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Informist, Friday, Sept. 12, 2025

 

NEW DELHI – In a relief to Hikal Ltd., Alkem Laboratories Ltd., Blue Jet Healthcare Ltd., and others, the Bombay High Court has quashed the tax department's show-cause notices, demand and penalty orders which were passed against them due to alleged non-compliance with the conditions prescribed under Rule 89(4B) and 96(10) of the Central Goods and Service Tax Rules, 2017. 

 

Rule 89(4B) related to a method for the calculation of refund of unutilised input tax credit for certain categories of exporters. This rule applied to exporters who had imported goods without payment of integrated goods and services tax by availing exemptions under certain customs notifications. Rule 96(10) specifically restricted exporters from claiming a refund of integrated goods and services tax paid on exports if they had imported inputs or capital goods under notifications providing exemption from customs duties. 

 

Both of these rules were omitted by the government on Oct. 8, 2024. The companies objected to the orders passed by the tax department despite the removal of these rules. 

 

The high court held that following the omission of these rules in Oct. 8, 2024, and in the absence of any saving clauses or the benefit of Section 6 of the General Clauses Act, all pending proceedings on or before Oct. 8, 2024 will stand lapsed. "Accordingly, we quash and set aside the impugned show-cause notices and the impugned orders in original. Furthermore, we also quash and set aside the orders refusing some of the petitioners' applications for refund, restore those applications to the files of the relevant authorities, and direct the authorities to consider and dispose of such refund applications..." said the court. This process must be completed within four months after providing the petitioners with a fair opportunity to be heard, the court added.

 

The high court took Hikal Ltd.'s plea as the lead case in deciding all the petitions as similar questions were raised in all of them. Hikal operated two manufacturing units Taloja and Mahad in Raigad, Maharashtra. In the Taloja unit, Hikal imported raw materials duty-free under a customs 2017 notification and exported nearly 90% of its finished goods. In Mahad unit, Hikal procured raw materials under advance authorisation licences and availed integrated goods and services tax exemption under another customs 2017 notification. In some cases, Hikal also undertook the import of goods on payment of integrated goods and services tax. 

 

Hikal said that the finished goods manufactured by it were either exported, with or without the payment of integrated goods and services tax, or sold domestically. On exports made with payment of integrated goods and services tax, Hikal claimed a refund under Section 54 of the Central Goods and Services Act, read with Section 16 of the Integrated Goods and Services Tax Act. These refunds were duly sanctioned to the petitioner and the tax department did not challenge the refund sanction order, said Hikal.

 

In 2022, the tax department initiated an investigation for the 2017-18 to 2019-20 period based on the suspicion that the integrated goods and services tax refund claimed by Hikal was in violation of Rule 96(10) of the 2017 Rules, since certain goods were imported against advance authorisation licences. This investigation culminated in the issuance of a show-cause notice in 2024 proposing a GST demand against Hikal. Thereafter, the petitioner moved the high court challenging the constitutional validity of Rule 96(10) of the 2017 Rules and the show-cause notice. In the meantime, the government omitted Rule 89(4B) and Rule 96(10), however, the proceedings were continued and a final order was passed by the department. Similar issues arose with other companies, which also filed their petitions in the high court. 

 

At 1406 IST, the shares of Hikal were trading down 0.4% at INR 258.85 on the National Stock Exchange, of Alkem Laboratories Ltd. were up 0.8% at INR 5,441.00 and those of Blue Jet Healthcare Ltd. were up 4.3% at INR 712.10.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Surya Tripathi

Edited by Deepshikha Bhardwaj

 

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