GST Update on CBIC Circular No. 264/10/2026-GST dated 26 October 2026

GST update /2026-27/0109

GST Update on CBIC Circular No. 264/10/2026-GST dated 26 October 2026
A Quick Overview
Rule 96(10) of the Central Goods and Services Tax Rules, 2017 was introduced with effect from 23.10.2017 with the objective of preventing exporters from availing a double benefit under the GST regime. To understand the controversy surrounding its subsequent omission, it is necessary to understand the mechanism of export refunds and the restrictions originally imposed under the said provision.
Under the GST regime, exports are treated as zero-rated supplies, and an exporter may generally export goods either by paying Integrated Goods and Services Tax (IGST) and claiming a refund of the tax paid, or under a Letter of Undertaking (LUT) or bond without payment of IGST and claim a refund of eligible unutilised input tax credit (ITC), subject to the applicable statutory conditions. However, certain exporters under schemes like EOU, Advance Authorisation, deemed exports and merchant exports were taking a “double benefit”. They bought inputs tax-free and then also got a cash refund of the IGST paid on exports. To prevent such exporters from availing the benefit of exemption on inputs as well as a refund of IGST paid on the export of the finished goods, Rule 96(10) was introduced to impose restrictions on the availment of IGST refunds in specified circumstances.
However, the applicability of Rule 96(10) gave rise to practical difficulties and industry-wide disputes, creating uncertainty among exporters. The rule was amended several times. Between September and October 2018, the rule was rewritten three times. Its scope kept shifting, and exporters who had paid IGST on exports and taken refunds in the ordinary course found themselves facing recovery notices years later. Even where only a small portion of the inputs was imported duty-free under Advance Authorisation, the entire IGST refund on exports could be denied, resulting in disproportionate financial hardship. Further, refunds already sanctioned were reopened years later, with demands for recovery along with interest and penalties, adversely affecting the financial position and working capital of businesses. Thus, instead of facilitating exports, Rule 96(10) became a source of uncertainty, prolonged disputes and blockage of funds for genuine exporters, thereby necessitating its removal.
The matter was considered by the GST Council in its 54th meeting held on 09.09.2024. The Council observed that Rule 96(10), along with Rules 89(4A) and 89(4B), was creating unnecessary complications and difficulties in processing export refund claims without serving the intended purpose. Accordingly, it recommended the prospective omission of these provisions. Pursuant to this recommendation, Rule 96(10) was omitted with effect from 08.10.2024 vide Notification No. 20/2024-Central Tax dated 08.10.2024. Since the omission was expressly made prospective, uncertainty remained regarding its applicability to pending proceedings relating to the period from 23.10.2017 to 07.10.2024.
Gujarat HC, Addwrap Packaging Pvt. Ltd. v. UoI (13.06.2025): The Landmark Ruling
In Addwrap Packaging Pvt. Ltd. v. Union of India, the Gujarat High Court held that although the omission of Rule 96(10) by Notification No. 20/2024 was prospective and not retrospective in nature, it would nevertheless apply to all proceedings that were pending on the date of its omission. Relying upon the Supreme Court's decision in Kolhapur Canesugar Works Ltd., the Court observed that where a provision is omitted without a saving clause, it ceases to exist in the statute book and no further proceedings can be continued under the omitted provision. Accordingly, without examining the constitutional validity of Rule 96(10), the Court quashed the pending show cause notices and adjudication orders passed under the said Rule.
Supreme Court Decision in case of M/s Goodluck India Limited & Anr. v. Union of India & Ors
The issue was subsequently considered by the Hon’ble Supreme Court in M/s Goodluck India Limited & Anr. v. Union of India & Ors., SLP (Civil) No. 24550 of 2025 and connected matters, decided on 06.08.2026. The Hon’ble Supreme Court held that, in the absence of a saving clause or sunset clause preserving pending proceedings, the omission of Rule 96(10) would apply to all proceedings pending on the date of its omission. The Court relied upon the Constitution Bench judgment in Kolhapur Canesugar Works Ltd. v. Union of India, holding that Section 6 of the General Clauses Act, 1897, does not apply to the omission of a rule and that pending proceedings can continue only where an express provision or another legal mechanism preserves them.
Circular No. 264/10/2026-GST dated 26.10.2026
In view of the aforesaid judgment, the CBIC issued Circular No. 264/10/2026-GST dated 26.10.2026, clarifying that the omission of Rule 96(10) shall be treated as effective retrospectively from 23.10.2017. The Circular directs departmental field formations to deal with pending proceedings in accordance with the Supreme Court's judgment and extends the same treatment, mutatis mutandis, to the omission of Rules 89(4A) and 89(4B). Consequently, pending disputes arising from the restrictions imposed under these provisions are required to be dealt with in light of the retrospective effect of their omission.
Conclusion
The CBIC has clarified the following:

Retrospective effect:The omission of Rule 96(10) shall be treated as effective from 23.10.2017, the date on which the rule was originally introduced.
Pending proceedings: Tax authorities must deal with pending proceedings concerning Rule 96(10) in accordance with the Supreme Court judgment. Therefore, the same would come to an end.
Rules 89(4A) and 89(4B):The same treatment shall apply, mutatis mutandis, to the omission of these rules as well.

CA Pradeep Jain_

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