Kerala High Court Strikes Down Rule 96(10) of CGST Rules as Ultra Vires Section 16 of IGST Act

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 09.06.2026

Kerala High Court Strikes Down Rule 96(10) of CGST Rules as Ultra Vires Section 16 of IGST Act

The Kerala High Court has delivered a significant judgment impacting exporters across India by declaring Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, 2017, as ultra vires (beyond legal power) to Section 16 of the Integrated Goods and Services Tax (IGST) Act. This article provides a detailed overview of the case, the legal arguments, the court’s reasoning, and the implications for exporters and the GST regime.

Background: The Dispute Over Rule 96(10)

Rule 96(10) of the CGST Rules restricted exporters from claiming refunds of IGST paid on exports if they had availed certain benefits under specified notifications (such as concessional or nil rate supplies). Exporters argued that this rule unfairly denied them a statutory right to refund, even if only a small portion of their inputs benefited from these notifications. The rule led to widespread litigation, with exporters facing denial of refunds and recovery proceedings.

Key Legal Issues Examined

The High Court considered three main questions:

1. Ultra Vires to Section 16 of IGST Act: Whether Rule 96(10) exceeded the powers granted by Section 16, which provides for zero-rated supplies and refund entitlements.
2. Vested Rights: Whether the rule took away exporters’ vested rights to claim IGST refunds on exports.
3. Constitutional Validity: Whether the rule violated Articles 14 (equality), 19(1)(g) (freedom to trade), and 265 (no tax without authority of law) of the Constitution, or was manifestly arbitrary.

Arguments by Exporters

• Statutory Right to Refund: Section 16 of the IGST Act grants exporters the right to claim refunds on IGST paid for exports or on input taxes used in exported goods/services.
• Discriminatory Treatment: Rule 96(10) created an unreasonable distinction between exporters using different refund routes (bond/LUT vs. IGST payment), leading to hostile discrimination.
• Absurd Outcomes: Even minimal use of notified benefits led to total denial of refund, which was not the legislative intent.
• Subordinate Legislation Limits: The rule, as subordinate legislation, cannot override or restrict rights granted by the parent statute.

Arguments by the Revenue

• Authority to Impose Conditions: The government argued that Section 16 and Section 54 of the CGST Act allow for conditions and safeguards to prevent revenue leakage.
• Fiscal Policy Latitude: Citing Supreme Court judgments, the Revenue maintained that the right to refund is not absolute and can be restricted for fiscal objectives.
• Rule in Conformity: The Revenue claimed Rule 96(10) was consistent with the statutory framework and necessary to prevent misuse.

The Court’s Analysis and Findings

• Ultra Vires and Arbitrariness: The Court found that Rule 96(10) imposed restrictions not contemplated by Section 16 of the IGST Act. The rule’s blanket denial of refunds, even for minor use of notified benefits, was manifestly arbitrary and produced absurd results.
• Comparison with Rule 89: The Court highlighted that Rule 89 (refund via bond/LUT) did not impose such restrictions, leading to irrational discrimination between similarly placed exporters.
• Constitutional Principles: The Court relied on Supreme Court precedents to hold that subordinate legislation must not be capricious or excessive and must align with the parent statute.
• Recent Developments: The Court noted that Rule 96(10) was deleted prospectively by Notification No. 20/2024-Central Tax (dated 08-10-2024), but this did not address past cases where refunds were denied.

The Judgment: Reliefs Granted

The Kerala High Court ordered:

1. Rule 96(10) Declared Ultra Vires: The rule, as inserted by Notification No. 53/2018-CT, is unenforceable for the period from 23-10-2017 to 08-10-2024.
2. Quashing of Proceedings: All actions, show cause notices, and orders based on Rule 96(10) during this period are quashed.
3. No Recovery: No proceedings shall be taken to recover IGST refunds already granted to exporters under the impugned rule for the relevant period.
4. Appeal Rights: Exporters may file appeals on other issues within two weeks of receiving the judgment.

Implications for Exporters and GST Administration

• Restoration of Refund Rights: Exporters who were denied IGST refunds due to Rule 96(10) can now claim their statutory entitlements for the specified period.
• Uniform Treatment: The judgment ensures parity between exporters using different refund mechanisms.
• Guidance for Future Rulemaking: The decision reinforces that subordinate legislation must not override statutory rights or create arbitrary classifications.

Conclusion

The Kerala High Court’s judgment is a landmark for exporters and GST law, reaffirming the supremacy of statutory rights over subordinate rules. It provides much-needed relief to exporters and sets a precedent for judicial scrutiny of tax rules that exceed legislative intent or constitutional limits.

Source: Kerala High Court

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