Messrs Addwrap Packaging Pvt. Ltd. & Anr. Vs Union of India & Ors. (Gujarat High Court)

Fact of the caseGroup of petitioners engaged in the business of manufacture, supply/export of conductors and Optical Fiber Ground Wires(OPGW) for several years and exports substantial quantity of finished goods manufactured to its customers spread across the world.In Pre-GST regime the inputs and the capital goods used by the petitioner were chargeable to Central Excise duty and the input services used by the petitioners was chargeable to service tax. The petitioner was eligible for availing the credit of the taxes paid by them under the Cenvat Credit Rules, 2004. Said CENVAT is utilized for payment of the excise duty on the goods cleared by the petitioner in the domestic market as well as for payment of duties applicable at the time of export of goods.The petitioner applied for Advance Authorisation (AA) License in the year 2017, and imported (Without payment of custom duty) some of the raw materials required in manufacture of finished products utilizing such AA licenses without payment of custom duty while procuring the other inputs, capital goods and input services from the domestic market by the petitioner. Post GST implementation CVD (Excise compensation on import) replaced by IGST.The rebate i.e. refunds of excise duties paid on the exported goods was allowed under Rule 18 of the Cenvat Excise Rules, 2002 prior to 01.07.2017. The IGST Act has also incorporated similar provisions for refund (as “zero-rated supply” ) of tax in section 16 of the IGST Act,2017.Section 16 of the IGST Act,2017 provides that a registered person making zero rated supply shall be eligible to claim refund under either (a) supply of goods or services under bond or Letter of Undertaking (LUT) without payment of integrated tax and claim refund of unutilised Integrated Tax Credit as per Sec 54 r w rule 89 to Rule 96 or (b) supply of goods or services on payment of Integrated Tax and claim refund of such tax paid.Sub-rule (10) was inserted for the first time by Notification No.75/2017 dated 12.2017  with  effect  from 23.10.2017.The petitioners to claim refund of IGST paid on the entire goods exported by the petitioners was curtailed due to retrospective amendment in law.Rule 96(10) was amended vide Notification no. 16/2020 dated 23.3.2020 whereby explanation was inserted with retrospective effect from 23.10.2017 which explains that bar provided under Rule 96(10)(b) shall not be attracted where the registered person has availed the basic customs duty exemption under the scheme but discharged the IGST as part of the customs duty on imported inputs or capital goods.the petitioners have paid IGST on the exports made during the period after 01.07.2017 on bonafide belief that the petitioners are entitled to claim the refund in terms of section 54 of the GST Act read with section 16 of the IGST Act, refund claims were filed on the input tax credit on input of capital goods and input services procured from the domestic market by the petitioners to manufacture the exported goods or services.However, the GST authorities on inquiry and investigation to the effect  that  petitioners  were exporting finished goods on payment of IGST and availing benefit of refund in terms of Rule 96(10) of the CGST Rules, in spite of availing the benefit of Notifications mentioned in the said Rule, were not eligible to claim such refund on the entire input tax credit availed by the petitioners on procurement of input, input services or capital goods from the domestic market as the petitioners have taken benefit of notifications for procurement of some of the material either under the Advance Authorisation license or under the merchant export or as per the notification stated in Rule 96(10).The respondent authorities therefore initiated the proceedings for recovery of the refund already paid to the petitioners for alleged violation of Rule 96(10) of the CGST Rules on the ground that erroneous refund has been paid to the petitioners where raw materials were imported under Advance Authorisation scheme by the petitioners on some of the products which were procured under the said Scheme.Issues before court1)  Whether Notification No.20/2024 dated 8th October, 2024 whereby Rule 96(10) has been omitted with effect from the date of notification would be applicable retrospectively or not?2) If answer to the above question is in the negative then whether the said notification would be applicable to all the pending litigation/proceedings or not?3) If answer to the above question is in negative theni) Whether Rule 96(10) as it existed, is ultra vires to Articles 14 and 19(1)(g) of the Constitution of India or not?ii) Whether doctrine of proportionality and reasonableness is applicable while judging the validity of Rule 96(10) motive or not?iii)   Whether rational behind the applicability  of  Rule  96(10)  is arbitrary and discriminatory or not?iv) Whether the exporters can be prevented to export goods under the rebate claim after paying duty on the ground of having double benefit under the Advance Authorisation License and refund of input tax credit or not?v) Whether Rule 96(10) creates “class within class” of the exporters comprising of one class which do not import any goods using Advance Authorisation Scheme and the exporters who are importing goods utilising the said scheme?vi) Whether refund of IGST can be denied even if only few items are being imported  utilising  Advance Authorisation Scheme to manufacture the export goods?vii)  Whether Rule 96(10) is ultra vires to section 164 of the GST Act as the said Rule cannot be said to carry out the provisions of the Act and therefore, beyond the rule making power of the Government?viii) Whether the condition imposed in Rule 96(10) to deny the refund of IGST paid on export goods for options exercised as per provisions of Section 16(3)(b) of the IGST Act is ultra vires to section 16(3) of the said Act or not?ix) Whether expression “condition, safeguards and procedure” would permit the rule making authority to prescribe “restriction” qua the class of persons to claim the refund in respect of entire export of goods which includes the goods manufactured without availing any benefit on the corresponding procurement of inputs?Court Discussion and analysis of the provisionsOn perusal of the Central Goods and Services Tax (Second Amendment) Rules, 2024, it appears that whenever amendment in various rules prescribed therein is to come into effect from a particular date, such date is mentioned in rules.except Rules 2, 9 and 10, effective date of applicability of amendment in various Rules of CGST Rules is provided whereas amendment in Rule 36(3), Rule 89 and Rule 96(10), no such effective date is provided. Therefore, as per Rule 1(2) of the Rules, 2024, such Rules comes into force on the date of publication in the Official Gazette i.e. 8th October, 2024 meaning thereby Rules 2, 9 and 10 of the Rules, 2024 would come into effect from 8th October, 2024.Rule 96(10) has been recommended to be omitted by GST Council prospectively to remove the difficulties of the exporters in claiming refund of the IGST paid on export of goods on account of four exemption notifications from payment of duty for importation of the inputs utilised for manufacture of goods to be exported. Such recommendation is binding upon the Government.It  is  well  settled  that  if  a statute giving a special remedy is repealed without a saving clause in favour of pending suits all suits must stop where the repeal finds them. If final relief has not been granted before the repeal went into effect, it cannot be after. If a case is appealed, and pending the appeal the law is changed, the appellate court must dispose of the case under the law in force when its decision was rendered. The effect of the repeal is to obliterate the statute repealed as completely as if it bad never been passed, and it must be considered as a law which never existed, except for the purposes of those actions or suits which were commenced, prosecuted and concluded while it was an existing law. Pending judicial proceedings based upon a statute cannot proceed after its repeal. This rule holds true until the proceedings have reached a final judgment in the court of last resort, for that court, when it comes to announce its decision, conforms it to the law then existing, and may therefore reverse a judgment which was correct when pronounced in the subordinate tribunal from whence the appeal was taken, if it appears that pending the appeal a statute which was necessary to support the judgment of the lower court has been withdrawn by an absolute repeal. Therefore, Notification No.20/2024 dated 8^th October, 2024 would be applicable to all the pending proceedings/cases meaning thereby that Rule 96(10) would stand omitted prospectively but applicable to pending proceedings/cases where final adjudication has not taken place.Conclusion by the court.The petitions succeed in view of applicability of Notification No.20/2024 whereby Rule 96(10) is omitted and the said Notification would be applicable to all the pending proceedings/cases as on 8th October, 2024.The impugned show cause notices and the orders-in-original are therefore, quashed and set aside. The petitioners are therefore, entitled to maintain refund claims for IGST paid for the export of goods as per Rule 96 of the CGST Rules, 2017 in accordance with law.