M/S. Choice Cashew Industries Cashew ... vs Asst. Commissioner on 10 October, 2024

Here's a summary of the judgment:

1. Outcome
The High Court of Kerala declared Rule 96(10) of the Central Goods and Services Tax Rules, 2017 (CGST Rules), as inserted by Notification No. 53/2018-CT dated 09-10-2018 (effective 23-10-2017), to be ultra vires Section 16 of the Integrated Goods and Services Tax Act, 2017 (IGST Act) and unenforceable on account of being manifestly arbitrary. All actions, show-cause notices, or orders initiated/culminated against the petitioners based on this Rule for the period between 23-10-2017 and 08-10-2024 were quashed. No recovery of IGST refunds made to petitioners based on this Rule is permissible for this period. Appeals on other issues (not related to Rule 96(10)) or replies to show cause notices on other issues are permitted to be filed within two weeks from the judgment date, with such filings deemed timely.

2. Core Issue
The core issue was the legal sustainability of Rule 96(10) of the CGST Rules, 2017, specifically whether it was:
(i) Ultra vires the provisions of Section 16 of the IGST Act.
(ii) Violative of the petitioners' vested right to claim IGST refund on export of goods.
(iii) Violative of Articles 14, 19(1)(g), and 265 of the Constitution of India and/or "manifestly arbitrary."

3. Key Facts
* Petitioners are exporters entitled to claim refund of taxes paid on input services/goods or IGST paid on exports under Section 16 of the IGST Act.
* Section 16 of the IGST Act (both pre and post-amendment w.e.f. 01-10-2023) provides for two methods of refund for zero-rated supplies:
(a) Export under bond/LUT without IGST payment, claiming refund of unutilised Input Tax Credit (ITC) (governed by Rule 89).
(b) Export on payment of IGST, claiming refund of such tax paid (governed by Rule 96).
* Rule 96(10) of the CGST Rules (in force until its prospective deletion w.e.f. 08-10-2024) imposed restrictions, denying IGST refund to exporters if they had received supplies under certain exemption notifications (e.g., Notification No. 48/2017-Central Tax for deemed exports, or Notifications 40/2017-Central Tax (Rate), 41/2017-Integrated Tax (Rate) for reduced rates, or Customs Notifications 78/2017 and 79/2017 for export benefits, except for capital goods under EPCG scheme).
* The Rule's application led to absurd outcomes, such as denying the entire IGST refund even if a small fraction of inputs (e.g., 10%) availed these benefits, or denying refund for an export consignment from one unit because another unit with a different GSTIN availed benefits.
* Rule 89, governing refunds via the LUT/bond route, did not impose similar restrictions, creating a disparity between the two refund mechanisms.
* Rule 96(10) has since been deleted prospectively by Notification No. 20/2024-Central Tax, dated 08-10-2024.

4. Arguments (Taxpayer vs Revenue)
* Taxpayer (Petitioners):
* Rule 96(10) is ultra vires Section 16 of the IGST Act because the parent Act grants an unqualified right to refund for zero-rated supplies.
* The phrase "subject to such conditions, safeguards and procedure as may be prescribed" in Section 16 permits only procedural/safeguarding conditions, not substantive restrictions that negate the right itself.
* The Rule creates an unconstitutional classification and hostile discrimination between exporters choosing the Rule 89 (LUT/Bond) route and those choosing the Rule 96 (IGST payment) route for refunds, as similar restrictions are absent in Rule 89.
* The Rule violates Articles 14 (equality), 19(1)(g) (right to practice profession), and 265 (no tax save by authority of law) of the Constitution and is "manifestly arbitrary."
* Subordinate legislation cannot override or contravene the substantive provisions of the parent statute.
* Revenue (Respondents):
* The right to refund under Section 16 of the IGST Act is not absolute but is expressly made "subject to such conditions, safeguards and procedures as may be prescribed" and "subject to the provisions of Section 54 of the CGST Act."
* Section 54(3) of the CGST Act also allows for the imposition of conditions for claiming refunds.
* Parliament has the right to impose restrictions on refunds to achieve fiscal objectives, as upheld by the Supreme Court in VKC Footsteps.
* Rule 96(10) is a valid exercise of delegated legislative power, conforming to the plenary law.
* The Court should not interfere with fiscal policy.
* Differences exist between Rule 89 and Rule 96 (e.g., Rule 96 allows ITC on capital goods), so exporters choose the more beneficial method.
* Refunds can only be granted according to the rules, not outside them. Exemption notifications should be interpreted in favour of the Revenue.

5. Court’s Reasoning
* Ultra Vires: The Court held that Section 16 of the IGST Act itself does not impose restrictions on the right to refund for zero-rated supplies. While plenary legislation can impose restrictions (as in VKC Footsteps), the Rule-making authority cannot introduce restrictions through subordinate legislation that go beyond or curtail the substantive right granted by the parent Act. The phrase "subject to such conditions, safeguards and procedure as may be prescribed" merely allows for the prescription of procedural or safeguarding mechanisms, not the complete curtailment of a statutory right. The Court referenced Zenith Spinners, which held that conditions cannot exceed jurisdiction by restricting rights granted under the Rule or making the Rule redundant.
* Manifestly Arbitrary & Discriminatory: The Court found Rule 96(10) to be "manifestly arbitrary" based on the principles laid down in Shayara Bano. It highlighted the hostile discrimination created between exporters choosing the Rule 89 route (LUT/Bond), who can claim refund of unutilised ITC even if they availed certain input benefits, and those choosing the Rule 96 route (IGST payment), who were completely denied refund due to such benefits. This distinction was not authorised by the statute. The Rule also led to absurd results, such as denying the entire IGST refund for an export where only a minimal portion of inputs (e.g., 10%) availed an exemption, or extending denial based on benefits availed by a separate unit or in a previous consignment. Such results were not intended by the Legislature (K.P Varghese principle).
* Deletion of Rule 96(10): The Court noted the prospective deletion of Rule 96(10) but clarified that this deletion did not retrospectively validate the Rule for the prior period. Therefore, it was necessary to declare its invalidity for the period it was in force.

6. Statutory References
* Central Goods and Services Tax Rules, 2017:
* Rule 96(10) (impugned provision)
* Rule 89 (refund of unutilized ITC)
* Rule 96 (refund of Integrated Tax paid on exports)
* Integrated Goods and Services Tax Act, 2017:
* Section 16 (Zero-rated supply, both pre and post-amendment w.e.f. 01-10-2023)
* Section 16(3)(a), 16(3)(b), 16(4)
* Section 20 (Applicability of CGST Act provisions)
* Central Goods and Services Tax Act, 2017:
* Section 54 (Refund of tax, including sub-sections 54(3) and 54(6))
* Section 2(59) (Definition of 'input')
* Section 17(5)
* Constitution of India:
* Article 14 (Equality before law)
* Article 19(1)(g) (Freedom to practice any profession)
* Article 265 (Taxes not to be imposed save by authority of law)
* Other Acts/Notifications:
* Finance Act, 2021
* Foreign Exchange Management Act, 1999
* Customs Act, 1962
* Central Excise Rules, 2002 (Rules 18, 19)
* Notification No. 53/2018-CT dated 09-10-2018 (inserting Rule 96(10))
* Notification No. 20/2024-Central Tax dated 08-10-2024 (deleting Rule 96(10))
* Various exemption notifications referred to in Rule 96(10) (e.g., 48/2017-CT, 40/2017-CT (Rate), 41/2017-IT (Rate), 78/2017-Customs, 79/2017-Customs).

7. Precedents Cited
* Ispat Industries Ltd. v. Commissioner of Customs, Mumbai (2006) 12 SCC 583
* Cellular Operators Association of India and Ors. v. TRAI and Ors. (2016) 7 SCC 703
* Shayara Bano v. Union of India (2017) 9 SCC 1
* Union of India v. Intercontinental Consultants and Technocrats (P) Ltd. (2018) 4 SCC 669
* Union of India v. VKC Footsteps India Pvt. Ltd. (2022) 2 SCC 603
* Kerala State Electricity Board and others v. Thomas Joseph and others (2023) 11 SCC 700
* K.P Varghese v. Income Tax Officer (1981) 4 SCC 173
* Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and others (2018) 9 SCC 1
* Union of India and others v. Willowood Chemicals Pvt. Ltd. and another (2022) 9 SCC 341
* Zenith Spinners v. Union of India, 2005 SCC OnLine Guj 601 (affirmed by Supreme Court in Union of India & Ors v. Zenith Spinners, (2020) 14 SCC 520)
* Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India (cited in Shayara Bano)