While differentiating between the lapsed inconclusive proceedings from the transactions “past and closed”, the Bombay High Court ruled that all pending proceedings such as undisposed show cause notices, orders disposing of show cause notices issued after October 08, 2024, or even orders made before October 08, 2024, but not yet finalised, do not constitute “transactions past and closed”, and will stand lapsed upon omission/ repeal of Rules 89(4B) and 96(10) of the CGST Rules via Notification dated October 08, 2024, in the absence of any saving clauses or the benefit of Section 6 of the General Clauses Act.
The ruling came while deciding the constitutional validity of Rules 89(4B) and 96(10) of the CGST Rules, whereby the pharmaceutical manufacturer (Petitioners) has been forced to refund the alleged excess refund made to them.
The Court added that the Notification dated October 08, 2024, or the Central Goods and Service Tax (Second Amendment) Rules, 2024, cannot be regarded as “Central Act” for the purposes of Section 6 of the General Clauses Act only because such rules were enacted in the exercise of powers conferred upon the Central Government by Section 164 of the CGST Act. The Court also clarified that not including a savings clause in the Notification dated October 08, 2024, was not an accident but a conscious choice, made to benefit export, import, and trade.
The Division Bench comprising Justice M.S. Sonak and Justice Jitendra Jain observed that the show cause notice (SCN) issued under the omitted Rule 89(4B) & 96(10) of the CGST Rules, cannot be saved by resort to Section 6 of the General Clauses Act, 1987, as there was no saving clause for continuance of the proceedings initiated under the Rule which was deleted/ omitted. The Bench also clarified that Section 174(3) of the CGST Act cannot be regarded as a savings clause to protect the pending proceedings under the impugned Rules omitted vide Notification dated October 08, 2024.
The Bench found that the Central Government had issued a Notification dated October 08, 2024, as per which Rule 89 was amended, resulting in the omission of sub-rules (4A) and (4B). Thus, the only dispute revolves around the scope of such omission or repeal. Since these provisions are not purely procedural but impact the substantive rights of the parties, the Bench clarified that the removal or repeal of Rules 89(4B) and 96(10) would essentially erase these Rules from existence as if they had never been enacted or passed, except in relation to “transactions past and closed”.
In cases where the show cause notices did not culminate in any orders, obviously, the transaction is not covered by the expression “transactions past and closed”, and not only do such show cause notices become vulnerable, but even the orders made after the date of omission or repeal, i.e., after October 08, 2024, become vulnerable, added the Bench.
In the present matter, the Bench observed that the Notification dated October 08, 2024, by which Rules 89(4B) and 96(10) of the CGST Rules stand omitted, is neither the General Clauses Act nor any Central Act as defined under Section 3(7), nor some “regulation” as defined under Section 3(50) of the General Clauses Act, 1897. Since the Notification only contains the CGST (Second Amendment) Rules, 2024, the Bench observed that an omission or repeal brought about by the Notification is nothing but a “Rule”, and therefore, the provisions of Section 6 of the General Clauses Act, 1897 would not apply.
Briefly, in this case, the petitioner, which manufactures chemical intermediates and active pharmaceutical ingredients used in both human and animal healthcare, operates through two manufacturing units. The first one is a 100% EOU in Raigad, where the petitioner imports duty-free raw materials and exports nearly 90% of its finished goods. The second one is a Domestic Tariff Area unit in Raigad, for which the petitioner procures raw materials under Advance Authorisation licenses, and avails IGST exemption. The petitioner has pleaded that the finished goods manufactured by the petitioner are either exported, with or without the payment of IGST, or sold domestically. When the petitioner claimed a refund on exports made with payment of IGST under Section 54 of the CGST Act, read with Section 16 of the IGST Act, the same were duly sanctioned without any challenge from the Department.
After almost three years, the Department initiated an investigation for the A.Y. 2017-18 to 2019-20 based on the suspicion that the IGST refund was claimed in violation of Rule 96(10) of the CGST Rules, 2017, since certain goods were imported against advance authorisation licenses. This investigation culminated in the issuance of the Show Cause Notice (SCN) proposing a GST demand of Rs. 67.11 and Rs. 28.25 crores, respectively. In the meantime, vide notification No. 20/2024 dated 08 October 2024, Rule 96(10) was omitted based upon which the SCN was issued. Thus, the petitioner requested that the SCN be dropped. However, ignoring such a request, the demand, interest, and penalty were confirmed. The petitioner, therefore, approached the High Court challenging the recovery of the refund, in the absence of any allegation of fraud, wilful misstatement, or suppression of facts to evade any tax.
Case Relied On:
Kolhapur Cane Sugar Works Ltd. And Anr. Vs. Union of India – (2000) 2 SCC 536 (Constitution Bench)
Rayala Corporation (P) Ltd. Vs. Director of Enforcement – (1969) 2 SCC 412
Case Distinguished:
Chandpaklal Ramanlal Shah & Anr Vs. Reliance Industries Ltd – 2017 (354) ELT 289 (SC)
Appearances:
Senior Advocates V. Shridharan and Prakash Shah, along with Advocates Sahil Parghi, Dhananjay Sethuraj, Vidhi Jain, and Sriram Sridharan, Abhishek A Rastogi, Ms. Pooja M. Rastogi, Meenal Songire, Arya More, Bharat Raichandani, Dr. Avinash Poddar, Deepali Kamble, Anchal Poddar, Vishal Agarwal, Abhishek Deodhar, Rishabh Jain, Jas Sanghavi, Yash Prakash, Kshitij Viswanath, Linzy Sharan, Roshil Nichani, Aansh Desai, Stebin Mathew, Dishya Pandey, and Dhanishtha Kawale, for the Petitioners/ Taxpayer
Advocates J. B. Mishra, Ashutosh Mishra, Rupesh Dubey, A.A. Ansari, Karan Adik, Abhishek R. Mishra, Sangeeta Yadav, Maya Majumdar, Rupesh Dubey, Ashutosh Mishra, Jyoti Chavan, Subir Kumar, Kavita Shukla, Niyanta Trivedi, Ram Ochani, Harshad Shingapurkar, Soutrik Kar, Ritik Gupta, Satyaprakash Sharma, Megha Bajoria, Harpreet Kaur Sethi, and S. D. Deshpande, for the Respondents/ Revenue
