2026 (2) TMI 660 - SCH - GST

Refund mechanism under CGST Act challenged; SC orders transfer to Consumer Welfare Fund, sets aside non statutory scheme

The sole legal issue is whether a High Court may direct a non statutory refund procedure instead of the refund scheme prescribed by the CGST Act. The SC ... Statutory refund procedure u/s 54 - exception u/s 54(8)(e) - passing on of tax incidence - credit to the Consumer Welfare Fund - impermissibility of judicially fashioned refund mechanism - 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 THAT:- 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. 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. 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 ₹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. 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. 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. 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. Issues: Whether the High Court was justified in directing a refund mechanism not provided by the CGST Act (by having the respondent-company retain refunded amounts in a designated account and seek tariff adjustments to recompense consumers), instead of directing the refundable amount to the Consumer Welfare Fund under the statutory refund scheme.Analysis: The Court examined the statutory framework for refunds under Section 54 of the Central Goods and Services Act, 2017, which contemplates that amounts found refundable on an application are to be credited to the Consumer Welfare Fund under Section 57, with payment to the applicant being an exception under Section 54(8). Section 54(8)(e) permits payment to the applicant only where the applicant had not passed on the incidence of the tax; where the incidence was passed on, the exception does not apply. The Court found that the respondent-company had admitted passing on the tax burden to consumers and that the High Court's procedure-accepting the respondent's undertaking to deposit refunded amounts in a designated bank account and seek tariff adjustments through the electricity regulator to effect consumer recompense-introduced a refund modality alien to the statutory scheme. The Court further observed that the mechanism approved by the High Court was impracticable given the scale of consumers and the difficulty of verifying beneficiaries, and that the High Court could not fashion a non statutory procedure in place of the procedure prescribed by Section 54 and the rules.Conclusion: The High Court's judgment directing the non statutory refund mechanism is unsustainable and is set aside; the respondent-company is directed to transfer Rs.19,28,86,868/- to the authorities to be credited to the Consumer Welfare Fund under Section 57 of the CGST Act within three months.