Supreme Court Rules: IGST Refund on Ocean Freight Must Go to Consumer Welfare Fund, Not Power Company – High Court's Novel Refund Procedure Struck Down

The Hon'ble Supreme Court of India in Union of India vs. Torrent Power Ltd. [SLP Appeal (C) No. 13084 of 2025] dated February 10, 2026 held that where the assessee filed an application for refund of IGST paid on ocean freight under CIF contract and the same was rejected, in view of the judgment of the Apex Court in Union of India v. Mohit Minerals (P.) Ltd. [(2022) 10 SCC 700], since the incidence of tax had been passed on to consumers, in terms of Sections 54(5), 54(8)(e) and 57 of the CGST Act, the refundable amount was to be credited to the Consumer Welfare Fund and not to the assessee. The Court held that the procedure adopted by the High Court to pass the refund to consumers was contrary to the statute and was unsustainable, and accordingly, the order of the High Court was set aside.

FACTS OF THE CASE

Torrent Power Ltd. (hereinafter referred to as "the Respondent-company") is a generator and distributor of power in the State of Gujarat. The Respondent-company had imported natural gas on a CIF (Cost, Insurance, and Freight) basis for its operations. The Respondent-company paid IGST and Service Tax on ocean freight under reverse charge mechanisms, as per Notification No. 10/2017-Integrated Tax (Rate) dated June 28, 2017 (hereinafter referred to as "the Notification") issued by the Revenue and the Finance Act, 1994.

It was not in dispute that the Respondent-company collected from its consumers the amounts payable towards Integrated Goods and Services Tax, pursuant to the Notification. The said Notification was, however, held to be unconstitutional by the High Court of Gujarat vide the judgment in Mohit Minerals Pvt. Ltd. v. Union of India [(2020) 74 GSTR 134]. The judgment was confirmed by the Hon'ble Supreme Court when the appeals arising therefrom were dismissed vide the judgment in Union of India v. Mohit Minerals Private Limited [(2022) 10 SCC 700]. The amounts paid under and pursuant to the invalidated Notification, therefore, became refundable.

The Respondent-company filed refund applications for taxes paid, which were denied by the authorities citing lack of jurisdiction and the principle of unjust enrichment on the ground that the burden of such amount had been passed on to consumers and therefore, the Respondent-company was not entitled to refund and the amount was proposed to be transferred to the Consumer Welfare Fund under Section 57 of the CGST Act.

The High Court of Gujarat vide judgment dated October 23, 2024 (hereinafter referred to as "the impugned judgment") in Torrent Power Ltd. v. Union of India [2025] Gujarat)/[2025] 95 GSTL 437 (Gujarat) held that the Respondent-company was entitled to a refund of IGST and Service Tax paid on ocean freight as the levy was declared unconstitutional in Union of India v. Mohit Minerals (P.) Ltd. Thus, the Revenue should refund the said amounts to the Respondent-company. Since the Respondent-company had passed on the burden of both IGST and Service Tax upon consumers by including the same in tariff determination by the Gujarat Electricity Regulatory Commission (hereinafter referred to as "GERC"), the High Court accepted the offer made by the Respondent-company by way of an affidavit stating that it would open a separate designated bank account in a scheduled bank and the refunded amount of ₹19,28,86,868/- (Rupees Nineteen Crores Twenty Eight Lakhs Eighty Six Thousand Eight Hundred Sixty Eight only) would be transferred to the said account. The Respondent-company undertook that it would not utilize the amount credited in the said account and would offer the same as revenue for the purpose of determination of tariff by the GERC under the Electricity Act, 2003. The intention of the Respondent-company was that it would go before the Commission and ask for reduction of the charges to be levied on the consumers, so as to adjust the refunded amount, thereby ensuring that the consumers who suffered the levy of the tax imposed earlier would be recompensed.

Aggrieved by the impugned judgment, the Union of India and its Assistant Commissioner of Central Goods and Services Tax at Ahmedabad (hereinafter referred to as "the Appellants") filed the present appeal before the Hon'ble Supreme Court challenging the refund of ₹19,28,86,868/-.

ISSUE

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 purportedly bore the burden of the tax collected from June 2017 till the Notification was set aside in January 2020?

HELD BY THE COURT

The Hon'ble Supreme Court of India in Union of India vs. Torrent Power Ltd. [SLP Appeal (C) No. 13084 of 2025] held that:

The Court observed that Section 54(5) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as "the CGST Act") provides that, upon receipt of an application for refund, the officer is to satisfy himself that the whole or part of the amount claimed as refund is actually refundable and if found to be so, he is required to make an order accordingly and the amount so determined is to be credited to the Consumer Welfare Fund, referred to in Section 57 of the CGST Act. It is only by way of exception under Section 54(8) of the CGST Act that the amount found to be refundable is not credited to the aforestated fund and is paid to the applicant.

The Court held that Section 54(8)(e) of the CGST Act provides to the effect that, notwithstanding anything contained in Section 54(5), the refundable amount shall, instead of being credited to the fund, be paid to the applicant, if such amount is relatable to the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person. In the present case, as it was an admitted fact that the incidence of the tax that was collected, pursuant to the Notification dated June 28, 2017, was passed on by the Respondent-company to the consumers, the exception envisaged by Section 54(8)(e) did not even apply.

The Court further observed that the procedure suggested by the Respondent-company and accepted by the High Court by way of the impugned judgment introduced an altogether alien modality for disbursal of a refund, which was not contemplated by Section 54 of the CGST Act and the Rules framed therein. The Court noted that this gargantuan exercise would involve more than a crore of consumers situated in two cities, Ahmedabad and Surat. Further, it would be an equally unworkable exercise for the authorities concerned to verify whether the consumers who actually bore the burden of the levy of tax were the beneficiaries of such refund.

The Court held that the impugned judgment was not sustainable on facts and in law and accordingly set aside the same. The Court directed that the Respondent-company shall transfer ₹19,28,86,868/- (Rupees Nineteen Crores Twenty Eight Lakhs Eighty Six Thousand Eight Hundred Sixty Eight only) to the authorities concerned so as to be credited to the Consumer Welfare Fund, referred to in Section 57 of the CGST Act. The Respondent-company was directed to complete this exercise within a period of three months from the date of the judgment. The appeal was allowed in the aforestated terms.

RELEVANT SECTIONS

• "Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act)" – Refund of tax

• "Section 54(5) of the CGST Act" – Amount determined as refundable to be credited to Consumer Welfare Fund

• "Section 54(8) of the CGST Act" – Exception to crediting refundable amount to Consumer Welfare Fund

• "Section 54(8)(e) of the CGST Act" – Refund to be paid to applicant if incidence of tax not passed on to any other person

• "Section 57 of the CGST Act" – Consumer Welfare Fund

• "Section 5 of the Integrated Goods and Services Tax Act, 2017 (IGST Act)" – Levy and collection of IGST

• "Notification No. 10/2017-Integrated Tax (Rate) dated June 28, 2017" – IGST on ocean freight under reverse charge mechanism

• "Finance Act, 1994" – Service Tax provisions

• "Electricity Act, 2003" – Tariff determination by Gujarat Electricity Regulatory Commission

PARI MATERIA / CASES REFERRED

1. Union of India v. Mohit Minerals Private Limited: (2022) 10 SCC 700 – The Hon'ble Supreme Court confirmed the judgment of the Gujarat High Court which held that Notification No. 10/2017-Integrated Tax (Rate) dated June 28, 2017 levying IGST on ocean freight under CIF contracts was unconstitutional. The amounts paid under the invalidated Notification therefore became refundable.

2. Mohit Minerals Pvt. Ltd. v. Union of India: (2020) 74 GSTR 134 – The Hon'ble Gujarat High Court held that Notification No. 10/2017-Integrated Tax (Rate) dated June 28, 2017 was unconstitutional. This judgment was later confirmed by the Supreme Court.

3. Torrent Power Ltd. v. Union of India: [2025] (Gujarat)/[2025] 95 GSTL 437 (Gujarat) – The Gujarat High Court held that the Respondent-company was entitled to refund of IGST and Service Tax paid on ocean freight. The High Court accepted the Respondent-company's proposal to deposit the refunded amount in a separate account and pass it on to consumers through tariff adjustments approved by GERC. This judgment was reversed by the Supreme Court in the present case.

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