In a significant development for exporters in India, the Kerala High Court has delivered a landmark judgment declaring Rule 96(10) of the CGST Rules as ultra vires and unenforceable. The ruling provides substantial relief to exporters who faced compliance challenges and refund restrictions under the Goods and Services Tax (GST) framework.
The court held that Rule 96(10), introduced via Notification No. 53/2018-CT dated 9 October 2018 (with retrospective effect from 23 October 2017), goes beyond the scope of the parent law and contradicts the provisions of Integrated Goods and Services Tax Act, 2017, specifically Section 16 dealing with zero-rated supplies for exports.
This judgment is expected to have a major impact on GST refunds for exporters, ongoing litigation, and future GST compliance.
Background: What Was Rule 96(10) under GST?
Rule 96(10) of the CGST Rules imposed restrictions on exporters who wanted to claim Integrated GST (IGST) refund on exports.
Under this rule, exporters who availed certain benefits such as:
- Advance Authorization
- Export Promotion Capital Goods (EPCG) scheme
- Duty drawback benefits
- Concessional import schemes
were restricted from exporting goods with payment of IGST and claiming refund.
Instead, they were required to:
- Export goods under Letter of Undertaking (LUT) without payment of tax, and
- Claim Input Tax Credit (ITC) refunds separately.
This rule created significant compliance challenges and confusion for exporters, especially when dealing with multiple export incentive schemes.
Why the Kerala High Court Declared Rule 96(10) Ultra Vires
The Kerala High Court observed that Rule 96(10) conflicts with Section 16 of the Integrated Goods and Services Tax Act, 2017.
Key Observations of the Court
- Contradiction with Zero-Rated Supply Provisions
Section 16 of the IGST Act allows exporters to choose between two options:- Export with payment of IGST and claim refund, or
- Export without payment of tax under LUT and claim ITC refund.
- Rule 96(10) effectively restricted this statutory choice, which the court held was beyond the powers of the rule-making authority.
- Manifestly Arbitrary Provision
The court also noted that the rule created unnecessary hardship for exporters and led to numerous disputes and litigations across the country.
Because the rule imposed restrictions not contemplated in the parent legislation, it was declared manifestly arbitrary and legally invalid.
Impact of the Judgment on Exporters
The ruling brings major relief to exporters across multiple industries, including manufacturing, trading, and export-oriented businesses.
Key Benefits
✔ Removes restrictions on IGST refund claims on exports
✔ Reduces litigation related to GST export refund disputes
✔ Provides clarity on zero-rated supply provisions under GST
✔ Reinforces exporters’ rights under Section 16 of the IGST Act
The judgment also highlights the extent of hardship faced by exporters, as reflected in the large number of writ petitions filed from various states.
Government’s Move to Omit Rule 96(10)
Interestingly, the government has already acknowledged the practical difficulties caused by Rule 96(10) and has decided to remove the provision entirely.
Experts believe that the ideal solution would be to omit the rule with retrospective effect from 1 July 2017, the date when GST was originally implemented in India.
Such a step could:
- Resolve ongoing disputes
- Reduce litigation burden
- Provide clarity for exporters who faced refund restrictions in the past
What Exporters Should Do Now
Exporters should closely monitor developments following this judgment and take necessary compliance steps.
Recommended actions include:
- Reviewing past IGST refund claims affected by Rule 96(10)
- Evaluating pending litigation or refund disputes
- Consulting GST professionals regarding possible refund claims or appeals
- Tracking future notifications or clarifications from the GST Council and tax authorities
Conclusion
The decision by the Kerala High Court declaring Rule 96(10) ultra vires marks a major milestone in GST jurisprudence and offers significant relief to exporters who faced restrictions while claiming IGST refunds.
By reaffirming the provisions of Section 16 of the Integrated Goods and Services Tax Act, 2017, the court has strengthened the legal framework governing zero-rated supplies and export refunds under GST.If the government implements a retrospective removal of Rule 96(10), it could finally resolve years of confusion, litigation, and compliance challenges faced by exporters in India.