Amendment to Rule 96(10) vide Notification No. 54/2018

Amendment to Rule 96(10) vide Notification No. 54/2018 is prospective from 09.10.2018; recoveries for past periods are legally unsustainable.

Issue

Whether the amendment to Rule 96(10) of the CGST/KGST Rules, 2017 introduced via Notification No. 54/2018 can be applied retrospectively from 23.10.2017 to 08.09.2018 to recover IGST refunds already sanctioned to an export unit.

Facts

The Petitioner is an export unit that exported goods on payment of Integrated Goods and Services Tax (IGST) during the period from 23.10.2017 to 08.09.2018.
Based on these exports, the tax department sanctioned refunds to the petitioner under Rule 96 of the CGST/KGST Rules, 2017.
The revenue department subsequently issued a Show Cause Notice (SCN) seeking to recover the sanctioned refunds, invoking the amended provisions of Rule 96(10).
The department claimed that the restrictive conditions introduced via Notification No. 54/2018 had a retrospective application stretching back to 23.10.2017.
During the pendency of the writ petition, an adjudication order was passed confirming the recovery demand solely on the ground of this retrospective applicability.
The petitioner challenged the demand, pointing to later legal modifications and clarifications confirming that the restriction should only take effect from 09.10.2018.

Decision

The High Court observed that both the SCN and the final recovery order covered transactions executed entirely prior to 09.10.2018.
The department’s findings and recovery actions rested fundamentally on the interpretation of the landmark ruling in Cosmo Films Ltd. v. Union of India.
The Court clarified that the ruling in Cosmo Films Ltd. categorically held that the amendment introduced via Notification No. 54/2018 operates prospectively with effect from 09.10.2018.
Since the subject transactions fell within the pre-amendment window (23.10.2017 to 08.09.2018), they lay safely outside the restrictive scope of amended Rule 96(10).
Accordingly, the High Court quashed the SCN and the subsequent recovery orders, ruling the matter in favor of the assessee.

Key Takeaways

Prospective Operation: Restrictions on claiming IGST export refunds under Rule 96(10) modified by Notification No. 54/2018 cannot be implemented retroactively prior to its date of publication (09.10.2018).

Pre-Amendment Protection: Export units that secured valid refunds on IGST-paid exports between 23.10.2017 and 08.09.2018 are legally protected from retrospective recovery demands based on this notification.

Precedent Bindingness: The judicial principle established in Cosmo Films Ltd. remains the baseline for determining the non-retroactivity of conditions under the contested 2018 notification.

HIGH COURT OF KERALA

Akay Natural Ingredients (P.) Ltd.

v.

Union of India^*

ZIYAD RAHMAN A.A., J.

WP(C) NO. 7283 OF 2023

MARCH 30, 2026

P.J. Anilkumar, Job Abraham, Smt. G. Mini, P.S. Sree Prasad, Advs. and A. Kumar, Sr. Adv. for the Petitioner. R. Harishankar and P.T. Dinesh, Advs. for the Respondent.

JUDGMENT

1. The petitioner is an export-oriented unit engaged in the business or manufacture of flavours and other allied products. During the period from 23.10.2017 to 08.09.2018, the petitioner carried out imports of raw materials used for the said products, which were procured from outside the country. In respect of the imports, the petitioner availed the benefit of the Notification No. 78/2017/Customs dated 13.10.2017. In connection with the exports undertaken by the petitioner under shipping bills for the period from 23.10.2017 to 08.09.2018, the petitioner filed and claimed a refund of IGST as the goods were exported on payment of IGST. The request of the petitioner for a refund was processed, and the same was allowed as it was found to be consistent with the provisions of Rule 96(10) of the CGST rules.

2. However, later, Ext.P1 show cause notice was issued by the 3^rd respondent, seeking recovery of the amount received by the petitioner as refund in respect of the aforesaid transactions. The reason for seeking such recovery was the stipulations in Notification No.54/2018, and also relying upon the observations made by the High Court of Gujarat in Ext.P2 judgment in Cosmo Films Ltd. v. Union of India [2021] 83 GST 596/[2020] 43 GSTL 577 (Gujarat)/ [2020 (10) TMI 1099] Gujarat High Court, wherein, it was held that Notification No. 54/2018 is effective from 23rd October, 2017. Thus, in view of the amendment brought into Rule 96(10) of the CGST Act, 2018, as per the notification referred to above with effect from 23.10.2017, the 3^rd respondent found that the petitioner is not entitled to the refund. The show cause notice was issued in such circumstances. This writ petition is submitted challenging the show cause notice.

3. The challenge is raised mainly on the reason that, the judgment of the Gujarat High Court, based on which, Ext.P1 show cause notice was issued, was subsequently modified by the Gujarat High Court, as per the order dated 19.09.2024 reported in Cosmo Films Ltd. v. Union of India [2024] 90 GSTL 272 (Gujarat)/[2024 (10) TMI 275] Gujarat High Court. In the said order, the earlier judgment was modified by clarifying that, the Notification No.54/2018 will came into effect only from 09.10.2018 onwards. Thus, it was pointed out that, in the light of the aforesaid modification, for none of the transactions for which Ext.P1 show cause notice was issued, the amendment to Rule 96 (10) of CGST Rules brought in as per Notification No. 54/2018, can be made applicable. It is further pointed out that, during the pendency of the writ petition, a final order has been passed by the 3^rd respondent, based on the show cause notice, which is produced as Ext.P7 in the writ petition along with I.A. No. 1/2026.

4. I have heard Sri A. Kumar, the learned Senior Counsel appearing for the petitioner, assisted by Smt. G. Mini and Sri P.P. Dinesh, the learned Standing Counsel appearing for the respondents.

5. The only contention raised by the learned Senior counsel while challenging the sustainability of the show cause notice and the consequential order issued is that, the very judgment which formed the basis of the show cause notice was subsequently reviewed, and as per the reviewed judgment, the amendment will come into effect only from 9.10.2018. The consequence of the same is that, since all the transactions in respect of which show cause notice is issued, are before the date of 09.10.2018, the proposal made in Ext.P1 show cause notice and the conclusion in Ext.P7 are not legally sustainable.

6. Even though the learned Standing Counsel for the respondents opposed the aforesaid contention, on going through the contents of Ext.P1 and the findings in Ext.P7, I find that, the entire proceedings for recovering the refund already availed by the petitioner, were initiated in respect of the transactions before 09.10.2018, the date of which the Notification referred to above came into force. It is also to be noted in this regard that, in the show cause notice and the order-in-original, the adverse findings were entered into, by solely relying upon the judgment originally rendered by the Gujarat High Court as evidenced by Ext.P2. The reason for relying upon the said judgment is that, as per the same, it was held that the effect of Notification No. 54/2018 was from 23.10.2017 onwards, in which event, all the transactions would fall within the purview of the same. However, since the said judgment has now modified by clarifying that, the effect of said notification is from 09.10.2018 onwards, none of the transactions referred to in Ext.P1 and P7 would fall under the purview of the same. Therefore, the contention raised by the petitioner is only to be accepted, as the cause of action for issuing Ext.P1 was the observation in Ext P2 judgment. In such circumstances an interference is required.

Accordingly, this writ petition is disposed of, quashing Exts.P1 and P7, holding that the transactions of the petitioner referred to in the impugned notice and the order, cannot be subjected to the conditions in Notification No 54/2018.