GST Rule 96(10) Omission Retrospective From 2017: CBIC Circular 264/10/2026 Explained

The Central Board of Indirect Taxes and Customs has clarified that the omission of Rule 96(10) of the CGST Rules, 2017 operates retrospectively from 23 October 2017, the date the sub-rule was first inserted. Circular No. 264/10/2026-GST dated 26 October 2026 (F. No. CBIC-20001/2/2026-GST), issued by the GST Policy Wing under Section 168(1) of the CGST Act, tells field formations to deal with every pending Rule 96(10) proceeding in line with the Supreme Court's judgment in Goodluck India Limited & Anr. v. Union of India & Ors. The same treatment is to apply to the omitted Rules 89(4A) and 89(4B).

For exporters who have spent years fighting show cause notices, refund rejections and recovery orders built on Rule 96(10), the circular removes the department's remaining room to argue that the 2024 omission was only prospective. The clarification implements a recommendation of the 57th GST Council meeting held on 8 October 2026, which listed, among the issues to be settled through circulars, the omission of Rule 96(10) "to be effective from 23.10.2017".

What Rule 96(10) did and why exporters were caught by it

Rule 96 governs refund of integrated tax paid on goods exported out of India. Sub-rule (10) barred that IGST refund where the exporter had received inputs on which a concessional or exemption notification had been availed. The intention was to stop a double benefit: duty-free or concessional inputs on one side and a cash refund of IGST paid on the export on the other. In practice it hit units working under the Advance Authorisation and Export Oriented Unit schemes, and exporters buying under the deemed export and merchant exporter concessions.

The import-side notifications most often in dispute were Notification No. 78/2017-Customs and Notification No. 79/2017-Customs, both dated 13 October 2017. An Explanation inserted by Notification No. 16/2020-Central Tax dated 23 March 2020, also with effect from 23 October 2017, carved out exporters who had paid IGST and compensation cess on imported inputs and taken only the Basic Customs Duty exemption. CBIC later went a step further in Circular No. 233/27/2024-GST dated 10 September 2024, accepting that an exporter who imported inputs without IGST and cess could regularise the position by paying both with interest and getting the Bill of Entry reassessed by the jurisdictional Customs authorities.

Even with those relaxations, a large number of exporters faced demands for recovery of IGST refunds already sanctioned, and many refund applications were rejected outright.

How the omission went from prospective to retrospective

The 54th GST Council meeting on 9 September 2024 recorded a Law Committee recommendation to omit Rule 96(10) with prospective effect. Notification No. 20/2024-Central Tax dated 8 October 2024, the CGST (Second Amendment) Rules, 2024, then omitted sub-rule (10) of Rule 96 and sub-rules (4A) and (4B) of Rule 89. It carried no saving clause for proceedings already under way, and those clauses took effect on publication in the Official Gazette.

The department's position after October 2024 was that cases relating to earlier periods continued to be governed by the rule. High Courts disagreed. The Gujarat High Court in Addwrap Packaging Pvt. Ltd. (SCA No. 22519 of 2019, decided on 13 June 2025) and JJ Plastalloy Pvt. Ltd. (R/SCA No. 3081 of 2025, decided on 20 November 2025) held that proceedings based on an omitted rule cannot survive without a saving clause, and that a notice or order that has not attained finality is not a "past and closed" matter.

The Supreme Court settled the question on 6 August 2026. A bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran, in the Goodluck India judgment reported as 2026 INSC 821, dismissed the Union's appeals. Applying the Constitution Bench decision in Kolhapur Canesugar Works Ltd. v. Union of India, (2000) 2 SCC 536, it held that Section 6 of the General Clauses Act, 1897 does not save proceedings under an omitted rule, so the omission applies to every proceeding pending on the date of omission. The Court noted the Additional Solicitor General's concession that the Council's "prospective" recommendation was advisory, read the intention from the text of Notification No. 20/2024, which has no prospective limitation, and observed that the government's purpose could not be "to keep alive the unnecessary complications insofar as the pending proceedings are concerned." It directed that the judgment be sent to all High Courts so that connected cases are listed before the roster benches.

CBIC accepted the ruling internally through an Office Memorandum (F. No. CBIC-20010/21/2026-GST) dated 24 August 2026. The new circular converts that acceptance into a public, binding instruction to officers.

The sequence of documents now reads as follows.

Which Rule 96(10) cases are covered by Circular 264/10/2026-GST

The operative instruction is that field formations must handle pending Rule 96(10) proceedings in accordance with the Supreme Court's ruling. Read with the judgment, the following situations fall squarely within it:

• show cause notices proposing recovery of IGST refunds under Rule 96(10) that had not been adjudicated by 8 October 2024;
• orders confirming such demands that were under appeal before the Appellate Authority, the Tribunal or a High Court on that date;
• refund applications rejected on the strength of Rule 96(10) where the rejection was still under challenge;
• refund claims that were simply held up, without a final order, because of a Rule 96(10) objection.

The same reasoning extends to proceedings under Rules 89(4A) and 89(4B), which governed refund of input tax credit on zero-rated supplies where inputs had been received under the same concessional routes. Disputes under those sub-rules were omitted by the same notification and now get identical treatment.

Where a demand had attained finality before 8 October 2024 because no appeal was filed, the judgment does not help directly; the Supreme Court spoke of proceedings pending on the date of omission. The circular's statement that the omission is effective from 23 October 2017 will no doubt be cited in such closed cases, but it does not instruct officers to reopen concluded matters or to refund amounts already recovered under final orders. That remains the main open point.

What exporters and their advisers should do with pending Rule 96(10) matters

The first task is an inventory. List every notice, order, appeal and writ in which Rule 96(10), Rule 89(4A) or Rule 89(4B) is the ground, and record its stage as on 8 October 2024. That date decides whether the judgment and the circular apply. For each live matter, a short written submission citing Circular No. 264/10/2026-GST and the Goodluck India judgment should be placed before the adjudicating or appellate authority; officers now have a Board instruction that leaves little discretion.

Exporters whose IGST refunds were withheld rather than rejected should ask the jurisdictional officer to process them, since the only objection has gone. Where a refund was sanctioned, then recovered under an order that is still under appeal, the appeal should now succeed on this ground, and the amount recovered should be claimed back once the order is set aside.

A separate question arises for exporters who took the Circular No. 233/27/2024-GST route and paid IGST and cess with interest on imported inputs to escape the bar. The new circular does not deal with those voluntary payments, and any claim to recover them will turn on the customs position of each Bill of Entry.

Circular No. 264/10/2026-GST was one of eight circulars, numbered 257 to 264, that CBIC issued on 26 October 2026 to implement the 57th Council's recommendations; the others cover registration documents, adjudication and appeal standards, pre-deposits, the ISD mechanism, Section 17(4) credit for banks, demo vehicles and export proceeds in rupee accounts. Field formations have been asked to issue trade notices publicising the Rule 96(10) clarification and to report implementation difficulties to the Board, so zone-wise trade notices are the next documents to watch.

Official source: View the official source document