In a significant ruling impacting GST refund jurisprudence, the Supreme Court of India in Union of India & Anr. vs Torrent Power Ltd. has reaffirmed that refund is payable to the applicant only when the incidence of tax has not been passed on.
The Court held that courts cannot create refund mechanisms contrary to the explicit statutory framework under Section 54 of the Central Goods and Services Tax Act.
Facts of the Case
- Torrent Power Ltd., engaged in electricity generation and distribution in Gujarat, collected IGST from consumers pursuant to Notification No. 10/2017–Integrated Tax (Rate) dated 28.06.2017.
- The notification was later declared unconstitutional by the Gujarat High Court in Mohit Minerals Pvt. Ltd. v. Union of India.
- Consequently, the tax collected under the invalidated notification became refundable.
- However, it was undisputed that Torrent Power had already passed on the tax burden to its consumers between June 2017 and January 2020.
The Legal Framework
Under Section 54(5) of the CGST Act, any refundable amount shall ordinarily be credited to the Consumer Welfare Fund.
An exception exists under Section 54(8)(e) — refund may be paid to the applicant only if the incidence of tax has not been passed on to any other person.
Issue Before the Court
1. Can refund be paid to the company even though the tax burden was passed on to consumers?
2. Was the High Court justified in creating an alternative refund mechanism outside Section 54?
The Gujarat High Court had accepted an affidavit proposing a mechanism where the refund amount would be deposited into a designated bank account to compensate consumers.
Supreme Court’s Ruling
The Supreme Court held:
√ Section 54 is a complete code governing GST refunds.
√ Refund must be credited to the Consumer Welfare Fund unless it falls within the statutory exceptions.
√ Since the tax burden was admittedly passed on, Section 54(8)(e) did not apply.
√ Courts cannot introduce refund mechanisms not contemplated by statute.
The Court further observed that the High Court’s mechanism was:
