Supreme Court Reverses 'Alien Modality' Of Refunding IGST To Torrent Power, Orders Credit To Consumer Welfare Fund

The Supreme Court has set aside the Gujarat High Court's judgment that had quashed the transfer of ₹19.28 crore in GST refunds to the Consumer Welfare Fund and directed that the amount be refunded to Torrent Power Ltd. for adjustment in electricity tariff.

Holding that such a mechanism was “not contemplated by Section 54 of the CGST Act and the Rules framed therein,” a Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran directed the company to transfer the amount to the authorities concerned for credit to the Consumer Welfare Fund within three months.

The bench allowed the Union government's appeal against the High Court's judgment dated October 23, 2024.

Torrent Power, a generator and distributor of power in Gujarat, had collected IGST pursuant to a 2017 Integrated Tax (Rate) dated June 28, 2017.

The notification was declared unconstitutional in Mohit Minerals Pvt. Ltd. v. Union of India. The judgment was later affirmed by the Supreme Court.

“The amounts paid under and pursuant to the invalidated notification, therefore, became refundable,” the Court noted.

The issue before the Court was whether the High Court was justified in coming up with a procedure, not contemplated by the statute, for refund of such amounts to the class of consumers who bore the burden of the tax.

The Court referred to Section 54 of the CGST Act. It noted that under Section 54(5), the refundable amount is to be credited to the Consumer Welfare Fund referred to in Section 57, except where the case falls within the exceptions under Section 54(8).

Referring to Section 54(8)(e), the Court observed that the refundable amount shall be paid to the applicant only if he had not passed on the incidence of such tax.

In the present case, it was an admitted fact that the incidence of the tax was passed on to consumers.

“As it is an admitted fact that the incidence of the tax that was collected, pursuant to the Notification dated 28.06.2017, was passed on by the respondent company to the consumers, the exception envisaged by Section 54(8) (e) did not even apply,” the bench held.

The High Court had accepted the respondent company's undertaking to open a separate designated bank account and to offer the refunded amount as revenue for tariff determination by the Gujarat Electricity Regulatory Commission.

The Supreme Court held that this procedure, suggested by the respondent company and accepted by the High Court, introduced “an altogether alien modality for disbursal of a refund.”

Such a modality, the Court said, is not contemplated by Section 54 of the CGST Act and the rules framed thereunder.

The Bench also noted that the exercise would involve more than a crore consumers and would be an “equally unworkable exercise” to verify whether the consumers who bore the burden of tax were the beneficiaries of such refund.

“We are, therefore, of the opinion that the judgment under challenge is not sustainable on facts and in law. The same is, accordingly, set aside,” the Court ruled.

Allowing the appeal, the Court directed Torrent Power to transfer Rs. 19,28,86,868 to the authorities concerned so as to be credited to the Consumer Welfare Fund referred to in Section 57 of the CGST Act.

The company has been directed to complete this exercise within three months.

For Petitioner: ASG S. Dwarakanath; AOR Gurmeet Singh Makker; Advocates Sarthak Karol, Digvijay Dam, Divya Jyoti Singh, Raghav Sharma, Rajat Vishnaw, S. Vijay Adithya, Mudit Bansal, Prabhakar Yadav, Abhyudey Kabra.

For Respondent: Advocate V. Lakshmikumaran; Advocates Nitum Jain, Neha Choudhary, Medha Sinha, Swastik Mishra; AOR Charanya Lakshmikumaran.