Supreme Court Mandates Refund of Unconstitutional Ocean Freight Tax to Consumer Welfare Fund Due to Unjust Enrichment

1. The Core Dispute: Unjust Enrichment vs. Consumer Restitution

Following the landmark Supreme Court ruling in Union of India v. Mohit Minerals (P.) Ltd. [2022], the levy of IGST on ocean freight was declared unconstitutional. Torrent Power Ltd., having paid approximately ₹19.29 crores in IGST and Service Tax under Reverse Charge Mechanism (RCM) for gas imports, sought a refund.

Revenue’s Stand: The refund cannot be paid to the company because the tax burden was already passed on to consumers via electricity tariffs approved by the GERC (unjust enrichment). The amount must go to the Consumer Welfare Fund (CWF).
The High Court’s Solution: The Gujarat HC accepted the company’s “alternative procedure”: the company would receive the refund, keep it in a separate account, and pass the benefit back to consumers by offering it as a reduction in future tariff determinations.

2. Legal Analysis: Strict Adherence to Section 54

The Supreme Court scrutinized the “alien modality” devised by the High Court and emphasized that tax statutes must be followed strictly.

I. The “Default” and the “Exception” (Section 54)

Under the CGST Act, refund processing follows a specific statutory hierarchy:

Section 54(5) (The Default): Every sanctioned refund must be credited to the Consumer Welfare Fund (CWF).
Section 54(8) (The Exceptions): Only specific categories of refunds can be paid directly to the applicant.
Section 54(8)(e): One such exception is when the applicant proves they have not passed on the incidence of tax to any other person.

II. “Alien Modality” is Impermissible

The Court held that since Torrent Power admittedly passed the tax burden to consumers, it failed the test of Section 54(8)(e).

Ruling: Courts cannot “invent” new procedures for refund distribution that are not present in the Act. The High Court’s plan to use GERC for tariff adjustment was an extra-statutory mechanism.
Workability: Identifying and refunding millions of individual consumers who paid the tax between 2017 and 2020 was deemed a “gargantuan” and “unworkable” task.

3. Final Verdict: Refund to CWF Mandated

The Supreme Court set aside the High Court’s judgment, upholding the principle that the state remains the trustee of unconstitutionally collected taxes when the actual burden-bearers cannot be individually recompensed.

Verdict: The company is not entitled to receive the refund amount directly.
Direction: Torrent Power Ltd. must transfer ₹19,28,86,868/- to the authorities within three months to be credited to the Consumer Welfare Fund under Section 57.
Outcome: The appeal by the Union of India was allowed.

Key Takeaways for Taxpayers

Doctrine of Unjust Enrichment: Even if a tax is declared unconstitutional (ultra vires), you cannot claim a refund if you have already “recovered” that cost from your customers.
Proving Incidence: To get a refund directly, you must provide a CA certificate (if amount > ₹2 lakhs) or self-declaration proving that the tax was treated as an expense/loss and not passed on in the sale price.
CWF as the Safeguard: The Consumer Welfare Fund exists precisely for these “orphaned” refunds—where the tax is illegal, but the individual consumers who paid it are too numerous to track down.

SUPREME COURT OF INDIA

Union of India

Torrent Power Ltd.^*

Sanjay Kumar and K. Vinod Chandran, JJ.

SLP Appeal (C) No. 13084 OF 2025^†

FEBRUARY 10, 2026

S. Dwarakanath, A.S.G., Gurmeet Singh Makker, AOR, Sarthak Karol, Digvijay Dam, Ms. Divya Jyoti Singh, Raghav Sharma, Rajat Vishnaw, S. Vijay Adithya, Mudit Bansal, Prabhakar Yadav and Abhyudey Kabra, Advs. for the Petitioner. V. Lakshmikumaran, Ms. Nitum Jain, Ms. Neha Choudhary, Ms. Medha Sinha, Swastik Mishra, Advs. and Ms. Charanya Lakshmikumaran, AOR for the Respondent.

ORDER

1. Leave granted.

2. The Union of India and its Assistant Commissioner of Central Goods and Services Tax at Ahmedabad are in appeal, aggrieved by the judgment dated 23.10.2024 passed by the High Court of Gujarat/Torrent Power Ltd. v. Union of India (Gujarat)/[2025] 95 GSTL 437 (Gujarat), Ahmedabad, in relation to the refund of Rs.19,28,86,868/- (Rupees nineteen crores twenty eight lakhs eighty six thousand eight hundred sixty eight only).

3. Torrent Power Ltd., the respondent-company, is a generator and distributor of power in the State of Gujarat. It is not in dispute that the respondent-company collected from its consumers the amounts payable towards Integrated Goods and Services Tax, pursuant to Notification No. 10/2017-Integrated Tax (Rate), dated 28.06.2017 issued by the Revenue. The said notification was, however, held to be unconstitutional by the High Court, vide the judgment Mohit Minerals Pvt. Ltd. v. Union of India (2020) 74 GSTR 134. The judgment was confirmed by this Court, when the appeals arising therefrom were dismissed by this Court, vide the judgment 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.

4. However, the issue presently is as to 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.

5. We may note, in this regard, that Section 54(5) of the Central Goods and Services Act, 2017¹, 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.

6. Section 54(8)(e) of the CGST Act provides to the effect that, notwithstanding anything contained in Sections 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.

7. In the present case, 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.

8. Despite the same, 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 Rs. 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 Gujarat Electricity Regulatory Commission under the Electricity Act, 2003.

9. 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. However, we may note 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.

10. Further, we must also note that this procedure, which was suggested by the respondent-company and accepted by the High Court by way of the impugned judgment/order, introduces an altogether alien modality for disbursal of a refund, which is not contemplated by Section 54 of the CGST Act and the Rules framed therein.

11. 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.

12. The respondent-company shall transfer Rs.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 shall complete this exercise within a period of three months from today.

13. The appeal is allowed in the aforestated terms.

14. Pending application(s), if any, shall stand disposed of.