Installing the latest Intel® Graphics Driver Windows Hardware Quality Labs (WHQL) driver fixes the issue.
After updating to the latest Intel® Arc Beta Driver version 31.0.101.4090, the XeSS no longer shows up on the in-game graphics settings under the Quality-Upscaling drop down menu.
Installing Intel® Arc™ graphics driver version 31.0.101.4502 and newer resolves the issue with the XeSS no longer showing up on the in-game graphics settings under the Quality-Upscaling drop down menu.