Axiom Cordages Limited vs The Union Of India And Ors on 11 September, 2025
AI Legal Insights
This GST case law from the Bombay High Court addresses the impact of omitting Rules 89(4B) and 96(10) of the CGST Rules, concerning GST refunds, without a saving clause. The core issue was whether pending proceedings initiated solely under these omitted rules would lapse. The Court ruled that the absence of a saving clause caused these proceedings to lapse, quashing related show cause notices and refund denials. This ruling impacts taxpayers involved in refund claims under GST, providing clarity on the legal consequences of rule omissions.
This GST case law clarifies that omitting rules without a saving clause invalidates pending actions, benefiting taxpayers facing proceedings based solely on the omitted rules. Tax authorities must now re-evaluate pending cases initiated solely under Rules 89(4B) and 96(10).
- Omission of a rule without a saving clause invalidates pending proceedings based solely on that rule.
- Clause stating the commencement date of amended rules is not a saving clause.
- Section 166 of the CGST Act applies only when Parliament modifies/annuls rules.
- Show cause notices solely alleging violation of omitted rules are invalid.
- Refund applications rejected based on omitted rules must be restored and re-evaluated.
QWhat happens when a GST rule is removed?
If a GST rule is omitted without a saving clause, any pending proceedings initiated solely under that rule are invalidated and cannot be continued.
QWhat is a saving clause in GST law?
A saving clause protects pending legal actions when a law or regulation is amended or repealed. Without a saving clause, ongoing cases related to the old rule may be rendered invalid.
QDoes Section 166 CGST Act always save pending proceedings?
Section 166 CGST Act saves proceedings only if Parliament modifies or annuls the rules, and it saves actions done between the date of publication and such modification/annulment. It does not apply automatically upon mere omission of rules.
Ruling Summary
Here's a summary of the judgment:
1. Outcome
The Bombay High Court (Coram: M.S. Sonak & Jitendra Jain, JJ.) allowed the writ petitions. The Court held that the omission of Rules 89(4B) and 96(10) of the CGST Rules, 2017, by Notification dated 08 October 2024, without an explicit saving clause, causes all pending proceedings based solely on these rules to lapse. Consequently, the impugned show cause notices and orders-in-original were quashed and set aside. Orders refusing refund applications were also quashed, and authorities were directed to restore and dispose of these applications within four months, without considering alleged breaches of the omitted rules. The request for a stay on the judgment was rejected.
2. Core Issue
The core issue was the legal effect of the omission of Rules 89(4B) and 96(10) of the Central Goods and Service Tax Rules, 2017 (CGST Rules) by Notification dated 08 October 2024, particularly whether such omission, in the absence of an express saving clause, would lead to the lapse of all pending proceedings (show cause notices, adjudications, and orders under challenge) based on alleged non-compliance with these rules. The Court deliberately chose not to rule on the constitutional validity of the rules, focusing solely on the effect of their omission.
3. Key Facts
* Petitioners: A batch of companies, including the lead Petitioner, Axiom Cordages Limited (the title indicates Axiom Cordages, but the judgment explicitly states Hikal Limited is the lead petitioner for the batch, WP No. 78 of 2025). Hikal Limited is a manufacturer of chemical intermediates, speciality chemicals, and active pharmaceutical ingredients.
* Background: Hikal Limited, like many other petitioners, engaged in exports with payment of IGST and claimed refunds under Section 54 of the CGST Act read with Section 16 of the IGST Act. It also imported raw materials under Advance Authorisation licenses availing IGST exemption.
* Dispute: The Department initiated investigations alleging that IGST refunds claimed by Petitioners violated Rule 96(10) of the CGST Rules, 2017 (and/or Rule 89(4B) for some cases), particularly where goods were imported against advance authorisation licenses.
* Show Cause Notice (SCN): Hikal Limited received an SCN dated 04.08.2024 for a GST demand of Rs. 67,11,55,626/-, based on alleged non-compliance with Rule 96(10). Similar SCNs were issued to other petitioners.
* Rule Omission: During the pendency of the petitions, Rule 96(10) (and Rule 89(4B)) was omitted by Notification No. 20/2024-Central Tax dated 08.10.2024, which introduced the Central Goods and Service Tax (Second Amendment) Rules, 2024.
* Post-Omission Adjudication: Despite the rule's omission and the pendency of the writ petition, the Joint Commissioner passed an order-in-original dated 23.01.2025, confirming the demand, interest, and penalty against Hikal Limited.
* Central Allegation: Petitioners consistently stated that the only allegation in the SCNs and orders was non-compliance with the conditions prescribed under the now-omitted Rules 89(4B) or 96(10). The Revenue largely could not dispute this.
* Forced Recovery: Some petitioners had amounts forcibly recovered based on these rules and sought refunds.
4. Arguments
-
Taxpayer (Petitioners):
- Constitutional Validity (not determined by Court): Rules 89(4B) and 96(10) were ultra vires the CGST Act, unconstitutional, manifestly arbitrary, disproportionate, and violated Article 14 of the Constitution.
- Kerala High Court Precedent: Rule 96(10) was already struck down by the Kerala High Court in M/s. Sance Laboratories Pvt. Ltd. Vs. Union of India, which, being a judgment on a parliamentary act, has effect throughout India, and was not challenged by the Revenue.
- Effect of Omission: The omission of the impugned Rules by the 2024 Amendment Rules was without any express saving clause to protect pending proceedings.
- General Clauses Act (GCA): Section 6 of the GCA applies only to repeals of a "Central Act" or "Regulation" (as defined in GCA), not to the repeal or omission of "Rules" (subordinate legislation) or repeals brought about by "Rules."
- Common Law Principle: In the absence of a saving clause or Section 6 GCA applicability, the common law principle dictates that an omitted/repealed provision is obliterated from the statute book as if it never existed, except for "transactions past and closed." Pending SCNs and orders under challenge do not constitute "transactions past and closed."
- Conscious Omission: The absence of a saving clause in the 08.10.2024 Notification, unlike many other Central/State government notifications, indicates a conscious choice.
- Revenue Neutrality: Petitioners would have been eligible for refunds under Rule 89, making the situation revenue neutral.
-
Revenue (Respondents):
- Constitutional Validity (not determined by Court): The impugned Rules were constitutional and valid fiscal measures deserving judicial deference.
- Applicability of Section 6 GCA: The 2024 Amendment Rules, being enacted under Section 164 of the CGST Act, should be considered a "Central Act" for the purposes of Section 6 GCA. Alternatively, the principles of Section 6 GCA should apply.
- Section 174(3) CGST Act: This section explicitly refers to the general application of Section 6 of the GCA regarding the effect of repeal, thereby saving pending proceedings.
- Rule 1(2) of 2024 Amendment Rules: The clause "Save as otherwise provided in these rules, they shall come into force on the date of their publication in the Official Gazette" acts as a saving clause, giving prospective effect and preserving existing proceedings. GST Council minutes supported this prospective intent.
- Section 166 CGST Act: This section, concerning the laying of rules before Parliament, contains a saving clause that protects anything previously done under the rules if Parliament later modifies or annuls them.
- Survival of SCNs: The SCNs were issued under Section 73 of the CGST Act, which remains in force. Therefore, the SCNs survive even if the specific rules they referenced are omitted, as the core charge of tax demand remains.
- Precedent Interpretation: The Supreme Court's decision in Rayala Corporation (P) Ltd. (on Section 6 GCA non-applicability to rules) was later deemed per incuriam or obiter dictum by subsequent Supreme Court decisions.
5. Court’s Reasoning
The Court reasoned as follows:
* Refusal to Rule on Constitutional Validity: The Court found it unnecessary to delve into the constitutional validity of Rules 89(4B) and 96(10) as the petitioners could be granted substantial relief based on the effect of their omission.
* Common Law Principle of Repeal/Omission: Reaffirmed the well-established common law principle that a statute or rule repealed or omitted without a saving clause is completely obliterated from the statute book, as if it never existed, except for "transactions past and closed."
* "Transactions Past and Closed": The Court clarified that pending show cause notices, orders issued after the omission, or orders challenged in appeals/writ petitions (thus not having attained finality) do not fall under the category of "transactions past and closed." Therefore, the common law principle applied, leading to the lapse of all such pending proceedings.
* Inapplicability of Section 6 GCA:
* The Court unequivocally stated that Section 6 of the General Clauses Act, 1897, applies only to repeals by a "Central Act" or "Regulation" (as statutorily defined), and not to the repeal or omission of "Rules" (subordinate legislation), nor to repeals brought about by "Rules."
* This interpretation was based on a plain reading of Section 6 GCA and, crucially, on the binding Constitution Bench decisions of the Supreme Court in Rayala Corporation (P) Ltd. Vs Director of Enforcement and Kolhapur Cane Sugar Works Ltd. And Anr. Vs Union of India.
* The Court rejected the Revenue's argument that Rayala Corporation was per incuriam or obiter dictum, clarifying that later Supreme Court decisions only addressed the distinction between "omission" and "repeal" within Rayala Corporation, not its core holding on Section 6's applicability.
* Rejection of "Central Act" Argument: The argument that Rules made under Section 164 of the CGST Act should be treated as a "Central Act" for Section 6 GCA purposes was explicitly rejected, citing the overruling of similar contentions by the Constitution Bench in Kolhapur Cane Sugar Works Ltd.
* Rejection of Section 174(3) CGST Act as Saving Clause: The Court held that Section 174(3) of the CGST Act, which ensures the general application of the GCA, was a cautious provision for specific repeals under Section 174(1) and (2) during the transition to GST. It does not operate to amend Section 6 GCA to cover rule omissions, nor does it function as a standalone saving clause for rules not specified in Section 174(1).
* Rejection of Rule 1(2) of 2024 Amendment Rules as Saving Clause: Clause 1(2) merely states the prospective commencement date of the amending rules; it does not constitute a saving clause to protect pending proceedings. The issue was of lapsing due to the absence of a saving clause, not one of retrospectivity.
* Rejection of Section 166 CGST Act as Saving Clause:
* Section 166, which mandates laying rules before Parliament, is directory, not mandatory. Rules come into force upon publication.
* The saving provision within Section 166 applies only if Parliament modifies or annuls the rules, and it saves actions done between the date of publication and such modification/annulment. Since no such parliamentary action was alleged or demonstrated, this clause did not save the proceedings.
* Survival of SCNs under Section 73 CGST Act: The argument that SCNs survive under Section 73 CGST Act (which was not omitted) was rejected because the sole allegation in these SCNs was a violation of the now-omitted rules. Without the underlying rule, the basis for the demand under Section 73 collapses.
* Conscious Policy Decision: The Court noted that the Central Government frequently incorporates explicit saving clauses when amending or omitting rules, indicating an awareness of the legal requirement. The deliberate absence of such a clause in the 08.10.2024 Notification was viewed as a conscious choice, likely intended to benefit trade.
6. Statutory References
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 16
* Section 54
* Section 73
* Section 74
* Section 164
* Section 166
* Section 174 (sub-sections 1, 2, 3)
* Central Goods and Service Tax Rules, 2017 (CGST Rules):
* Rule 89(4B)
* Rule 96(10)
* Central Goods and Service Tax (Second Amendment) Rules, 2024:
* Rule 1(2)
* Notification No. 20/2024-Central Tax, dated 08.10.2024
* General Clauses Act, 1897:
* Section 3(7) ("Central Act")
* Section 3(50) ("Regulation")
* Section 6
* Section 24
* Constitution of India:
* Article 14
* Article 226(2)
7. Precedents Cited
* Supreme Court:
* Rayala Corporation (P) Ltd. Vs Director of Enforcement (1969) 2 SCC 412 (Constitution Bench)
* Kolhapur Cane Sugar Works Ltd. And Anr. Vs Union of India (2000) 2 SCC 536 (Constitution Bench)
* Kusum Ingots & Alloys Ltd Vs Union of India & Anr (2004) 6 SCC 254
* Fibre Boards (P) Ltd. Vs Commissioner of Income-tax (2015) 10 SCC 333
* Shree Bhagwati Steel Rolling Mills Vs Commissioner of Central Excise (2015) 326 ELT 209
* Gammon India Limited Vs Special Chief Secretary & Ors (2006) SCC 354
* Keshavan Madhava Menon Vs State of Bombay AIR 1951 SC 128
* State of Punjab Vs Mohar Singh AIR 1955 SC 84
* Qudrat Ullah Vs Municipal Board, Bareilly AIR 1974 SC 396
* State of Rajasthan Vs Mangilal Pindwal AIR 1996 SC 2181
* Mohan Raj Vs Dimbeswari Saikia & Anr AIR 2007 SC 232
* Jayanthilal Amrathlal Vs Union of India (1972) 4 SCC 174
* Chandpaklal Shah & Anr Vs Reliance Industries Ltd (2017 (354) ELT 289 (SC))
* Atlas Cycle Industries Ltd & Ors Vs State of Haryana (1979) 2 SCC 1996
* Veneet Agrawal Vs Union of India & Ors (2007) 13 SCC 116 (also cited as (2007) 13 SCC 721)
* Pasupuleti Venkateshwarlu Vs The Motor & General Traders AIR 1975 SC 1409
* Majati Subbarao Vs. P.V.K. Krishna Rao AIR 1989 SC 2187
* Bhut Nath Mete V. State of W.B. (1974) 1 SCC 645
* Sumedico Corpn V. R.P.F. Commr. (1998) 8 SCC 381
* K. I. Shepherd V. Union of India (1987) 4 SCC 431
* Central Organisation of T.N. Electricity Employees V. T.N. Electricity Board (2005) 8 SCC 729
* Prohibition & Excise Supdt v Toddy Toppers Co-op Society (2003) 12 SCC 738
* Bank of India v OP Swarnakar (2003) 2 SCC 721
* High Courts (including the present High Court):
* M/s. Sance Laboratories Pvt. Ltd. Vs. Union of India (WP - C No.17447 of 2023) (Kerala High Court)
* Saumya and Thomas Vs Union of India & Ors (2010) 1 KLT 869 (Bombay High Court)
* Commissioner of Income-Tax, Vidarbha Vs Smt. Godavari Devi Saraf (1977 SCC OnLine Bom 215) (Bombay High Court)
* M/s Sri Sai Vishwas Polymers Vs Union of India and anr. (2025 (5) TMI 1811) (Uttarakhand High Court)
* M/s Addwrap Packing Pvt Ltd Vs Union of India and Ors (2025 (6) 1156 Gujarat HC) (Gujarat High Court)
* M/s Highpoint Hotels Pvt Ltd Vs The Excise Commissioner in Karnataka (WP/27575/2017 & connected matters, decided on 18 August 2017) (Karnataka High Court)
* Laxmi Board and Paper Mills Pvt Ltd Vs Union of India & Ors (1991 (51) ELT 329 (BOM)) (Bombay High Court)
* Vianaar Homes Pvt. Ltd Vs Assistant Commissioner (2020 SCC OnLine (Del.) 1394) (Delhi High Court)
* Commissioner of Central Excise, Thane Vs Milton Poly Plast (I) Pvt. Ltd. (2019 (367) ELT 962 (Bom.)) (Bombay High Court)
* Saurashtra Cements and Chemical Industries Ltd. Vs. Union of India (1995) 79 E.L.T. 367 (Gujarat High Court Full Bench)
* Falcon Tyres Limited Vs. Union of India (1992) 60 E.L.T. 166 (Karnataka High Court Division Bench)
* A.M. Sali Maricar And Anr. Vs Income-Tax Officer And Anr (1973) 90 ITR 116 (Madras High Court)
* Commissioner of Income-Tax Vs Thana Electricity Supply Ltd (1993 SCC OnLine BOM 591) (Bombay High Court)
* Lancy Leo Mendonca & Ors Vs Union of India & Ors (2015 SCC OnLine BOM 5743) (Bombay High Court)
Key Legal Principles
- **Rejection of Rule 1(2) of 2024 Amendment Rules as Saving Clause:** Clause 1(2) merely states the prospective *commencement date* of the amending rules; it does not constitute a saving clause to protect pending proceedings. The issue was of lapsing due to the *absence* of a saving clause, not one of retrospectivity.
- **Rejection of Section 166 CGST Act as Saving Clause:**
- Section 166, which mandates laying rules before Parliament, is directory, not mandatory. Rules come into force upon publication.
- The saving provision within Section 166 applies *only if Parliament modifies or annuls* the rules, and it saves actions done between the date of publication and such modification/annulment. Since no such parliamentary action was alleged or demonstrated, this clause did not save the proceedings.
- **Survival of SCNs under Section 73 CGST Act:** The argument that SCNs survive under Section 73 CGST Act (which was not omitted) was rejected because the *sole* allegation in these SCNs was a violation of the now-omitted rules. Without the underlying rule, the basis for the demand under Section 73 collapses.
- **Conscious Policy Decision:** The Court noted that the Central Government frequently incorporates explicit saving clauses when amending or omitting rules, indicating an awareness of the legal requirement. The deliberate absence of such a clause in the 08.10.2024 Notification was viewed as a conscious choice, likely intended to benefit trade.