Mancare Pharmaceuticals Private ... vs Union Of India on 11 September, 2025

Here's a summary of the judgment from the perspective of a Senior GST Legal Analyst:

1. Outcome

The High Court allowed the petitions, holding that the omission of Rules 89(4B) and 96(10) of the Central Goods and Service Tax Rules, 2017, by Notification No. 20/2024-Central Tax dated 08 October 2024, without an explicit saving clause, renders all pending proceedings related to these rules lapsed.

Specifically, the Court:
* Quashed and set aside the impugned show cause notices (SCNs) and orders-in-original that were based solely on alleged non-compliance with the omitted Rules.
* Quashed and set aside orders refusing petitioners' refund applications based on these Rules.
* Directed the relevant authorities to restore and dispose of the refund applications within four months, without adverting to the omitted Rules, after providing the petitioners a fair hearing.

The Court explicitly declined to rule on the constitutional validity of the impugned Rules, finding it unnecessary for the disposal of the petitions. The motion for a stay of 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 CGST Rules, 2017, by a subsequent notification (Central Goods and Service Tax (Second Amendment) Rules, 2024), particularly whether this omission, which lacked a specific saving clause, caused all pending proceedings (including undisposed show cause notices and orders under challenge) to lapse, and whether Section 6 of the General Clauses Act, 1897, or other statutory provisions could save such proceedings.

3. Key Facts

• Multiple petitioners, including lead petitioner Hikal Limited, are engaged in manufacturing and claimed IGST refunds on exports (with IGST payment) or availed IGST exemptions on imports under Advance Authorisation licenses.
• Investigations were initiated by the Department, leading to show cause notices and, in some cases, orders-in-original, alleging non-compliance with Rules 89(4B) and/or 96(10) of the CGST Rules, 2017. These allegations formed the sole basis for the demands.
• During the pendency of these petitions, Rules 89(4B) and 96(10) were omitted from the CGST Rules via Notification No. 20/2024-Central Tax (Central Goods and Service Tax (Second Amendment) Rules, 2024) issued on 08 October 2024.
• The said Notification did not contain an explicit saving clause to preserve pending proceedings or rights accrued under the omitted Rules.
• Petitioners argued that without a saving clause, the common law principle of repeal/omission would apply, obliterating the Rules as if they never existed, and thus lapsing all pending proceedings that had not reached finality ("transactions past and closed").
• The Kerala High Court, in a separate case (M/s. Sance Laboratories Pvt. Ltd.), had already declared Rule 96(10) ultra vires and unconstitutional.

4. Arguments (Taxpayer vs Revenue)

Taxpayer (Petitioners):
* Constitutional Invalidity: Rules 89(4B) and 96(10) were ultra vires the CGST Act and unconstitutional, being arbitrary, disproportionate, and discriminatory (violating Article 14).
* Kerala HC Decision: The striking down of Rule 96(10) by the Kerala High Court had an effect throughout India, and authorities in Maharashtra could not ignore it.
* Lapse of Proceedings: The omission of the impugned Rules by the 08 October 2024 Notification, without a saving clause, led to the lapse of all pending show cause notices and non-finalized orders, based on common law principles.
* Inapplicability of Section 6 GCA: Section 6 of the General Clauses Act, 1897, applies only to repeals by a "Central Act" or "Regulation," not to the omission or repeal of "Rules" by another Rule.
* "Transactions Past and Closed": Show cause notices or orders pending challenge before appellate authorities or the High Court do not qualify as "transactions past and closed."
* No other Saving Clauses: Clause 1(2) of the 2024 Amendment Rules merely stated the rules' effective date (prospectivity) and was not a saving clause for pending actions. Section 166 of the CGST Act (laying procedure) is directory and does not save pending proceedings. Section 174(3) of the CGST Act applies to the specific repeals mentioned in Sections 174(1) and (2) and does not generally extend Section 6 GCA to repeal of Rules.
* Revenue Neutrality: Petitioners would have been eligible for refunds under Rule 89, making the situation revenue neutral.
* Limitation: Challenged the invocation of the extended period of limitation under Section 74 CGST Act.

Revenue (Respondents):
* Constitutional Validity: The impugned Rules were constitutional, intra vires, and were legitimate fiscal measures.
* Applicability of Section 6 GCA: Section 6 of the General Clauses Act, 1897, is applicable. The 2024 Amendment Rules, being framed under Section 164 of the CGST Act, should be considered a "Central Act" for the purposes of Section 6 GCA. The principles of Section 6 should apply even if the literal interpretation excludes rules.
* Precedent Distinction: Argued that Rayala Corporation (which held Section 6 GCA inapplicable to rules) was per incuriam or obiter dictum in light of later Supreme Court decisions (Fibre Boards, Shree Bhagwati Steel Rolling Mills).
* Saving Clauses:
* Section 174(3) CGST Act: This section ensures the general application of Section 6 GCA, thus saving pending proceedings.
* Clause 1(2) of 2024 Amendment Rules: This clause, by specifying prospective effect, functions as a saving clause, and the GST Council also clarified its prospective operation.
* Section 166 CGST Act: The laying of rules before Parliament under Section 166 implicitly saves anything previously done under those rules, and rules don't fully enter into force until parliamentary approval.
* Survival of SCNs: Show cause notices issued under Section 73 of the CGST Act (read with Section 20 of the IGST Act) would survive, as these primary sections were not omitted or repealed. The core charge was evasion, which is distinct from procedural rules.

5. Court’s Reasoning

• Refusal on Constitutional Validity: The Court deliberately refrained from addressing the constitutional validity of Rules 89(4B) and 96(10), deeming it unnecessary for the disposal of the petitions, consistent with the principle of judicial restraint.
• Effect of Omission/Repeal: The Court affirmed the common law principle that a statute/enactment, once repealed or omitted without a saving clause, is treated as completely obliterated as if it had never existed, except for "transactions past and closed." Since Rules 89(4B) and 96(10) were substantive, their omission had this obliterating effect.
• "Transactions Past and Closed": The Court found that show cause notices, or orders challenged in appeals or before the High Court, do not constitute "transactions past and closed" and would, therefore, lapse upon omission of the underlying rules.
• Inapplicability of Section 6 GCA:
  • Based on a plain reading, Section 6 GCA applies only to repeals by "this Act" (GCA), a "Central Act," or a "Regulation," and not to "Rules."
  • The Court relied heavily on the Constitution Bench decisions in Rayala Corporation Pvt Ltd and Kolhapur Cane Sugar Works Ltd, which unequivocally held that Section 6 GCA does not apply to the repeal or omission of Rules.
  • The Court rejected the Revenue's argument that Rayala Corporation was per incuriam or obiter dictum, clarifying that later Supreme Court judgments merely distinguished between "omission" and "repeal" but did not alter the core ratio that Section 6 GCA does not apply to Rules.
  • The argument that rules under Section 164 CGST Act should be considered a "Central Act" was explicitly rejected as it runs counter to Kolhapur Cane Sugar Works Ltd.
• Rejection of Other Saving Arguments:
  • Section 174(3) CGST Act: This section was considered a caution for specific repeals under Section 174(1) and (2) for the transition to GST, not a general amendment to Section 6 GCA to apply to the repeal of Rules.
  • Clause 1(2) of 2024 Amendment Rules: This clause merely indicates prospectivity (effective date) and is not a saving clause that would protect pending proceedings from lapsing. It only prevents retrospective application from affecting "transactions past and closed."
  • Section 166 CGST Act: The "laying procedure" under Section 166 is directory, not mandatory. The rules become effective upon publication, not parliamentary approval. The saving provision within Section 166 applies only if Parliament modifies or annuls the rules, preserving actions taken between publication and such modification/annulment. Since no modification or annulment was shown, this clause provided no protection.
• Survival of SCNs under Section 73: The Court found this argument untenable because the only allegations in the SCNs related to the impugned Rules. With the Rules omitted without a saving clause, there was no basis for the allegations to survive.
• Conscious Omission: The Court noted that the government had included explicit saving clauses in numerous other notifications amending/omitting rules, suggesting that the absence of such a clause in the 08 October 2024 notification was a deliberate policy choice, potentially to benefit trade.
• Subsequent Events: The Court reiterated the principle that it is bound to take note of subsequent events, such as the omission of the rules, during the pendency of proceedings.

6. Statutory References

• Central Goods and Service Tax Act, 2017 (CGST Act): Section 54, Section 16, Section 74, Section 164, Section 166, Section 174 (sub-sections (1), (2), and (3)).
• Central Goods and Service Tax Rules, 2017: Rule 89(4B), Rule 96(10).
• Central Goods and Services Tax (Second Amendment) Rules, 2024: Clause 1(2), Notification No. 20/2024-Central Tax dated 08 October 2024.
• General Clauses Act, 1897: Section 3(7) (definition of "Central Act"), Section 3(50) (definition of "Regulation"), Section 3(51) (definition of "Rule"), Section 6.
• Constitution of India: Article 14, Article 226(2).
• Other Acts/Rules (cited in arguments/reasoning): IGST Act (Section 20), Divorce Act, 1869 (Section 10-A(1)), Income Tax Act (Section 140-A(3)), Central Excise Rules (Rules 10, 10-A), Central Excises and Salt Act, 1944 (Section 9, Section 9(1)(b), Section 11-A, Rules 52(A), 56(A), 173(G), 9(2), 173(Q)), Securities and Exchange Board of India Act, 1992 (Section 31).

7. Precedents Cited

• Supreme Court (Constitution Bench):
  • 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
  • Keshavan Madhava Menon Vs State of Bombay AIR 1951 SC 128
• Supreme Court (Other Benches):
  • 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
  • Chandpaklal Shah & Anr Vs Reliance Industries Ltd 2017 (354) ELT 289 (SC)
  • State of Punjab Vs Mohar Singh 1954 (2) SCC 483
  • Jayanthilal Amrathlal Vs Union of India (1972) 4 SCC 174
  • 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
  • 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
  • Pasupuleti Venkateshwarlu Vs The Motor & General Traders AIR 1975 SC 1409
  • Majati Subbarao Vs. P.V.K. Krishna Rao AIR 1989 SC 2187
• High Courts (including Bombay High Court):
  • M/s. Sance Laboratories Pvt. Ltd. Vs. Union of India (Kerala High Court, WP - C No.17447 of 2023, 10 Oct 2024)
  • Saumya and Thomas Vs Union of India & Ors 2010 (1) KLT 869 (Kerala 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 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)
  • 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)
  • Saurashtra Cements and Chemical Industries Ltd. Vs. Union of India (1995) 79 E.L.T. 367 (Gujarat High Court)
  • Falcon Tyres Limited Vs. Union of India (1992) 60 E.L.T. 166 (Karnataka High Court)
• Foreign/Other:
  • J. K. Gas, Plant Manufacturing Co., (Rampur), Ltd. v. Emperor, (1947) F.C.R. 141
  • Surtees v. Ellison, (1829) 9 B. and C. 750
  • Kay v. Goodwin, (1830) 6 Bing. 576
  • Wall v. Chesapeake and Ohio Ry. Co. (125 N.E. 20)