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2024 (11) TMI 188 - HC - GSTRight of the petitioners to claim a refund of IGST paid on export of goods - Constitutional validity of Rule 96 (10) of the Central Goods and Services Tax Rules, 2017 - challenge primarily on the ground that the Rule is ultra vires the provisions of Section 16 of the Integrated Goods and Services Tax Act, 2017 - violation of the provisions of Articles 14, 19 (1) (g) and 265 of the Constitution of India - HELD THAT - Rule 96 of the CGST Rules has undergone various amendments from time to time. Though the pleadings in many of these cases refer to the metamorphosis of Rule 96 of the CGST Rules into its present form, it is conceded at the bar that it may not be necessary for this Court to examine the history of the amendments and the reasons which compelled those amendments to examine whether the provisions as they presently stand are ultra vires the provisions of Section 16 of the IGST Act. A reference to the provisions of Section 16 of the IGST Act both before and after its amendment suggests that the Section itself has not imposed any restriction in the matter of availing either refund of taxes paid on input goods and input services or claiming refund of IGST after payment of IGST on the exports. While, on the authority of the judgment of the Supreme Court in VKC Footsteps 2021 (9) TMI 626 - SUPREME COURT , it may be possible for the Revenue to contend that the Parliament has a right to impose restrictions on the right to refund, it must be noticed that in VKC Footsteps, the Supreme Court was considering a question as to whether the word inputs used in sub-section (3) of Section 54 of the CGST Act includes input goods and input services or input goods only . On a consideration of the matter and having regard to the definition of the word input in Section 2(59) of the CGST Act, the Supreme Court came to the conclusion that the word inputs used in sub-section (3) of Section 54 insofar it applies to a refund of duties/tax arising out of an inverted duty structure contemplates refund of taxes paid on input goods alone and not input services. In VKC Footsteps, the Supreme Court reiterated the principle that in the matter of fiscal legislation, considerable latitude has to be permitted to the State to make provisions so as to achieve its fiscal objectives and it is not the duty of the Court to undertake the task of redrawing the contours of a statutory provision. It was held that this is clearly an area of the law that judicial interpretation cannot go ahead of policy making and fiscal policy ought not to be dictated through judgments of the High Courts or the Supreme Court. Rule 96 (10) of the CGST Rules as presently worded is ultra vires the provisions of Section 16 of the IGST Act, it is manifestly arbitrary as the term is to be understood in the light of the law laid down in Shayara Bano 2017 (9) TMI 1302 - SUPREME COURT and the provision as it stands today produces absurd results, not intended by the Legislature. Rule 96 (10) of the CGST Rules, as inserted by notification No.53/2018-CT dated 09-10-2018 w.e.f. 23-10-2017 is declared ultra vires the provisions of Section 16 of the IGST Act and unenforceable on account of being manifestly arbitrary - any action that has been initiated by the issuance of a show cause notice or otherwise or has culminated in an order against the petitioners in these writ petitions on the basis of the provisions contained in Rule 96 (10) of the CGST Rules, as inserted by notification No.53/2018-CT dated 09-10-2018 w.e.f. 23-10-2017, will stand quashed - It is directed that no proceedings shall be taken to recover any IGST that has been refunded to the petitioners in these writ petitions by applying the provisions of Rule 96 (10) of the CGST Rules for the period between 23-10-2017 and 08-10-2024.
Issues Involved:
1. Whether Rule 96(10) of the CGST Rules is ultra vires the provisions of Section 16 of the IGST Act. 2. Whether the introduction of conditions in Rule 96(10) has taken away the vested right of exporters to claim a refund of IGST paid on export of goods. 3. Whether Rule 96(10) violates Articles 14, 19(1)(g), and 265 of the Constitution of India and/or is 'manifestly arbitrary' as understood in Shayara Bano v. Union of India. Issue-wise Detailed Analysis: 1. Ultra Vires of Rule 96(10) with respect to Section 16 of the IGST Act: The primary contention raised by the petitioners is that Rule 96(10) of the CGST Rules imposes restrictions that are not contemplated by Section 16 of the IGST Act. Section 16 provides for zero-rated supply and allows exporters to claim a refund of IGST paid on exports or tax paid on input services or goods used in exports. The petitioners argue that Rule 96(10) effectively takes away this right by imposing conditions that are not authorized by the substantive provisions of the IGST Act. The court observed that the subordinate legislation must be subservient to the plenary legislation, and any restriction imposed by Rule 96(10) should be explicitly contemplated by the IGST Act. The court found that Rule 96(10) travels beyond the scope of Section 16 of the IGST Act, rendering it ultra vires. 2. Vested Right to Claim Refund: The petitioners argued that the introduction of conditions in Rule 96(10) has taken away their vested right to claim a refund of IGST paid on exports, which is a right granted by Section 16 of the IGST Act. The court noted that Section 16, both before and after its amendment, does not restrict the right of an exporter to claim a refund of IGST paid on exports. The court found that Rule 96(10) creates an unreasonable classification among exporters, leading to a situation where exporters opting for different refund methodologies are treated differently without any statutory basis. This classification was deemed unjustified and not authorized by the statute, thereby affecting the vested right of the petitioners. 3. Violation of Constitutional Provisions and Manifest Arbitrariness: The petitioners contended that Rule 96(10) violates Articles 14, 19(1)(g), and 265 of the Constitution of India and is 'manifestly arbitrary' as per the Shayara Bano judgment. The court examined the comparative analysis of Rule 89 and Rule 96 and found that Rule 96(10) results in hostile discrimination among exporters. The court referred to the principle laid down in Shayara Bano, where manifest arbitrariness is considered a ground for invalidating legislation. The court concluded that Rule 96(10) is manifestly arbitrary as it imposes excessive and disproportionate restrictions not intended by the Legislature, thus violating Article 14 of the Constitution. Conclusion: The court declared Rule 96(10) of the CGST Rules as ultra vires the provisions of Section 16 of the IGST Act and unenforceable on account of being manifestly arbitrary. The court quashed any actions initiated based on Rule 96(10) and directed that no proceedings shall be taken to recover any IGST refunded to the petitioners under this rule for the period between 23-10-2017 and 08-10-2024. The judgment also provided directions for dealing with cases where orders have been issued or show cause notices have been served on issues other than those arising from the application of Rule 96(10).
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