Gujarat High Court brings finality to IGST refund disputes: What this means for Indian exporters

A recent decision by the Gujarat High Court in the case of Cosmo Films Ltd vs. Union of India and the connected batch has brought much-needed clarity and relief to India’s export community. I had the privilege of representing Cosmo Films and several other petitioners in this litigation, which raised critical questions around the denial of IGST refunds due to Rule 96(10) of the CGST Rules.

This judgment is not merely a procedural win; it provides substantive relief to a large section of Indian exporters who were left in limbo due to inconsistent interpretations and prolonged adjudications on this issue.

The Crux of the Controversy

Rule 96(10) had, over the years, led to significant hardship. Exporters who availed benefits under schemes like Advance Authorization or EPCG were denied IGST refunds on the ground that they were not eligible due to the restrictions imposed by the rule. The rule was subject to intense legal debate, and numerous exporters across the country were issued show cause notices and faced adjudication under its provisions.

However, the Central Government, through Notification No. 20/2024-Central Tax dated 8th October 2024, deleted Rule 96(10). This omission sparked the core question before the Gujarat High Court: Should pending proceedings based on a now-deleted rule be allowed to continue?

The Court’s balanced and bold approach

The Gujarat High Court chose a legally sound and equitable path. While it did not enter into the constitutional validity of Rule 96(10), it took note of its omission and clarified the legal consequence of such deletion.

The Court ruled that although the notification is prospective in effect, it applies to all pending matters—be it show cause notices, original adjudication, or even appellate proceedings. As a result, all ongoing disputes under Rule 96(10) stand effectively terminated.

What this means for exporters

IGST Refunds to be Processed: Exporters previously denied refunds under Rule 96(10) will now be eligible to claim and receive those refunds.

Quashing of Ongoing Proceedings: Any show cause notice or order based solely on the now-omitted rule will not survive. Adjudicating authorities cannot proceed further on this basis.

Refund of Pre-Deposits: Taxpayers who had deposited amounts while contesting such issues before appellate forums are now entitled to seek refunds of those pre-deposits.

Precedent for Other Jurisdictions: Although this is a Gujarat High Court ruling, it sets a persuasive precedent. Authorities and courts across India should follow its reasoning to ensure consistency and fairness.

Interestingly, the Court acknowledged that there could be three possible interpretations:

• The deletion is retrospective.
• The deletion is strictly prospective.
• The deletion is prospective but affects all pending cases.

The third view was accepted, which aligns with judicial reasoning seen in earlier omissions or repeals, ensuring that disputes grounded in deleted provisions do not continue without legal foundation.

Legal and constitutional implications

This ruling affirms a crucial principle of tax jurisprudence—that adjudication cannot continue on the basis of a rule that no longer exists. Even without a constitutional ruling on Rule 96(10), the Court’s reliance on legislative developments to halt pending proceedings ensures due process and protection of taxpayer rights.

It is also in line with settled constitutional principles that any fiscal restriction, if withdrawn by the legislature, must not burden taxpayers through lingering or retrospective enforcement.

Next steps for affected taxpayers

Exporters involved in litigation based on Rule 96(10) must act promptly:

• File refund applications for IGST where previously denied.
• Seek refund of any pre-deposit paid.
• Place reliance on this ruling in any ongoing proceedings, even outside Gujarat.

Adjudicating and appellate authorities must also take cognizance of this landmark decision to avoid the unjustified continuance of proceedings.

Conclusion

The Gujarat High Court’s decision in Cosmo Films is a landmark moment not only for the petitioner but for all Indian exporters. It showcases how judicial reasoning, when aligned with legislative developments, can bring effective closure to long-standing disputes.

This judgment restores both economic justice and legal certainty, allowing exporters to focus on their core mission—expanding India’s footprint in global trade. It is a welcome step towards a more predictable and fair tax regime.

Source: CNBC TV18