When a Rule Vanishes: Bombay High Court Presses Reset on IGST-Refund Litigation
Hikal Ltd. v. Union of India (2025(09)LCX0071) and the mass-batch fallout of omitting Rules 89(4B) and 96(10) CGST Rules
Bench: M.S. Sonak & Jitendra Jain, JJ.
Decision:11 September 2025
Lead matter: Hikal Limited v. Union of India, W.P. No. 78 of 2025 (with a large batch of connected petitions)
The short of it (before the long of it)
The Bombay High Court has held that once Rule 89(4B) and Rule 96(10) of the CGST Rules were omitted by Notification No. 20/2024–CT dated 08.10.2024, all pending proceedings founded solely on alleged breach of those rules lapsed, absent any saving clause or the shelter of Section 6 of the General Clauses Act, 1897 (GCA). Result: show-cause notices (SCNs), orders-in-original (OIOs) passed after 08.10.2024, and even pre-08.10.2024 orders still under challenge (i.e., not "transactions past and closed") were quashed. Refund applications earlier blocked on the strength of those rules must now be reprocessed.
The Court consciously did not rule on the constitutional validity of Rules 89(4B)/96(10) (though it recorded that Kerala High Court in Sance Laboratories has already struck down Rule 96(10)) because the cases could be decided on the narrower-but decisive-ground of repeal/omission without a saving.
Background: what were 89(4B) and 96(10) doing?
Rule 96(10) curbed IGST refunds on exports in scenarios where exporters imported inputs under certain exemption schemes (e.g., Advance Authorisation, EOU/EPCG), to avoid "double benefits."
Rule 89(4B) created parallel limitations in the ITC refund arena for zero-rated supplies without payment of tax.
Both provisions effectively acted as anti-overlap safeguards. From 08.10.2024, the Central Government-on GST Council recommendation-omitted Rule 96(10) and omitted Rule 89(4B) (and cleaned up cross-references).
For many exporters, investigations and SCNs from 2017–2020 onward challenged IGST refunds or ITC refunds only by invoking these rules. In Hikal, the show-cause alleged violation of Rule 96(10) over IGST refunds on exports, even though the exporter alternatively pleaded Rule 89-eligibility and revenue neutrality.
The issues the Court framed
1. Must the Court test the constitutional validity of Rules 89(4B)/96(10)?
2. What is the legal effect of omitting these rules on pending proceedings, where there is no saving clause in the amending notification or the Act?
3. What counts as a "transaction past and closed"?
4. Does Section 6, GCA save pending proceedings despite the omission by rules?
5. Can rules made under Section 164, CGST Act be treated as a "Central Act" for Section 6, GCA?
6. Does Section 174(3), CGST Act drag in Section 6, GCA here?
7. Does clause 1(2) of the 08.10.2024 notification (prospectivity) itself act as a saving?
8. Does Section 166, CGST Act (laying before Parliament) change anything?
The Court's approach (and why it matters)
1) Constitutionality? Not necessary to decide
Although petitioners attacked the validity of the rules for arbitrariness, disproportion, and inconsistency with the statutory scheme-and highlighted Kerala High Court's judgment in M/s Sance Laboratories Pvt. Ltd. (2024(10)LCX0322) striking down Rule 96(10)-the Division Bench declined to enter constitutional terrain. Courts should avoid constitutional adjudication when a matter can be disposed on narrower grounds. Here, the omission-without-saving point fully resolved the batch.
Practice note: This restraint adds stability: the outcome does not depend on a sweeping constitutional strike-down, but on orthodox repeal/omission doctrine.
2) The common-law rule on repeal/omission controls (absent a saving)
At common law, repeal/omission of a provision obliterates it as if it never existed, except as to
"transactions past and closed." This principle-fed by Keshavan Madhava Menon v. State of Bombay, commentaries of Craies/Crawford, and long-settled English/American authorities-means no pending proceeding founded on the repealed rule can continue unless:
A saving clause preserves it, or
Section 6, GCA applies (which itself is a statutory saving), or
There is a repeal-and-reenactment saving under GCA Section 24 (not relevant here).
Bombay High Court held neither the 08.10.2024 notification nor the CGST Act provided a saving for proceedings resting only on 89(4B)/96(10).
3) Section 6, GCA does not apply to omission by Rules
Two Constitution Bench authorities are pivotal:
Rayala Corporation (P) Ltd. v. Director of Enforcement: Section 6, GCA applies to repeal by "Central Act" or "Regulation", not to repeal by Rules.
Kolhapur Cane Sugar Works Ltd. v. Union of India: Reaffirmed the above; when a Rule is omitted and no saving exists, pending proceedings lapse. If a new provision replaces it with a saving, proceedings may continue under the new regime; otherwise they cannot.
The Court carefully noted that later cases like Fibre Boards and Shree Bhagwati Steel Rolling Mills only treated as obiter Rayala's observation distinguishing "repeal" vs "omission"; they did not dilute the core ratio that Section 6 is inapplicable to repeals by subordinate legislation.
4) Rules are not a "Central Act"
The Revenue urged that because the Rules were made under Section 164 of the CGST Act, they should be treated as a Central Act for GCA Section 6. The Court rejected this. "Central Act" is defined in GCA s.3(7) as an Act of Parliament-rules are subordinate legislation and cannot be elevated to "Central Act" status merely by their parentage. Earlier contrary HCs were noted to be incompatible with the Constitution Bench in Kolhapur Cane Sugar.
5) Section 174(3), CGST Act: no help
Section 174(3) says the mention of particular matters in Section 174(1)-(2) does not prejudice the general application of GCA Section 6 with regard to the "effect of repeal." The Court held:
Section 174 concerns repeal of pre-GST laws and transition;
At best, s.174(3) instructs courts to look at Section 6. But if Section 6 doesn't apply (because the repeal is by rules, not a Central Act/Regulation), s.174(3) cannot expand Section 6 beyond its text.
6) Clause 1(2) of the 08.10.2024 notification (prospectivity) is not a saving
Saying "these rules come into force on publication" just declares when the change is effective. It is not a saving clause for pending proceedings. The Court also accepted the practical point: granting full retrospectivity might trigger refund claims on truly "past and closed" matters; the Government didn't do that, but that does not preserve pending matters.
7) Section 166, CGST Act (laying before Parliament) is directory
The "laying" requirement is a negative resolution mechanism and is generally directory (see Atlas Cycle; Vineet Agrawal). Rules take effect when made and published; later parliamentary modification/annulment, if any, operates thereafter and includes a limited saving just for validity of acts between publication and modification/annulment. There was no pleaded/moderated parliamentary action here. Section 166, therefore, did not salvage the pending proceedings.
8) "Transactions past and closed": what survives?
Only matters that have reached finality in the court of last resort are "past and closed."
SCNs cannot be continued after 08.10.2024.
OIOs passed after 08.10.2024 are non est.
Even pre-08.10.2024 adjudication orders still under appeal/writ are not past and closed-so they lapse if grounded solely on the omitted rules.
The Court leaned on the Gujarat HC view in Add wrap Packaging and Uttarakhand HC view in Sri Sai Vishwas Polymers, both arising from the very same 08.10.2024 omission, holding pending matters lapse for want of savings/Section 6 cover.
The operative orders
1. Quash SCNs and quash OIOs that (a) were issued/decided after 08.10.2024, or (b) were pre-08.10.2024 but not final (i.e., subject to appeal/writ), where the sole allegation was breach of Rule 89(4B) and/or Rule 96(10).
2. Restore refund applications that had been rejected/blocked by invoking those rules, and direct their disposal within four months, after hearing the taxpayers, without relying on the omitted rules.
3. No stay of the judgment (interim protections were already operating; reviving lapsed actions via stay would be contradictory).
How this fits with other jurisprudence
Kerala HC, M/s Sance Laboratories Pvt. Ltd. (2024(10)LCX0322): Rule 96(10) held ultra vires/unconstitutional. Bombay HC didn't rule on constitutionality but recorded the point and also noted the all-India effect argument of Kusum Ingots and subsequent Bombay precedents like Godavari Devi Saraf.
Gujarat HC, Addwrap Packaging and Uttarakhand HC, Sri Sai Vishwas Polymers: Both applied Kolhapur Cane Sugar; pending proceedings based only on Rule 96(10) lapse post 08.10.2024 in the absence of savings.
Kolhapur Cane Sugar&Rayala Corporation (Constitution Benches): Section 6, GCA does not apply to repeal/omission by rules; in absence of savings, pending matters abate.
Fibre Boards, Shree Bhagwati Steel Rolling Mills: Clarify that "omission vs repeal" distinction in Rayala was obiter; they do not disturb the core principle restricting GCA s.6 to Central Acts/Regulations-leaving Kolhapur intact.
Keshavan Menon, classic "past and closed" doctrine; Wall v. C&O Ry. quoted therein: pending suits fall with repeal, unless saved.
Practical takeaways for exporters, EOUs, AA/EPCG users & DTA units
1. Check the basis of each SCN/OIO:
If the only allegation is violation of Rule 96(10) and/or Rule 89(4B), post-08.10.2024 such proceedings cannot survive.
If there are independent allegations (fake invoicing, no actual movement of goods, misstatement, 74-type fraud findings, mismatch with returns, etc.), those may still stand-the Bombay HC decision protects proceedings founded solely on the omitted rules.
2. Appeals/Writs pending? Push for disposal applying this ruling:
Orders not final as on 08.10.2024 and resting only on the omitted rules must lapse.
Seek formal quashing and consequential directions, just as the Court granted.
3. Refunds blocked earlier? Re-apply / revive files:
Where refund applications were rejected or coerced recoveries were made only because of 89(4B)/96(10), insist on fresh disposal minus those rules.
Keep ready your documentary nexus for exports (invoices, shipping bills, e-way bills, bank realization, LUT/IGST paid evidence) to pass ordinary refund scrutiny.
4. "Prospective" argument is a red herring (for pending cases):
Prospectivity does not equal savings. If there's no saving clause, pending actions based solely on the omitted rule abate.
5. Mind the "past and closed" boundary:
If an order attained finality before 08.10.2024 (no appeal/writ within limitation, or concluded by the court of last resort), the omission won't disturb it.
But many disputes from 2017–2021 lingered in appeals; such matters can now benefit.
6. Coordinate with parallel High Court views:
Bombay's ruling aligns with Gujarat and Uttarakhand on the repeal effect post 08.10.2024.
Add Kerala's Sance (on validity) to fortify arguments where authorities continue to cite 96(10).
What the Court didn't decide (but left context for)
Validity of 89(4B)/96(10): left open, though the Court noted Kerala's Sance Laboratories decision and Bombay's own lines in Godavari Devi Saraf/Lancy Leo Mendonca on the pan-India impact of a High Court striking down a central rule, pending contrary rulings.
Revenue-neutral alternative via Rule 89: The lead petitioner's point was recorded (exporter could have claimed under Rule 89 anyway), but since the case turned on omission/lapse, the Court didn't need to adjudicate neutrality.
Strategic compliance checklist (for your files)
Map all
SCNs/OIOs into buckets:
A) Solely on 96(10)/89(4B); B) Mixed grounds; C) Non-rule
grounds (e.g., fraud, fake credits).
For Bucket A, file for withdrawal/quashing citing Hikal (DB Bombay) + Kolhapur Cane Sugar + Addwrap + Sri Sai Vishwas Polymers.
For refunds earlier denied or recovered on these rules, seek revival and expedited disposal (the judgment indicates a four-month outer limit in its own directions to authorities in those cases).
For Bucket B, be ready to litigate the other grounds on merits; the rule-based limb should still fall.
Document continuity: maintain robust export trail so that, without 96(10)/89(4B), the refund still clears ordinary statutory tests.
Watch the Supreme Court docket: if Revenue seeks SLP, keep a protective clause in orders; but note the Bombay Bench refused stay.
Why Hikal matters beyond exporters
It re-centres the doctrine that delegated legislation (rules/notifications) cannot smuggle in a saving where the text doesn't say so; nor can Section 6, GCA be stretched to cover repeal by rules.
It reinforces
a clean separation between:
(i) final
matters (past and closed) and
(ii) pending
matters (which fall with the repealed rule).
It offers a method template: first ask what exactly is the live cause of action? If it is tethered solely to a vanished rule without a saving, the action vanishes with it.
A few comparative notes / authorities to keep handy
Constitution Benches: Kolhapur Cane Sugar Works Ltd.; Rayala Corporation (P) Ltd.
On "past and closed": Keshavan Madhava Menon (and the Wall v C&O Ry. passage quoted therein)
On pan-India effect of a HC striking down a central piece: Kusum Ingots; Bombay HC in Godavari Devi Saraf (with the nuance in Thana Electricity acknowledged by the Division Bench).
State HCs post-8 Oct 2024:Addwrap Packaging (Gujarat), Sri Sai Vishwas Polymers (Uttarakhand)-both squarely on omission-without-saving for 96(10).
Directory laying: Atlas Cycle, Vineet Agrawal.
Not to confuse: Vianaar Homes (Delhi HC) was about Section 174 (transition of pre-GST rules), not about omission within CGST rules mid-regime.
Closing view
Hikal is a masterclass in minimalist adjudication with maximal effect. By anchoring the outcome in orthodox repeal/omission doctrine rather than broad constitutional invalidation, the Bombay High Court has provided a predictable, administrable path to unwind thousands of live disputes premised solely on Rule 96(10)/Rule 89(4B). It simultaneously respects the legislative choice made on 08.10.2024 to remove those constraints, and insists that if the Executive wants to preserve pending actions when rules are withdrawn, it must say so expressly-or live with the legal consequence that proceedings stop where the omission finds them.
For industry, the message is crisp: if your IGST/ITC refund litigation rested only on these two rules and is not "past and closed," you now have a strong, doctrine-backed runway to close the chapter and get refunds processed on the statute as it stands-without the ghost of 96(10) and 89(4B).
Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.