M/s. Arjan Impex Pvt. Ltd vs. State of Haryana & Ors. [CWP 566 of 2022 Order dated 27.01.2021)]

The Hon’ble Punjab & Haryana High Court vide its Order dated 08.04.2024and Order dated 24.02.2023 in Glassco Laboratory Equipments has granted an interim stay qua recovery proceedings in the Writ Petition challenging the restriction under Rule 96(10) of CGST Rules.

Rule 96(10) of the CGST Rules places restriction on the exporters from availing dual benefits by simultaneously claiming IGST exemption on imports made under Notification Nos. 78/2017 and 79/2017-Cus both dated 13.10.2017 (“Notification No. 78/79”) and paying IGST on exports through Input Tax Credit with the intention of claiming a refund of the said IGST amount under Section 54 of the CGST Act read with Rule 89 of the CGST Rules. The validity and legality of the restriction under Rule 96(10) has been challenged before various High Courts on the basis that:

• Rule 96(10) violates the provisions in the parent statute because the only prescription in Section 16 of IGST Act and Section 54 of CGST Act was to the extent of outlining the form and manner for claiming refund, but not for restricting refund.
• Rule 96(10) creates fetter on an exporter’s right to claim refund of IGST paid on exports & does not stand the test of legality because the Statute empowers rules to be made for enabling the refund mechanism, but not to restrict refund claims for legitimate exporters.
• Rule 96(10) is also violative of Article 14 of Constitution of India as an arbitrary and unreasonable differential treatment is meted out to EOUs, Advance Authorization license holders and similar assessees.

The Hon’ble Bombay High Court vide its Order dated 27.01.2021 in Prashi Pharma Private Limited, where the vires of the restriction under Rule 96(10) have been challenged, has granted interim relief qua recovery of IGST refund till the next date of hearing. The Writ Petition challenging legality of Rule 96(10) as being violative of Article 14, is also pending consideration before the Hon’ble Bombay High Court in Watson Pharma Private Limited. Similarly, the Hon’ble Gujarat High Court vide its Order dated 08.09.2021 in Mayur Woven Pvt. Ltd. and Order dated 15.09.2021 in Parikh Enterprises has stayed the recovery and coercive actions in the Writ Petitions challenging the vires of Rule 96(10). The Hon’ble Madras High Court in Comstar Automotive Technologies Pvt. Ltd. has also admitted the Writ challenging the arbitrary restriction as ultra vires Section 16 of the IGST Act

W&B Comments: The GST authorities have recently launched investigations in respect of the refunds received by the exporters upon payment of IGST. Upon summons / search / seizure, the said proceedings have been culminated into show cause cum demand notices thereby seeking recovery of the allegedly erroneous refunds. As the first appeal against the adjudication order would necessitate cash payment of pre-deposit equivalent to 10% of duty demand, a Writ Petition may be preferred before the jurisdictional High Court challenging the vires and legality of the restriction imposed under Rule 96(10) of the CGST Rules along with its date of enforcement, as the case may be.

In case of utilization of both IGST-paid and IGST-free imports in manufacture of the exported goods (qua which refund has been received), it is critical that a nexus be established between imported raw materials and export of manufactured goods so as to restrict the applicability of Rule 96(10) to the IGST-free imports only.