When the Rule Disappears, Can the Demand Survive? The Rule 96(10) Controversy

Unconditional Omission Raises the Question of Survival of Pending Proceedings

Rule 96(10) of the CGST Rules, 2017 had long been a source of litigation for exporters. It restricted refunds of integrated tax paid on exports in specified situations where the exporter or its supplier had availed certain concessional benefits. Its subsequent unconditional omission raised a more fundamental legal question: can proceedings already initiated under the Rule continue when the Rule itself has been omitted without any saving clause protecting pending proceedings?

The Calcutta High Court considered this issue in M/s KSE Electricals Private Limited & Another v. Additional Commissioner, Kolkata South CGST & CX Commissionerate & Others, 2026-VIL-1029-CAL, decided on 03.09.2026. Though the judgment runs to only four pages, it has considerable practical significance. Applying the Supreme Court ruling in M/s Goodluck India Limited & Another v. Union of India & Others, 2026-VIL-75-SC, the High Court quashed the Show Cause Notice issued under Section 74 as well as the consequential orders, since the proceedings were founded solely on Rule 96(10), which had been omitted without any saving clause.

The significance of the ruling lies in its application of the principle to pending proceedings. The fact that Rule 96(10) existed during the relevant tax period, or even when the proceedings were initiated, was not sufficient to keep them alive. Once the Rule was unconditionally omitted without preserving pending proceedings, a demand founded solely on that Rule could no longer survive.

Valid Initiation Does Not Always Mean Lawful Continuation

The dispute spanned July 2017 to March 2022. A Show Cause Notice dated 25.07.2024 was issued under Section 74, alleging violation of Rule 96(10). At that time, Rule 96(10) was still in force, and therefore the proceedings were initiated under the law then in force.

However, the position changed during the pendency of the proceedings. Notification No. 20/2024-Central Tax dated 08.10.2024 omitted Rule 96(10) with effect from the same date. More importantly, the omission was unconditional—there was no saving clause preserving pending notices, proceedings or liabilities under the omitted Rule. Despite this change, consequential orders were passed on 04.02.2025 on the basis of the earlier SCN.

The real issue, therefore, shifted from whether Rule 96(10) had been violated to whether proceedings based solely on that Rule could continue after its unconditional omission. The SCN’s issuance when Rule 96(10) was in force could explain its initiation, but could not, by itself, justify its continuation after the Rule had ceased to apply to pending proceedings.

This distinction is important. Valid initiation and lawful continuation are separate questions. Where the sole statutory foundation of a pending proceeding is subsequently omitted without any saving clause, invocation of Section 74 cannot, by itself, preserve that proceeding. The continuing enforceability of the demand must be tested in the light of the law as it stands after the omission.

Unconditional Omission - What Happens to Pending Proceedings?

The omission of a statutory provision does not merely raise the question of what law will apply in the future. It also raises an equally important question: what happens to rights, liabilities, notices and proceedings that arose under the provision before it was omitted? This becomes particularly significant where proceedings had already commenced but had not attained finality when the provision disappeared from the statute book.

Ordinarily, the legislature or the rule-making authority can deal with this situation through a saving clause. Such a clause may expressly provide that, despite repeal or omission of a provision, liabilities already incurred, actions already taken and proceedings already initiated will continue as if the earlier provision had remained in force. The saving clause thus creates a legal bridge between the old provision and pending proceedings. Where such a clause exists, the repeal or omission does not necessarily bring pending matters to an end.

The difficulty arises where the provision is omitted unconditionally and no saving clause is inserted. In such a situation, the question is not simply whether the provision was validly applicable when the transaction took place or when the SCN was issued. The further question is whether there remains any legal basis for continuing the proceeding after the provision itself has been omitted.

This was the importance of the Supreme Court ruling in M/s Goodluck India Limited & Another v. Union of India & Others, 2026-VIL-75-SC, relied upon by the petitioners. Drawing upon the Constitution Bench decision in Kolhapur Canesugar Works Ltd. v. Union of India, 2000-VIL-29-SC-CE, the Supreme Court treated the absence of a saving clause as legally significant. The principle applied was that where the relevant provision is omitted without preservation of pending proceedings, proceedings founded upon that provision cannot continue merely because they had commenced before its omission.

This principle assumes particular importance in the context of delegated legislation. Rule 96(10) formed part of the CGST Rules rather than the CGST Act itself. Its omission, therefore, had to be examined in the light of the legal principles governing omission of subordinate legislation and the saving of proceedings initiated under it. It could not simply be assumed that every liability or proceeding arising under the omitted Rule would automatically continue.

An important distinction must also be maintained between retrospective omission and survival of pending proceedings. Notification No. 20/2024-Central Tax omitted Rule 96(10) with effect from 08.10.2024. That effective date tells us when the Rule ceased to remain in force. It does not, by itself, answer the separate question whether proceedings relating to earlier periods can continue after that date. For their continuation, there must be a legal basis preserving the operation of the omitted Rule in relation to pending matters.

This distinction proved decisive in KSE Electricals. The relevant tax period was July 2017 to March 2022, and the SCN had already been issued on 25.07.2024, when Rule 96(10) was still in force. Those facts could support the original initiation of the proceedings. But once Rule 96(10) was omitted on 08.10.2024 without any saving clause, a separate question arose as to whether it continued to survive.

Therefore, the decisive issue was not merely when the alleged contravention occurred or when the SCN was issued. The real question was whether, after the unconditional omission of Rule 96(10), any statutory provision preserved that Rule for the purpose of completing the pending proceedings. In the absence of such a saving provision, the proceedings founded solely upon Rule 96(10) could not continue.

Judicial Recognition That Pending Proceedings Require a Saving Clause

The legal issue is not confined to whether Rule 96(10) was in force when the exports were made or when the alleged contravention occurred. An equally important question is whether proceedings founded on that Rule can continue after the Rule itself has been unconditionally omitted. This distinction became central after Rule 96(10) was omitted without any provision expressly preserving pending proceedings.

The judicial development on this issue has taken place in stages. In Addwrap Packaging Pvt. Ltd. & Others v. Union of India & Others, 2025- VIL- 587- GUJ, the Gujarat High Court laid the foundation for examining the effect of the unconditional omission of Rule 96(10). The controversy thereafter reached the Supreme Court in M/S Goodluck India Limited & Another v. Union of India & Others, 2026- VIL- 75- SC, where the governing principle concerning omission without a saving clause received authoritative recognition.

The importance of Goodluck India lies in the distinction between the Rule' s existence during the relevant period and its continued availability for pending proceedings. The mere fact that Rule 96(10) was in force when the relevant transactions took place does not necessarily mean that proceedings under that Rule can continue indefinitely after its omission. Where the Rule is omitted without a saving provision, the continuation of pending proceedings itself requires a legal foundation.

KSE Electricals represents the practical application of this principle. The SCN had already been issued under Section 74 before Rule 96(10) was omitted. Nevertheless, the proceedings were founded solely on the alleged violation of Rule 96(10). Therefore, after its unconditional omission, the question was whether Section 74 could independently sustain a demand whose substantive basis had disappeared.

The answer was in the negative. Section 74 provides the machinery for the determination of tax liability in specified circumstances; it cannot, by itself, preserve a substantive restriction contained in an omitted Rule. Consequently, where the demand rests solely on Rule 96(10) and that Rule has been omitted without saving pending proceedings, the proceeding cannot survive merely because the SCN had been issued earlier.

The judicial progression may therefore be understood as follows: Addwrap Packaging laid the foundation, Goodluck India settled the governing principle, and KSE Electricals applied that principle to a pending Section 74 proceeding. The common thread is that a proceeding founded solely on an omitted provision must have a legally recognised saving provision if it is to continue after the omission.

Section 74 Cannot Preserve a Demand After Its Substantive Foundation Has Disappeared

Section 74 provides the machinery for determining tax liability in specified circumstances; it does not independently create the substantive liability sought to be enforced. Therefore, where a demand is founded solely on Rule 96(10), invoking Section 74 cannot preserve the proceeding after the Rule has been unconditionally omitted without saving pending proceedings.

In KSE Electricals, Rule 96(10) was the sole foundation of the proceedings. Once that foundation disappeared, neither the Show Cause Notice dated 25.07.2024 nor the consequential orders dated 04.02.2025 could survive. However, the principle should not be extended to cases involving independent allegations under other provisions of the CGST Act or Rules; in such cases, each allegation would have to be examined on its own legal foundation.

Thus, the ruling lays down a narrow but important principle: a machinery provision such as Section 74 cannot keep alive a demand when the sole substantive provision supporting that demand no longer survives for pending proceedings.

Pending Proceedings Must Be Tested Against Their Surviving Statutory Foundation

The CBIC Office Memorandum dated 24.08.2026 directed field formations not to initiate or pursue proceedings founded on the omitted Rule 96(10). It thus translated the judicial position on unconditional omission into departmental practice and was also relied upon by the petitioners in KSE Electricals.

For pending matters, however, the mere omission of Rule 96(10) is not sufficient. The real test is whether the impugned demand is founded solely on Rule 96(10) and whether any saving clause or independent statutory provision preserves the proceedings after its omission.

Accordingly, the legal foundation of each demand must be examined. Where Rule 96(10) is the sole basis and no saving provision applies, the proceeding cannot continue; where an independent statutory basis exists, its sustainability must be examined separately. The issue therefore turns on the surviving legal foundation of the demand, rather than merely on the omission of Rule 96(10).

Unconditionally Omitted Rule Cannot Sustain Pending Proceedings

The Calcutta High Court gave direct effect to the unconditional omission of Rule 96(10). Since the Show Cause Notice dated 25.07.2024 and the consequential orders dated 04.02.2025 were founded solely on that Rule, they could not survive and were quashed and set aside.

The ruling therefore reinforces a precise principle: the earlier existence of Rule 96(10), or even the initiation of proceedings while it was in force, cannot preserve pending proceedings when the Rule has subsequently been omitted without a saving clause.