Union of India v. Torrent Power: IGST refund to the Consumer Welfare Fund

The facts in brief

Torrent Power Ltd. is engaged in the generation and distribution of electricity in Gujarat. Pursuant to Notification No. 10/2017-Integrated Tax (Rate) dated 28 June 2017 — the so-called "ocean freight" notification — Torrent Power collected IGST from its electricity consumers on certain transactions falling within the notification's scope, over the period June 2017 to January 2020. The IGST was collected through the electricity bills raised on consumers; the incidence of the tax was passed on, line-item by line-item, to the persons who paid those bills.

In May 2022, the Supreme Court, in Mohit Minerals Pvt. Ltd. v. Union of India (2022 SCC OnLine SC 657), held Notification No. 10/2017 unconstitutional and the IGST levy on ocean freight invalid. The IGST that had been collected under the now-invalidated notification became refundable. Torrent Power was one of a number of utility companies that had collected substantial IGST under the notification and was entitled, in principle, to a refund of ₹19,28,86,868.

Torrent Power approached the Gujarat High Court for the refund. The High Court was confronted with a familiar problem. Section 54 of the CGST Act 2017 — by virtue of the unjust-enrichment doctrine codified into Section 54(8)(e) — directs that where the applicant has passed on the incidence of tax to another person, the refund is to be credited not to the applicant but to the Consumer Welfare Fund constituted under Section 57. On a straight reading, the Torrent Power refund could not flow back to the company; it had to go to the Fund.

The Gujarat High Court devised what it took to be a more direct route to the original tax-bearers. It directed that the refund be paid to Torrent Power, which would then be required to adjust the amount against future electricity tariffs charged to consumers in subsequent billing cycles. The rationale was that the original consumers — or at least the broader consumer base of Torrent Power — would receive the benefit indirectly through reduced future tariffs, and that this would more faithfully match the Mohit Minerals invalidation to its intended beneficiaries than the Consumer Welfare Fund route.

The Union of India appealed to the Supreme Court. A two-judge bench of Justices Sanjay Kumar and K. Vinod Chandran heard the appeal and, on 10 February 2026, allowed it. The High Court's mechanism was set aside; Torrent Power was directed to credit the ₹19.28 crore to the Consumer Welfare Fund within three months.

The statutory architecture

Section 54 of the CGST Act 2017 governs the refund of GST. Sub-section (1) permits any person claiming a refund to apply within two years of the relevant date. Sub-section (5) provides that, if the officer is satisfied that the refundable amount is payable to the applicant, the amount shall be credited to the Consumer Welfare Fund constituted under Section 57. Sub-section (8) lists the exceptions — the categories of refund that escape the Fund route and flow directly to the applicant.

Section 54(8) enumerates six exceptions. The Torrent Power case engaged sub-clause (e): where the applicant has not passed on the incidence of tax to any other person. This is the doctrine of unjust enrichment, codified. If the tax has been passed on, the applicant suffered no loss from its collection; refunding the tax to the applicant would unjustly enrich it at the expense of the consumers who actually bore the burden. The Fund route ensures the refund reaches a consumer-protection purpose rather than the company that collected and passed on the tax.

Section 57 establishes the Consumer Welfare Fund. The Fund is constituted by amounts credited under Section 54 (and corresponding provisions of state GST laws), and is to be utilised for the welfare of consumers in accordance with rules prescribed by the Central Government.

The architecture rests on a hard pre-GST foundation. In Mafatlal Industries v. Union of India (1997) 5 SCC 536, a nine-judge bench of the Supreme Court had cemented the unjust-enrichment doctrine in central-excise refund law. The Consumer Welfare Fund mechanism predates the GST regime; the GST architecture lifted it forward intact.

What the Court held

Section 54 is an exhaustive code

The bench's first move was to characterise Section 54 as a complete and exhaustive statutory code governing GST refund. Courts cannot devise alternative refund modalities outside the statutory framework, even where the underlying levy has been held unconstitutional and even where the alternative seems pragmatically attractive.

Section 54 of the CGST Act constitutes a complete and exhaustive statutory code governing refund. Refund to the applicant is strictly conditional upon the non-passing of tax incidence to any other person.

The reasoning is structural. The legislature has spoken comprehensively on how GST refunds are to be processed and where they are to be credited. The Consumer Welfare Fund route is the default; the Section 54(8) exceptions are exhaustive. A judicially devised third route — neither the Fund nor any Section 54(8) category — has no statutory anchor and cannot be sustained.

The "alien modality" formulation

The Court characterised the Gujarat High Court's tariff-adjustment mechanism in a phrase that will become the case's headline. Routing the refund through future-tariff adjustment was an "alien modality" — alien because it was not contemplated by Section 54 or by the Rules framed thereunder; alien because it operated outside the statutory architecture; alien because, despite its good-faith intention to channel the refund to consumers, it offered no statutory guarantee that the original consumers would actually benefit.

The High Court's mechanism of routing the refund through tariff adjustment is not contemplated by Section 54 of the CGST Act or the Rules framed thereunder, and constitutes an alien modality which we set aside.

Three weaknesses of the tariff-adjustment mechanism are explicit or implicit in the reasoning. First, the consumer base at the time of refund is not the same as the consumer base at the time the tax was collected; consumers move in and out of the network, and future tariff reductions would benefit a different population than the one that bore the tax. Second, there is no audit trail to verify that the tariff adjustment was in fact made or that the quantum of the refund was actually returned through reduced rates. Third, the mechanism gives a private regulated utility custody of public funds in the interim, with no statutory accountability framework.

Unjust enrichment carries through

The bench reaffirmed that the doctrine of unjust enrichment — codified into Section 54(8)(e) — is the load-bearing principle of GST refund jurisprudence. The Mafatlal Industries (1997) ratio survives the pre-GST to GST transition intact. The Consumer Welfare Fund mechanism is the operational expression of the doctrine, and its operation cannot be displaced by judicially devised alternatives.

₹19.28 crore to the Fund

The Court directed Torrent Power Ltd. to transfer ₹19,28,86,868 to the GST authorities for credit to the Consumer Welfare Fund within three months. The disposition is operational, not declaratory; the Fund will see the deposit and the Mohit Minerals-refund pool will begin to take statutory shape.

The doctrinal architecture

The judgment makes three moves.

First, the exhaustive-code characterisation of Section 54 narrows the writ-court's discretion under Article 226 to devise extra-statutory refund mechanisms. Even bona fide judicial creativity aimed at routing the benefit to original tax-bearers will not pass muster. The default is the statutory route; departures require statutory warrant.

Second, the "alien modality" formulation gives the doctrine a memorable phrase that will travel. High Courts considering similar tariff-adjustment, deposit-with-trustee, or refund-through-discount mechanisms in the Mohit Minerals aftermath now have a clear marker for what is impermissible.

Third, the unjust-enrichment continuity between Mafatlal and the GST architecture reaffirms the consumer-protection orientation of refund law. The doctrine has never been about the technical impossibility of returning value to the original consumer; it has been about preventing the assessee from being unjustly enriched by a tax it did not bear. The Consumer Welfare Fund is the operational expression of that principle, and its primacy is now apex-endorsed for the GST regime.

What the judgment did not decide

The judgment did not address the operational adequacy of the Consumer Welfare Fund itself. The Fund has historically been under-utilised; its grant-making and disbursement architecture is undeveloped relative to the volume of refunds that the Mohit Minerals aftermath will channel into it. The Court did not direct the government to scale the Fund's operations, though the practical pressure to do so will be substantial.

It did not address partial passing-on. Where the assessee can demonstrate that only a portion of the tax was passed on to consumers — for example, because of competitive pricing pressure — the assessee may be entitled to the un-passed-on portion as a direct refund. The methodology for quantifying partial passing-on was not in issue.

It did not address the position of B2B taxpayers in the Mohit Minerals refund chain — businesses that paid the IGST and claimed input tax credit may have a different unjust-enrichment posture from B2C utilities, and that distinction will need to be developed in subsequent litigation.

And the judgment did not address the retrospective override of Safari Retreats by the Finance Act 2025 directly, though the Section 54 architecture and the unjust-enrichment doctrine carry through to that pending controversy as well.

After the judgment

The judgment will reshape post-Mohit Minerals refund litigation. The Gujarat High Court — and other High Courts that had devised similar tariff-adjustment or downstream-pricing-adjustment refund routes — will need to recalibrate. The Central Board of Indirect Taxes and Customs is likely to issue an administrative circular reaffirming the Consumer Welfare Fund route for refunds arising from invalidated notifications where the tax was passed on. Pending refund claims by electricity-distribution companies, telecom operators, and other regulated utilities that collected the Mohit Minerals-invalidated IGST from consumers will be re-routed through the Fund framework.

The Consumer Welfare Fund itself will require operational scaling. The Fund's grant-making and disbursement architecture has historically been under-utilised, and the influx of post-Mohit Minerals refunds will pressure the Department of Consumer Affairs to develop the Fund into a meaningful consumer-protection mechanism. Expect demand from consumer-protection organisations for transparent reporting on Fund inflows, disbursements, and grant outcomes.

Special leave petitions may follow from utility companies challenging the Consumer Welfare Fund route on the ground that they cannot prove "passing on" with quantitative precision — these challenges will be tested against the Mafatlal presumption that the burden lies on the assessee to disprove unjust enrichment. The Torrent Power judgment also has cross-cutting implications for refund claims arising from other constitutional invalidation events and for the broader landscape of utility-sector tax litigation.

Related on Valkya

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• Commissioner of Customs v. Welkin Foods: tariff classification

Sources

1. LiveLawBiz — "Supreme Court reverses 'alien modality' of refunding IGST to Torrent Power; orders ₹19.28 crore credit to Consumer Welfare Fund": https://www.livelawbiz.com/gst/supreme-court/supreme-court-reverses-alien-modality-of-refunding-igst-to-torrent-power-orders-1928-crore-credit-to-consumer-welfare-fund-522855
2. TaxO — "Refund is payable to the applicant only when incidence of tax is not passed on; courts cannot create a refund mechanism contrary to the explicit statutory framework": https://taxo.online/latest-news/17-02-2026-refund-is-payable-to-the-applicant-only-when-incidence-of-tax-is-not-passed-on-courts-cannot-create-a-refund-mechanism-contrary-to-the-explicit-statutory-framework-supreme-court/
3. Taxmann — "Refund of IGST on ocean freight to Consumer Welfare Fund due to unjust enrichment — SC": https://www.taxmann.com/post/blog/refund-of-igst-on-ocean-freight-to-consumer-welfare-fund-due-to-unjust-enrichment-sc
4. Taxscan — Torrent Power IGST refund coverage: https://www.taxscan.in/supreme-court-torrent-power-igst-refund-consumer-welfare-fund/
5. BarandBench — Supreme Court on Section 54 exhaustive code: https://www.barandbench.com/news/litigation/supreme-court-torrent-power-igst-refund-section-54