Supreme Court Clarifies: GST Refunds Must Follow Section 54, Not Court-Devised Methods

The Supreme Court in Union of India & Anr. Vs Torrent Power Ltd. has delivered an important decision on how refunds under the GST framework must be processed, especially where the assessee has already passed on the tax burden to consumers. The ruling reiterates that courts cannot create new refund modalities outside what is expressly provided in Section 54 of the CGST Act and the related Rules, even with the objective of benefiting ultimate consumers.

This decision has major implications for assessees who have collected tax under a levy later declared unconstitutional, particularly where such tax has already been recovered from end consumers.

Factual Matrix of the Case

Role of the Respondent-Company

Torrent Power Ltd., the respondent, is engaged in generating and distributing electricity in the State of Gujarat. Following Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017, the assessee collected IGST on ocean freight from its consumers and deposited it with the Government.

Subsequently, the levy of IGST on ocean freight was challenged and the following judicial developments took place:

  • The Gujarat High Court, in "Mohit Minerals Pvt. Ltd. Vs. Union of India", declared the levy as unconstitutional.
  • The Supreme Court affirmed this position in "Union of India vs. Mohit Minerals Private Limited".

Once the notification-based levy was invalidated, the amounts paid under that notification became refundable in law.

Refund Claim and Key Amount Involved

Torrent Power Ltd. claimed refund of:

  • ₹19,28,86,868/- (Rupees nineteen crores twenty eight lakhs eighty six thousand eight hundred sixty eight only)

This amount represented IGST on ocean freight, recovered by the assessee from its electricity consumers in Gujarat, and remitted to the Government.

Crucially, it was not disputed that:

  • The assessee had collected the IGST from its consumers, and
  • The incidence of tax was passed on to those consumers.

This fact became central to the legal analysis under Section 54 of the CGST Act.

High Court’s Approach: A Special Arrangement for Consumer Benefit

Proposal by the Assessee

Before the High Court, Torrent Power Ltd. submitted an affidavit offering a special mechanism to handle the refund:

  1. The assessee would open a separate designated bank account with a scheduled bank.
  2. The entire refund amount of ₹19,28,86,868/- would be credited to this separate account.
  3. The assessee undertook:
    • Not to utilize the amount in that account for its own business,
    • To treat the amount as revenue for tariff determination before the Gujarat Electricity Regulatory Commission under the Electricity Act, 2003.

The stated intention was that the assessee would approach the Commission to seek tariff reduction, so that:

  • The benefit of the refund would indirectly flow back to the electricity consumers who had earlier borne the tax burden on ocean freight.

High Court’s Decision

The Gujarat High Court accepted this proposal and permitted:

  • The refund to be granted to the assessee,
  • Subject to utilization through the tariff adjustment route,
  • With the objective of ultimately benefiting the consuming public.