission of Rule 96(10), Rule 89(4A) and Rule 89(4B) of the Central Goods and Services Tax Rules, 2017 (Rules), is a welcome development for exporters. The simplified refund procedures reduce capital blockages and help boost export competitiveness. Exporters can now claim IGST refunds without the previous limitations, thereby enhancing EoDB. The prospective omission of the Rules, without any saving clause, has created a significant legal ambiguity concerning live proceedings. The deletion of the Rules automatically quashes the pending proceedings related to past periods as legally non-est.
Background: Multiple amendments to restrict export refund
The Export Refund Rules in the past have seen a plethora of amendments and clarifications, ultra vires of the explicit provisions of Section 16 of the Integrated Goods and Services Tax Act, 2017 (IGST Act) for zero rated exports. The first amendment to Rule 96 for restricting refund was made within months of GST implementation with retrospective effect[1]. The refund was restricted for exporters procuring the inputs by availing specific FTP schemes for exports such as Advance Authorization or Export Oriented Units (EOUs), etc. The intent was to prevent the perceived dual benefit of availing duty concessions on inputs and claiming IGST refunds.
The second amendment in 2018[2] was made to rectify the ambiguity related to ‘by/to supplier’ in earlier amendment. The validity of Rule 96(10), along with prospective or retrospective application of amendment, was challenged in various High Courts. The Gujarat High Court, in the case of Cosmo Films Limited[3] reviewed the order and upheld the validity of the Rule 96(10) prospectively for the period starting from 9 October 2018.
Rule 89(4A) and Rule 89(4B) prescribed methods for computing refund for exports under Letter of Undertaking (LUT) for importers availing FTP scheme benefits. The nuances of the formula and practical challenges in computing the refund made the process cumbersome for exporters. DGGI investigations into eligibility and method of calculation of export refunds were challenged by exporters.
Export refund simplification – New era of liberalisation
The 54th GST council recognised challenges faced by the Exporters in implementation of the Rules. The Council emphasized that export-related benefits under the GST framework were intended to boost exports by easing working capital constraints and increasing foreign exchange inflows. The ambiguous wording of Rules resulted in interpretational challenges and procedural complexities leading to multitude of litigations. The GST Council recommended deletion of the said Rules[4] without having a saving clause for the actions initiated prior to omission. The refund can be claimed for future exports in tandem with FTP scheme benefits.
Judicial developments: Rule is manifestly arbitrary, or omission of Rule is retroactive?
Kerala High Court: Rule is manifestly arbitrary and ultra vires to Section 16
In the case of Sance Laboratories Private Limited[5], the deletion of Rule 96(10) was noted by the Court while declaring the Rule as ultra vires the provisions of Section 16 of the IGST Act for the period prior to deletion of the Rule (23 October 2017 and 8 October 2024) and unenforceable. The Court relied on the decision of Apex Court in Shayara Bano to hold that the provisions of plenary or subordinate legislation which is manifestly arbitrary must be struck down. The wording of Rule 96(10) creates a restriction not contemplated by Section 16 of the IGST Act on the ‘right to refund’. The Rule, as it stands, produces absurd results for exporters, which were not intended by Legislature. It is a settled position that, by virtue of exercising powers to issue notifications for the purposes of imposing conditions, safeguards and procedure, the authority cannot exceed its jurisdiction by creating a situation that either restricts the rights granted under the Act itself or makes the Act redundant, as held by the Hon’ble Supreme Court in case of Zenith Spinners.
Uttarakhand High Court: Omission of Rule is retroactive
In the case of Sri Sai Vishwas Polymers[6], the Court noted the declaration of Rule 96(10) as ultra vires by Kerala High Court in Sance Laboratories and the subsequent deletion of the Rule. The Court proceeded to Prayer 2 concerning the competence and jurisdiction of the officer to pass the order subsequent to the omission of the Rule. The Court held that in the absence of a saving clause for pending proceedings, all actions under Rule 96(10) must cease from the date of its omission on 8 October 2024. The Court held that the department lacked authority to issue orders by invoking provisions of Rule 96(10) after its deletion and accordingly, allowed the writ petition and set aside the order.
The Court referred to the Hon’ble Supreme Court’s ruling in Kolhapur Canesugar Works Limited & Anr[7], which clarified that the effect of omission of a rule from the statute book is different from the effect of substitution of rule and the effect of amendment of a statute which is saved by a saving clause. The Hon’ble Supreme Court observed that normal effect of repealing of a statute or deleting a provision is to obliterate it from the statue book subject to exemption engrafted in Section 6 of the General Clauses Act, 1897. However, the said exemption does not apply to omission of a ‘rule’. If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceeding, all actions must stop. If the final relief has not been granted before of the omission of a provision of a statute, the same cannot be granted after such omission.
Batch matters are pending before the Gujarat High Court[8], Bombay High Court[9] Allahabad High Court[10] and Calcutta High Court[11]challenging the validity of the rule and implications of the unconditional omission of Rules without a saving clause. The High courts have given interim protection from coercive recovery of past refunds under Rule 96(10). The decisions of various High Courts on this matter are awaited.
Way forward for exporters: Certainty and clarity
An enabling ecosystem with legal certainty must be made available to exporters. This is imperative to enhance the global competitiveness of Indian products, especially in the current era of Tariffs. The cardinal principle that taxes and duties should not be exported must form grundnorm of all tax policies. Had the legislature provided a retrospective effect to the deletion, it would have avoided the need for judiciary to fill the vacuum concerning past period litigations.
These principles shall equally extend to orders issued under Rule 89(4A) and Rule 89(4B). The matter remains unsettled until the appeals pending before the Hon’ble Supreme Court are finally decided. Taxpayers have received a mixed bag of outcomes from Apex Court in the GST era. For instance, in the case of ocean freight, the Hon’ble Supreme Court agreed with the High Court and granted relief in Mohit Minerals, whereas in the case of inverted duty, the validity of the formula was upheld in VKC Footsteps.
In line with the 54th GST Council meeting, the Council can issue clarification on an ‘as-is-where-is’ basis, aiming to regularize refund claims for the past periods. While this change marks a positive shift for the future period, uncertainty and the Sword of Damocles in the form litigation continues to loom over past period claims.
[The authors are Associate and Partner, respectively, in GST advisory practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]
[1] Notification No. 3/2018-Central Tax dated 23.01.2018 (w.e.f. 23.10.2017)
[2] Notification No. 39/2018-Central Tax dated 04.09.2018 (w.e.f. 23.10.2017)
[3] Cosmo Films Limited [2024 (10) TMI 275]
[4] Notification No. 20/2024-Central Tax dated 08.10.2024
[5] Sance Laboratories Private Limited [2024 (11) TMI 188]
[6] Sri Sai Vishwas Polymers [WP (MB) No. 103 of 2025]
[7] Kolhapur Canesugar Works Limited & Anr. [(2000) 2 SCC 536]
[8] Sterlite Power Transmission Limited [2187 of 2023]; Messrs Koshambh Multitred [4217 of 2023]; Macson Product [2025 (4) TMI 1573]
[9] Aeroflex Industries Limited [18847 of 2024]; Electrolead (Pune) Private Limited [12927 of 2024]
[10] Saru Silver Alloys Private Limited [2025 (1) TMI 212]
[11] Glen Industries Private limited & Anr. [2025 (4) TMI 492]
