By S&S Co. Advocates & Solicitors · Published 25 February 2026 · Informational content, not legal advice. See our disclaimer.
The Question Before the Court
The Supreme Court's decision in Union of India v. Torrent Power Ltd., reported as decided on 10 February 2026, addresses a question that comes up often for businesses dealing with GST refunds: who is entitled to a refund where the tax in question has already been collected from, and effectively borne by, the business's own customers.
Refunds and the Consumer Welfare Fund
Sections 54(5) and 57 of the CGST Act, 2017 embody a principle against unjust enrichment. A taxpayer should not receive back money that it has already recovered from someone else further down the supply chain. The Supreme Court reportedly reaffirmed that where this factual passing-on is established, the refund must be credited to the Consumer Welfare Fund rather than paid to the claiming business.
This is not a new rule. The passing-on principle has been part of the GST refund framework since the Act came into force, and earlier case law under the preceding excise and service tax regimes developed similar reasoning. The Torrent Power decision is significant mainly for reaffirming how the test is applied in practice.
What a Business Should Do
For a business, this means that a refund claim should be prepared with a clear, documented position on whether the relevant tax cost was built into the price charged to customers or absorbed internally. A business that genuinely bore the cost itself, without passing it on, remains entitled to receive the refund directly, but it should be ready to demonstrate that with pricing and accounting records if the department raises the question.
Where a business cannot show, on the available records, that it absorbed the cost itself, it should expect the department to direct the refund to the Consumer Welfare Fund instead, and should plan its cash-flow expectations accordingly rather than assuming the refund will reach its own account.
Practical Takeaways
A business filing a refund claim should maintain clear documentation tracing whether the relevant tax was passed on to customers, since that single factual question will determine whether the refund actually reaches the business or is instead credited to the Consumer Welfare Fund. Pricing records, invoices and contemporaneous accounting entries are typically the most persuasive evidence on this point.
Frequently Asked Questions
What happens to a GST refund if the tax was already collected from customers?
Under Sections 54(5) and 57 of the CGST Act, 2017, where the incidence of the tax has been passed on to the ultimate consumer, the refund amount is credited to the Consumer Welfare Fund rather than paid to the business claiming the refund, to prevent the business from being unjustly enriched by recovering the same amount twice.
How can a business show that it did not pass on a tax cost to customers?
Businesses typically rely on pricing records, invoices and accounting documentation that trace whether a specific tax component was built into the price charged to customers or absorbed internally. A clear, contemporaneous paper trail matters, since the department can be expected to scrutinise this factual question closely.
Does the Consumer Welfare Fund rule apply to every kind of GST refund?
The passing-on test is central to ordinary refund claims under Section 54, but certain categories of refund, such as those arising from an export or a specified inverted-duty-structure situation, are governed by their own distinct rules. A business should check which refund category its claim falls into before assuming the general passing-on test applies.
Who decides whether a tax cost was passed on to customers?
The GST authority processing the refund claim makes this factual determination based on the evidence the claimant submits, and the claimant bears the burden of showing that it bore the tax cost itself rather than recovering it from customers.
References & Further Reading
This article summarises a reported Supreme Court decision in general terms for informational purposes. Readers should consult the full judgment in Union of India v. Torrent Power Ltd. and the current text of the CGST Act before relying on any specific point.
- Union of India v. Torrent Power Ltd., Supreme Court of India, decided 10 February 2026 (as reported).
- Central Goods and Services Tax Act, 2017, Sections 54(5) and 57 (refund and the Consumer Welfare Fund).