Retrospective Omission of GST Rule 96(10) w.e.f. Oct 2017 (Circular 264/10/2026-GST): Complete IGST Export Refund & SCN Defense Guide for CAs & CFOs

In a historic resolution to one of the most contentious disputes in Indian indirect tax history, the Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 264/10/2026-GST (dated October 26, 2026). The circular officially clarifies that the omission of Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, 2017 applies retrospectively from its inception date of October 23, 2017. Following binding jurisprudence from the Supreme Court of India in Goodluck India Limited v. Union of India, this directive requires tax authorities across India to quash all pending Show Cause Notices (SCNs), demand orders, and recovery proceedings demanding repayment of IGST export refunds.

1. The Genesis of the Rule 96(10) Dispute: The Double Benefit Prohibition Trap

Under Section 16(3) of the Integrated Goods and Services Tax (IGST) Act, 2017, an exporter of goods has two statutory routes for zero-rated supplies:

1. Export under Letter of Undertaking (LUT) / Bond: Export without payment of integrated tax and claim a refund of unutilized Input Tax Credit (ITC) under Section 54(3) of the CGST Act.
2. Export on Payment of Integrated Tax: Pay IGST at the time of export (utilizing available accumulated ITC) and obtain an automatic, direct rebate of IGST paid under Section 54(1) through the ICEGATE customs EDI system.

To prevent perceived "double benefits," the Central Government introduced Rule 96(10) of the CGST Rules with effect from October 23, 2017 (via Notification No. 53/2017-Central Tax, subsequently amended by Notification No. 54/2018-Central Tax and Notification No. 3/2019-Central Tax). Under this restrictive rule, any registered person who availed the benefit of:

• Notification No. 78/2017-Customs or Notification No. 79/2017-Customs (exemption from Basic Customs Duty and IGST on inputs imported under Advance Authorisation or by Export Oriented Units / EOUs); or
• Notification No. 40/2017-Central Tax (Rate) / Notification No. 41/2017-Integrated Tax (Rate) (concessional 0.1% GST on merchant export procurements)

was strictly disqualified from exporting goods on payment of IGST with refund. Exporters availing these raw material exemptions were forced to export exclusively under LUT.

In practice, hundreds of manufacturer-exporters routinely imported certain raw materials under Advance Authorisation licenses while paying regular IGST on domestic inputs, capital goods, and freight. When these entities exported finished consignments on payment of IGST, GST audit wings and Directorate General of GST Intelligence (DGGI) zonal units issued voluminous Show Cause Notices under Section 73 and Section 74. Authorities demanded full recovery of refunded IGST amounts, saddling export businesses with staggering 18% annual interest claims under Section 50 and equivalent penalty demands under Section 122.

2. From Prospective Omission to Retrospective Annulment: The Judicial Turning Point

Recognizing that Rule 96(10) had evolved into a procedural nightmare that tied up working capital without yielding any net revenue benefit to the exchequer, the 54th GST Council Meeting recommended its complete omission. The Central Government implemented this recommendation via Notification No. 20/2024-Central Tax (effective October 8, 2024).

However, field formations insisted that because the Council's notification omitted the rule prospectively, all past demands, pending SCNs, and audit memos pertaining to the period from October 23, 2017 to October 7, 2024 remained enforceable. Exporters faced continuous harassment and coercive bank recovery actions.

The Supreme Court Jurisprudence: Goodluck India Limited & Kolhapur Canesugar

The deadlock reached the Supreme Court of India in Goodluck India Limited v. Union of India (2026 TAXSCAN (SC) 261). The Apex Court reviewed the constitutional doctrine governing the repeal and omission of delegated rules, reiterating the binding five-judge Constitution Bench precedent in Kolhapur Canesugar Works Ltd v. Union of India [(2000) 2 SCC 536]:

The Supreme Court observed that the GST Council itself acknowledged that Rule 96(10) was "leading to unnecessary complications without any intended benefit being served." Because the legislature omitted Rule 96(10) without appending any saving clause under Section 164 of the CGST Act, all pending proceedings automatically collapsed.

3. Key Directives of CBIC Circular No. 264/10/2026-GST

In adherence to the Supreme Court ruling, CBIC's Circular No. 264/10/2026-GST establishes explicit instructions for adjudicating authorities, appellate Commissioners, and GST audit teams:

• Retrospective Inception Coverage: The omission of Rule 96(10) applies unconditionally from October 23, 2017. The rule is treated as non-existent for all pending assessments, audits, and inquiries.
• Mandatory Dropping of Section 73 / 74 / 74A Demands: Field formations are directed to vacate all outstanding Show Cause Notices, DRC-01 notices, and adjudication orders where the sole allegation was non-compliance with Rule 96(10) conditions.
• Extension to Rule 89(4A) and Rule 89(4B): The circular expressly clarifies that this retrospective principle applies with equal force to the omission of Rule 89(4A) (formula restriction on refunds involving deemed exports) and Rule 89(4B) (formula restriction involving procurements under concessional 0.1% merchant export notifications).
• Pre-Deposits and Protest Payments: Any pre-deposit amounts deposited by exporters under Section 107(6) or Section 112(8) during appellate challenges, or amounts deposited under protest during DGGI inquiries, are eligible for refund with statutory interest under Section 56.

4. Operational Impact Matrix: Before vs. After Circular 264/10/2026-GST

The following structured comparison illustrates the legal transformation for corporate finance departments and tax litigators:

5. Step-by-Step Defense Protocol for Tax Practitioners & Litigators

Chartered Accountants and tax practitioners handling pending audit objections or Show Cause Notices under Rule 96(10) should execute the following defense sequence:

Step 1: Scrutinize the Allegation in Form GST DRC-01

Review the exact wording in the Show Cause Notice or Statement of Demand. Confirm whether the demand is anchored on:

• Availment of duty exemption under Notification No. 78/2017-Customs or 79/2017-Customs (Advance Authorisation / EPCG); or
• Procurement under Notification No. 40/2017-CT(R) or 41/2017-IT(R) coupled with export on payment of IGST.

Step 2: File Formal Legal Written Submissions

Submit a formal reply in Form GST DRC-06 citing three unambiguous statutory pillars:

1. CBIC Circular No. 264/10/2026-GST: Explicit administrative directive binding on all GST officers under Section 168 of the CGST Act, mandating retrospective application w.e.f. October 23, 2017.
2. Supreme Court Ruling in Goodluck India Limited: Supreme Court declaration under Article 141 of the Constitution that omission without a saving clause extinguishes pending proceedings.
3. Absence of Revenue Loss: Verify that output IGST was properly liquidated and documented in Table 6A of GSTR-1, ensuring that the government received the full tax payload upon supply.

When compiling substantial documentation—including export invoices, shipping bills, Advance Authorisation licenses, and appellate memo sets—practitioners frequently encounter the GST portal's 5MB upload ceiling. Use AuditApply's client-side compress PDF utility to securely reduce legal annexures and exhibit bundles without compressing below legible print resolution.

Step 3: Cross-Verify Export Turnovers & ITC Registers

Before closing the matter with adjudicating officers, perform a full reconciliation between export turnover reported in financial statements, Table 6A of GSTR-1, and ICEGATE shipping bill logs. Utilize AuditApply's free GSTR-1 vs Sales reconciliation tool to ensure zero discrepancies between commercial invoices and tax returns. Additionally, run your raw material purchases through the GSTR-2B reconciliation engine to verify that input tax credits claimed during export manufacture were fully compliant under Section 16(2)(aa).

Step 4: Reconcile Bank Realization Records

For zero-rated supplies involving foreign exchange, tax officers during personal hearings frequently request Bank Realization Certificates (BRC) or Foreign Inward Remittance Certificates (FIRC). Finance teams can convert inward remittance bank scrolls into structured audit spreadsheets using the bank statement converter, linking UTR numbers directly to customs shipping bills.

6. Actionable 5-Point Execution Checklist for CAs & Corporate Finance Teams