Court Orders GST Refund After Supreme Court Upholds Gujarat HC’s Ruling Against Illegal IGST Notification

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Case Name

Adi Enterprises vs Union of India

Court Name: High Court of Gujarat at Ahmedabad

Case No.: Misc. Civil Application (For Direction) No. 1 of 2020 in R/Special Civil Application No. 10479 of 2019

CoramHon’ble Mr. Justice A.J. Desai & Hon’ble Mr. Justice Bhargav D. Karia

Decision on: 08/06/2022

Key Takeaways

1.  Entry No. 10 of Notification No. 10/2017-IGST (Rate) dated 28.6.2017 was declared ultra vires (beyond legal authority) the Integrated Goods and Services Tax Act, 2017.
2. The Supreme Court confirmed this ruling by dismissing the government’s appeal (Civil Appeal No. 1390 of 2022).
3. Once a tax notification is struck down as illegal, taxpayers are entitled to a refund of taxes paid under it, along with statutory interest.
4. The refund was directed to be processed within four weeks of submission of necessary documents.
5. This case reinforces the principle that illegally collected taxes must be returned to the taxpayer.

Issue

The Central Legal Question: Should the government be directed to refund the IGST amount paid by Adi Enterprises under Entry No. 10 of Notification No. 10/2017-IGST (Rate) dated 28.6.2017, which has been declared ultra vires (illegal) by both the Gujarat High Court and the Supreme Court?

Short Answer: YES — The court directed the refund with interest.

Facts

1. The Government of India issued Notification No. 10/2017-IGST (Rate) dated 28.6.2017 under the Integrated Goods and Services Tax Act, 2017. Entry No. 10 of this notification required certain taxpayers to pay IGST.

2. Adi Enterprises (along with other similar businesses) paid IGST as required under this notification but challenged its legality by filing a writ petition (Special Civil Application No. 10479 of 2019) before the Gujarat High Court.

3. On 23.1.2020, a Division Bench of the Gujarat High Court heard this petition along with other identical writ petitions and allowed them — declaring Entry No. 10 of the said notification as ultra vires (illegal/beyond the powers granted by) the IGST Act.

4. The Union of India (Government) was not happy with this decision and challenged it before the Supreme Court through Civil Appeal No. 1390 of 2022 and allied appeals.

5. On 19.5.2022, the Hon’ble Supreme Court dismissed the government’s appeals, thereby upholding the Gujarat High Court’s decision.

6. With both courts having confirmed the notification was illegal, Adi Enterprises filed the present Misc. Civil Application asking the court to now direct the government to actually refund the IGST already paid, along with interest.

Arguments

Applicant’s Arguments (Adi Enterprises) — presented by Advocate Uchit N. Sheth:

• The Gujarat High Court had already declared Entry No. 10 of Notification No. 10/2017-IGST (Rate) dated 28.6.2017 as ultra vires the IGST Act.
• The Supreme Court has confirmed this ruling by dismissing the government’s Civil Appeal No. 1390 of 2022 vide order dated 19.5.2022.
• Since the notification is conclusively held to be illegal, the government must now be directed to refund the IGST already paid by the applicant, along with appropriate interest.

Respondent’s Position (Union of India) — represented by Advocate Priyank P. Lodha:

• The judgment does not record any specific counter-arguments from the government at this stage. The government’s counsel simply waived service of rule, meaning they acknowledged the application and did not contest it vigorously at this point.

Key Legal Precedents & References

Entry No. 10 of Notification No. 10/2017-IGST (Rate) dated 28.6.2017

Issued under the Integrated Goods and Services Tax Act, 2017 — declared ultra vires

Gujarat HC Judgment dated 23.1.2020

Division Bench allowed the writ petitions and struck down Entry No. 10

Civil Appeal No. 1390 of 2022

Filed by Union of India before the Supreme Court — dismissed on 19.5.2022

Supreme Court Order dated 19.5.2022

Upheld the Gujarat HC decision, confirming the notification was illegal

Judgment

Decision: In favour of Adi Enterprises (Applicant)

The court:

1. Allowed the Misc. Civil Application in terms of Prayer 6(a).

2. Directed the respondents (Union of India/Government) to grant refund of the IGST amount already paid by the applicants pursuant to Entry No. 10 of Notification No. 10/2017-IGST (Rate) dated 28.6.2017.

3. Ordered that the refund be paid along with statutory rate of interest.

4. Set a timeline of four weeks from the date of submission of necessary documents by the applicants.

5. Rule made absolute — meaning the court’s earlier interim directions were confirmed as final.

Reasoning:

The court’s reasoning was simple and logical — since both the Gujarat High Court and the Supreme Court had conclusively held that the notification was illegal, there was no reason to deny the refund. The applicant had paid taxes under an unlawful notification and was therefore entitled to get that money back with interest.

FAQs

Q1: What is “ultra vires” and why does it matter here?

“Ultra vires” is a Latin term meaning “beyond the powers.” When a notification is declared ultra vires, it means the government exceeded its legal authority in issuing it. Since the notification was illegal, any tax collected under it must be refunded.

Q2: What is Entry No. 10 of Notification No. 10/2017-IGST (Rate)?

It is a specific entry in a GST notification that imposed IGST on certain transactions. The court found that the government did not have the legal power to impose this tax through this notification.

Q3: Why did Adi Enterprises have to come back to court even after winning the original case?

Winning the original case only established that the notification was illegal. A separate application was needed to actually get the government to process and pay the refund — which is what this application was about.

Q4: Will Adi Enterprises get interest on the refund?

Yes! The court specifically directed that the refund be paid along with the statutory rate of interest.

Q5: How long does the government have to process the refund?

The government has four weeks from the date Adi Enterprises submits the necessary documents.

Q6: Does this judgment benefit only Adi Enterprises?

This specific order is for Adi Enterprises, but since the original writ petition was decided along with other identical writ petitions, other similarly placed taxpayers who were part of those petitions would also be entitled to similar relief.

Q7: What happens if the government doesn’t refund within four weeks?

The judgment doesn’t explicitly address this, but generally, non-compliance with a High Court order can lead to contempt of court proceedings.

1. Rule. Mr. Priyank P. Lodha, learned Central Government Standing Counsel waives service of rule on behalf of the respondents.

2. By way of the present application, the applicants - original petitioners have prayed to direct the respondents to grant refund of the amount of IGST already paid by the applicants pursuant to the Entry No.10 of Notification No.10/2017-IGST (Rate) dated 28.6.2017 with appropriate interest on such refund.

3. Mr. Uchit N. Sheth, learned advocate appearing for the

applicant would submit that the reason for filing the present

application is that vires of Entry No.10 of Notification No.10/2017-

IGST (Rate) dated 28.6.2017 issued under the Integrated Goods

and Services Tax Act, 2017 was challenged by the applicant by way

of captioned writ petition along with other identical writ petitions.

The Division Bench of this Court vide judgment and order dated

23.1.2020 passed in the captioned writ petition along with other

writ petitions allowed the writ petitions and declared Entry No.10

of Notification No.10/2017-IGST (Rate) dated 28.6.2017 as ultra

vires the Act. He would further submit that during the pendency of

the present application, Civil Appeal No.1390 of 2022 and allied

appeals preferred at the instance of the respondents also came to

be dismissed by judgment and order dated 19.5.2022 passed by

Hon'ble Apex Court. He, therefore, would submit that in view of

the above referred order of Hon'ble Apex Court, necessary

direction may be issued to the respondents to refund the amount of

tax already paid by the applicant.

4. We have heard learned advocates appearing for the

respective parties and considered the decision of the Hon'ble Apex

Court upholding the decision of the Division Bench of this Court

rendered in group of writ petitions, referred to herein above. In

view of the above, we are of the opinion that the present

application requires consideration and hence, the same is allowed

in terms of prayer 6 (a). The respondents are hereby directed to

grant refund of the amount of IGST already paid by the applicants

pursuant to the Entry No.10 of Notification No.10/2017-IGST (Rate)

dated 28.6.2017 along with statutory rate of interest on such

refund within a period of four weeks from the date of submission of

necessary documents by the applicants. Rule is made absolute.

(A. J. DESAI, J)

(BHARGAV D. KARIA, J)