Kalp Overseas vs Union Of India And 5 Ors on 11 September, 2025

Outcome**

The petitions were allowed. The Bombay High Court:
* Quashed and set aside the impugned show cause notices and the impugned orders-in-original.
* Quashed and set aside orders refusing refund applications, restored those applications to the files of the relevant authorities, and directed their disposal within four months after providing a fair opportunity of hearing, taking into account the omission and repeal of the impug impugned Rules.
* Ruled that all pending proceedings (undisposed show cause notices, orders issued after 08.10.2024, or orders made before 08.10.2024 but not yet finalized due to appeals or challenges before the High Court) stand lapsed.
* Rejected the Revenue's prayer for a stay of the judgment and order.

2. Core Issue

The core issue was the legal effect of the omission/repeal of Rule 89(4B) and Rule 96(10) of the Central Goods and Service Tax Rules, 2017 (CGST Rules) through Notification No. 20/2024-Central Tax dated 08.10.2024, specifically:
* Whether such omission/repeal, which lacked an explicit savings clause, caused all related pending proceedings and unfinalized orders to lapse.
* Whether Section 6 of the General Clauses Act, 1897, or any other statutory provision or clause in the amendment rules, operated to save these pending proceedings.

3. Key Facts

• Petitioners are companies engaged in manufacturing, export, and import of goods, some of whom claimed refunds of IGST on exports or availed exemptions on imports.
• Investigations were initiated (e.g., against Hikal Limited for 2017-18 to 2019-20) based on alleged non-compliance with conditions prescribed under Rule 89(4B) or Rule 96(10) of the CGST Rules.
• Show cause notices were issued, and in some cases, orders-in-original confirming demand, interest, and penalty were passed, with the sole allegation being non-compliance with these specific Rules.
• During the pendency of these proceedings (or petitions challenging them), the Central Government issued Notification No. 20/2024-Central Tax dated 08.10.2024, known as the Central Goods and Service Tax (Second Amendment) Rules, 2024.
• This notification expressly omitted Rule 89(4B) and Rule 96(10) of the CGST Rules.
• The Notification dated 08.10.2024 did not contain any explicit savings clause to protect pending proceedings, and the petitioners contended that Section 6 of the General Clauses Act, 1897, was inapplicable to such an omission of Rules.

4. Arguments

Taxpayer (Petitioners):
* Constitutional Validity: Rules 89(4B) and 96(10) were ultra vires the CGST Act, unconstitutional, manifestly arbitrary, disproportionate, and violated Article 14 of the Constitution. The Kerala High Court had already struck down Rule 96(10) as unconstitutional, which should have an all-India effect.
* Effect of Omission: The omission of the impugned Rules via Notification dated 08.10.2024, without a savings clause, obliterates them from the statute book as if they never existed, causing all pending proceedings and unfinalized orders to lapse, except for "transactions past and closed."
* Inapplicability of General Clauses Act, Section 6: Section 6 applies only to the repeal of a "Central Act" or "Regulation" (as defined in the Act), not to the repeal/omission of "Rules" by another Rule/Notification.
* "Transactions Past and Closed": Show cause notices, or orders challenged and not yet attained finality (e.g., pending before appellate authorities or the High Court), do not fall under this exception.
* Other Provisions: Rule 1(2) of the 2024 Amendment Rules merely sets the effective date and is not a savings clause. Section 166 of the CGST Act (laying procedure) does not save pending proceedings, as its saving provision only applies if Parliament modifies or annuls the rules, and only protects acts done between publication and such modification/annulment. Section 174(3) of the CGST Act, at best, directs reference to Section 6 of the GCA, but does not alter the conditions for its applicability.
* Intent: The deliberate absence of an express savings clause, unlike many other amendments/omissions, indicated a conscious choice to benefit trade.

Revenue (Respondents):
* Constitutional Validity: The impugned Rules were constitutional, valid, and intra vires the CGST Act. Fiscal measures deserve greater latitude, and the Kerala High Court's decision on Rule 96(10) is not binding on the Bombay High Court.
* Applicability of General Clauses Act, Section 6: Section 6 of the General Clauses Act is applicable. The 2024 Amendment Rules, being made under Section 164 of the CGST Act, should be considered equivalent to a "Central Act" for the purpose of Section 6.
* Other Provisions as Savings Clauses:
* Section 174(3) of the CGST Act ensures the general application of Section 6 of the General Clauses Act, thereby saving pending proceedings.
* Clause 1(2) of the Notification dated 08.10.2024 (stating prospective effect) acts as a savings clause, preserving existing proceedings. The GST Council's recommendations also supported a prospective operation.
* Section 166 of the CGST Act contains a savings clause ("without prejudice to the validity of anything previously done") which protects anything done under the rules before any potential modification or annulment by Parliament. Further, the rules do not come into force until approved by Parliament.
* Survival of SCNs: The impugned show cause notices were issued under Section 73 of the CGST Act (read with Section 20 of IGST Act), and since these primary sections are not omitted or repealed, the notices and orders based on them survive the omission of the Rules.

5. Court’s Reasoning

The Court chose not to determine the constitutional validity of the impugned Rules, as the petitions could be disposed of on the issue of the effect of their omission/repeal. The Court reasoned as follows:

1. Common Law Principle of Repeal/Omission: Reaffirmed the common law principle that an omitted or repealed statute/rule (if Section 6 GCA is inapplicable) is treated as if it never existed, obliterating all inchoate rights and causes of action. This means no proceeding under such a provision can be commenced or continued after its omission/repeal, except for "transactions past and closed." Rules 89(4B) and 96(10) were held to be substantive, not purely procedural.
2. "Transactions Past and Closed": The Court found that show cause notices not yet adjudicated, or orders that were pending challenge before appellate authorities or the High Court, had not attained finality and therefore did not qualify as "transactions past and closed."
3. Inapplicability of Section 6 of General Clauses Act, 1897:
   • Section 6 applies specifically to repeals by "this Act" (GCA), a "Central Act," or a "Regulation." The omission of Rules 89(4B) and 96(10) was brought about by "Rules" (the 2024 Amendment Rules), not a Central Act or Regulation.
   • The Court relied on the Constitution Bench decisions of the Supreme Court in Rayala Corporation Pvt Ltd and Kolhapur Cane Sugar Works Ltd, which explicitly held that Section 6 of the General Clauses Act does not apply to the repeal or omission of Statutory Rules.
   • The Court clarified that the later Supreme Court decisions in Fibre Boards (P) Ltd. and Shree Bhagwati Steel Rolling Mills only held the distinction between "omission" and "repeal" in Rayala Corporation to be obiter dictum, but reaffirmed the core ratio that Section 6 does not apply to repeal/omission by a Rule.
4. Rules as "Central Act" under Section 164 CGST Act: The argument that rules framed under Section 164 of the CGST Act should be regarded as a "Central Act" for Section 6 GCA purposes was rejected. Rules are subordinate legislation and cannot be elevated to the status of a Central Act. The Court noted that Kolhapur Cane Sugar Works Ltd expressly overruled similar views taken by other High Courts.
5. Section 174(3) of the CGST Act: This provision was deemed to be a matter of abundant caution, applying the principles of the General Clauses Act to the specific Acts repealed by Section 174(1) of the CGST Act for smooth transition. It does not operate to modify Section 6 of the General Clauses Act to apply to the omission of rules by notification.
6. Clause 1(2) of 08.10.2024 Notification: This clause merely states that the 2024 Amendment Rules come into force on the date of publication (08.10.2024). It is a provision for prospectivity and is not a savings clause for pending proceedings. It does not prevent the lapsing effect of the common law principle of repeal where no specific savings clause exists.
7. Section 166 of the CGST Act: This section outlines the "laying procedure" for rules before Parliament. The Court held that rules become effective upon publication, and parliamentary approval is not a prerequisite for their initial force. The saving clause within Section 166 applies only if Parliament modifies or annuls the rules, and it saves actions taken between the date of publication and such modification/annulment. Since no modification or annulment by Parliament was shown, this savings clause was not triggered and could not protect the pending proceedings. The requirement of laying is also directory, not mandatory.
8. Survival of SCNs under Section 73: The argument that show cause notices survive because Section 73 of the CGST Act was not repealed was rejected. The Court noted that the sole allegations in the impugned SCNs related to the violation of the omitted Rules. With the omission of these substantive rules without a savings clause, the very basis of the allegations disappeared.
9. Precedents: Distinguished various precedents cited by Revenue by finding them factually dissimilar or inconsistent with higher authority (Constitution Bench decisions) on the specific legal points at hand. Emphasized that the conscious omission of a savings clause (unlike in 64 other notifications cited by the petitioners) pointed to an intent 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 (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 (Notification No. 20/2024-Central Tax, dated 08.10.2024):
  • Rule 1(2), Rule 89 (4A), (4B), (5), Rule 96(10)
• General Clauses Act, 1897:
  • Section 3(7), Section 3(50), Section 3(51), Section 6, Section 6(1), Section 24
• Constitution of India:
  • Article 14, Article 226(2)
• Integrated Goods and Services Tax Act, 2017 (IGST Act):
  • Section 20

7. Precedents Cited

• Supreme Court Decisions:
  • Kusum Ingots & Alloys Ltd. Vs. Union of India & Anr., (2004) 6 SCC 254
  • Rayala Corporation (P) Ltd. Vs. Director of Enforcement, (1969) 2 SCC 412
  • Kolhapur Cane Sugar Works Ltd. And Anr. Vs. Union of India, (2000) 2 SCC 536
  • 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 (SC)
  • 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
  • Chandpaklal Ramanlal Shah v. State of Gujarat, 2017 (354) ELT 289 (SC)
  • 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, 745
  • 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
  • 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 AIR 2008 SC 351)
  • Jayanthilal Amrathlal Vs. Union of India, (1972) 4 SCC 174
  • Pasupuleti Venkateshwarlu Vs. The Motor & General Traders, AIR 1975 SC 1409
  • Majati Subbarao Vs. P.V.K. Krishna Rao, AIR 1989 SC 2187
  • Prohibition & Excise Supdt. v Toddy Toppers Co-op Society, (2003) 12 SCC 738
  • Bank of India v. O. P. Swarnakar, (2003) 2 SCC 721
• High Court Decisions:
  • M/s. Sance Laboratories Pvt. Ltd. Vs. Union of India, (Kerala High Court, WP - C No.17447 of 2023, 10 October 2024)
  • Saumya and Thomas Vs. Union of India & Ors., 2010 (1) KLT 869 (Bombay High Court, Co-ordinate Bench)
  • Commissioner of Income-Tax, Vidarbha Vs. Smt. Godavari Devi Saraf, 1977 SCC OnLine Bom 215 (Bombay High Court, Co-ordinate Bench)
  • 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 High Court)
  • M/s. Highpoint Hotels Pvt. Ltd. Vs. The Excise Commissioner in Karnataka, WP/27575/2017 & connected matters (Karnataka High Court, 18 August 2017)
  • Laxmi Board and Paper Mills Pvt. Ltd. Vs. Union of India & Ors., 1991 (51) ELT 329 (BOM) (Bombay High Court, Co-ordinate Bench)
  • 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)
  • 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, Co-ordinate Bench)
  • Lancy Leo Mendonca & Ors. Vs. Union of India & Ors., 2015 SCC OnLine BOM 5743 (Bombay High Court, Co-ordinate Bench)
  • 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)
• Other References:
  • Wall Vs. Chesapeake and Ohio Ry. Co., (125 N.E. 20) (American decision explaining "transactions past and closed")
  • 68th Report of the Law Commission of India on General Clauses Act, 1897
  • Justice G.P. Singh, "Principles of Statutory Interpretation," 15th edition
  • Halsbury's Laws of England, 4th Edn.
  • Crawford, "Statutory Construction"
  • M.P. Jain & S.N. Jain, "Principles of Administrative Law," 8th edition, Chapter 5 (on laying procedures)