The Calcutta High Court quashed a show cause notice issued under Section 74 of the CGST Act, 2017, holding that proceedings cannot be based on a rule that has been omitted unconditionally without a saving clause. The judgment follows the Supreme Court’s pronouncement in M/s Goodluck India limited & Anr. v. Union of India & Ors and reinforces the principle that an omitted rule ceases to exist in law.
Background & Facts
The Dispute
The petitioners, M/s. Glen Industries Private Limited & Anr., challenged a show cause notice dated 09.01.2024 issued by the Deputy Director, Directorate General of GST Intelligence, Kolkata Zonal Unit, alleging violation of Rule 96(10) of the CGST/WBGST Rules, 2017 for the period July 2017 to March 2021. The respondents contended that the notice was validly issued under Section 74 of the CGST Act, 2017. The core controversy was whether Rule 96(10), which had been omitted unconditionally with effect from 08.10.2024, could still serve as the basis for proceedings initiated prior to its omission.
Key Facts
- Rule 96(10) of the CGST/WBGST Rules, 2017 was omitted unconditionally by Notification No. 20/2024 - Central Tax dated 08.10.2024, without any saving clause.
- The show cause notice under Section 74 of the CGST Act, 2017 was issued on 09.01.2024 for the period July 2017 to March 2021.
- Consequential orders dated 30.01.2025 were passed in pursuance of the said show cause notice.
- The Supreme Court in M/s Goodluck India limited & Anr. v. Union of India & Ors, SLP (C) No. 24550 of 2025, held that on omission of a provision without any saving clause the provision ceases to exist in the eye of law and no proceedings can be initiated or continued on the basis thereof.
- The Central Board of Indirect Taxes and Customs issued Office Memorandum dated 24.08.2026 directing field formations not to initiate or pursue proceedings based on the omitted Rule 96(10).
- The present writ petition (W.P.A. 3254 of 2025) was filed before the Calcutta High Court.
Procedural History
- 08.10.2024: Notification No. 20/2024 - Central Tax omits Rule 96(10) of CGST/WBGST Rules, 2017 unconditionally.
- 09.01.2024: Show cause notice issued under Section 74 of the CGST Act, 2017 for FY 2017-18 to 2020-21.
- 30.01.2025: Consequential orders passed pursuant to the show cause notice.
- 06.08.2026: Supreme Court judgment in M/s Goodluck India limited & Anr. v. Union of India & Ors (supra) delivered.
- 24.08.2026: Office Memorandum dated 24.08.2026 issued by CBIC regarding non-initiation of proceedings on omitted Rule 96(10).
- 15.09.2026: Judgment of the Calcutta High Court in W.P.A. 3254 of 2025 delivered.
Relief Sought
The petitioners sought quashing of the show cause notice dated 09.01.2024 and the consequential orders dated 30.01.2025, and a direction for supply of an urgent photostat certified copy of the order.
The Legal Issue
The central question was whether a show cause notice and consequential orders predicated upon a rule that had been omitted unconditionally without a saving clause could survive legal scrutiny after the rule’s omission.
Arguments Presented
For the Petitioner
The petitioners relied on the Supreme Court’s decision in M/s Goodluck India limited & Anr. v. Union of India & Ors and the Constitution Bench judgment in Kolhapur Canesugar Works Ltd. v. Union of India to argue that once a rule is omitted without a saving clause, it ceases to exist in law and no proceedings - whether initiated before or after omission - can be founded thereon. They emphasized that the CBIC’s Office Memorandum dated 24.08.2026 confirmed the department’s own acceptance of this position.
For the Respondent
The respondents, representing the GST authorities, contended that the show cause notice was validly issued under Section 74 of the CGST Act, 2017 at a time when Rule 96(10) was still in force, and that the omission could not affect proceedings already initiated. They asserted that the proceedings were in accordance with the law prevailing at the relevant point of time and that the Supreme Court’s observations were advisory and not binding on pending proceedings.
The Court's Analysis
The Court took judicial notice of the Supreme Court judgment dated 06.08.2026 in M/s Goodluck India limited & Anr. v. Union of India & Ors and the CBIC Office Memorandum dated 24.08.2026. It observed that the Constitution Bench in Kolhapur Canesugar Works Ltd. v. Union of India had clearly stated that omission of a rule without a saving clause terminates its legal existence. The Court quoted:
"Upon omission of a provision without any saving clause the provision ceases to exist in the eye of law and no proceedings can be initiated or continued on the basis thereof." Applying this principle, the Court held that the show cause notice dated 09.01.2024 and the consequential orders dated 30.01.2025, being founded solely on the omitted Rule 96(10), were without legal foundation and must be quashed. The Court further noted that the respondents’ reliance on the law prevailing at the time of issuance was misplaced because the rule’s omission operated retrospectively to invalidate any basis for proceedings, absent a saving clause.
The Verdict
The petitioners succeeded. The Calcutta High Court quashed the show cause notice dated 09.01.2024 and the consequential orders dated 30.01.2025, held that no proceedings could be based on the omitted Rule 96(10) due to its unconditional omission without a saving clause, and directed the registry to supply an urgent photostat certified copy of the order to the parties if applied for.
What This Means For Similar Cases
Prospective Application of Rule Omission
- A rule omitted unconditionally without a saving clause has no legal effect from the date of omission, and any proceedings - whether commenced before or after - must be struck if they rely solely on that rule.
- Tax authorities must verify the existence of a saving clause before initiating proceedings based on a rule that has been amended or omitted.
Binding Effect of Supreme Court Pronouncements
- Judgments of the Supreme Court on statutory interpretation are binding on all subordinate authorities, including tax departments, and must be followed even in pending proceedings.
- Departmental instructions or memoranda that align with such judgments reinforce compliance and reduce litigation.
Necessity of Saving Clause for Retrospective Effect
- Where the legislature intends to retain the viability of past proceedings upon amendment or omission, an express saving clause is indispensable.
- Absent such a clause, the rule is treated as if it never existed for the purpose of initiating or continuing any legal action.
Practical Takeaways for Practitioners
- Challenge show cause notices or orders that cite omitted provisions by raising the lack of a saving clause as a threshold ground.
- Cite Kolhapur Canesugar Works Ltd. v. Union of India and the relevant Supreme Court precedent when arguing non-existence of omitted rules.
- Monitor CBIC notifications and memoranda for post-omit guidance to strengthen arguments.
