• Dated 16^th May, 2025

Eligibility Under Budgetary Support Scheme Not Affected by Ownership Change: Sikkim HC Quashes Refund Recovery Against Torrent Pharma

Background of the Case:

In the case of Torrent Pharmaceuticals Ltd. v. Union of India, decided by the High Court of Sikkim on April 2, 2025, the petitioner, Torrent Pharmaceuticals Ltd. (Unit III), challenged a recovery order issued by the Assistant Commissioner of CGST, demanding the reversal of budgetary support refunds amounting to ₹12.18 crore along with 15% interest. The dispute arose after Torrent acquired the India and Nepal business of Unichem Laboratories through a slump sale, which included the Sikkim manufacturing unit. Following this acquisition, Torrent updated its GST registration to include the acquired unit and subsequently applied for benefits under the Budgetary Support Scheme (BSS) for the residual period from December 14, 2017, to May 28, 2020. After approval, Torrent received sanctioned refunds for the period between October 2017 and June 2021. However, a recovery notice was issued in 2022 on the grounds that a change in ownership rendered the unit ineligible under BSS, with the Department relying on two earlier High Court decisions (in the Zydus and Alkem cases) that supported such disqualification. Torrent countered that these precedents were overturned by the Division Bench in Writ Appeal Nos. 9 and 10 of 2023, and that their case was factually identical. The Court agreed holding that the previous judgments cited by the revenue were no longer valid and that no material distinction existed between those cases and the present one. Consequently, the Writ Petition was allowed, the recovery order set aside, and other legal questions were left open for future consideration.

Issue:

Whether a manufacturing unit that has undergone a change in ownership is still eligible to receive benefits under the Budgetary Support Scheme (BSS), or whether such change disqualifies the unit from receiving the refund already sanctioned?

Contention of the Petitioner:

1. Legitimate Acquisition and Compliance: The petitioner argued that it had lawfully acquired the business of Unichem Laboratories (ULL) through a slump sale as a going concern and duly informed the tax authorities about the change in ownership and consequently, updated the GST registration.
2. Proper Registration Under BSS: Following the acquisition, the Sikkim unit was registered under the Budgetary Support Scheme (BSS) for the residual period. The petitioner had submitted the necessary affidavit-cum-indemnity bond and was allotted a Unique ID under the scheme.
3. Entitlement to Refund: The petitioner filed 11 refund claims for the period October 2017 to June 2021, totaling ₹12.18 crore. These were verified and sanctioned without objections during that time indicating acceptance of eligibility by the Authorities.
4. Recovery Based on Overturned Judgments: The recovery notice and impugned order relied on judgments from the Zydus Wellness and Alkem Laboratories cases, which held that change in ownership disqualified BSS eligibility. However, the petitioner contended that these judgments were overturned by the Division Bench in Writ Appeals No. 9 and 10 of 2023.
5. Binding Precedent: Since the facts of the present case were identical to those in the overturned cases, the petitioner argued that the Division Bench's ruling was binding and the recovery order should be set aside on that ground alone.
6. Fairness and Consistency: The petitioner emphasized the principle of consistency and fairness in tax administration, arguing that it was unreasonable and unlawful for the authorities to reverse benefits that had already been sanctioned based on previously overruled legal reasoning.

Contention of the Respondent:

1. Ineligibility Due to Change in Ownership: The respondent argued that the petitioner's unit became ineligible for benefits under the Budgetary Support Scheme (BSS) due to the change in ownership following the acquisition of Unichem Laboratories by Torrent Pharmaceuticals. According to the Department, such change violated the conditions of the BSS, which was intended to benefit original eligible units without ownership transitions.
2. Reliance on DPIIT Clarification: The respondent cited Office Memorandums issued by the Department for Promotion of Industry and Internal Trade (DPIIT) - specifically dated 20.10.2021 and 31.03.2022 - which clarified that BSS benefits were not available to units where a change in ownership had occurred.
3. Legal Basis for Recovery: The recovery notice and subsequent order were issued under Paragraph 9.1 of the BSS and based on the affidavit-cum-indemnity bond signed by the petitioner on 23.01.2018, which allowed the government to reclaim the budgetary support in case of any violations of the scheme's terms.
4. Support from Earlier Case Law: The respondent relied on High Court rulings in the cases of Zydus Wellness Products Ltd. and Alkem Laboratories Ltd., where it was held that units undergoing ownership changes were not entitled to BSS benefits.
5. Pending SLP Before Supreme Court: The respondent also argued that although the Division Bench of the High Court had overturned the Zydus and Alkem rulings in Writ Appeals No. 9 and 10 of 2023, the government was in the process of filing a Special Leave Petition (SLP) before the Supreme Court challenging those decisions. Therefore, they requested the Court to await the Supreme Court's ruling before deciding this case.

Court's Held:

The Hon'ble High Court of Sikkim allowed the writ petition filed by the petitioner and quashed the recovery order issued by the Assistant Commissioner of CGST . The Court held that the impugned order, which sought to reverse the budgetary support refund of ₹12.18 crore along with interest, was unsustainable because it relied on two earlier judgments (Zydus Wellness and Alkem Laboratories) that had already been overturned by a Division Bench of the same Court in Writ Appeals No. 9 and 10 of 2023. Since the facts of Torrent's case were identical to those covered in the overturned decisions, and the respondent could not distinguish the present case from those precedents, the Hob'ble Court found the Division Bench ruling to be binding. It rejected the respondent's argument to await the outcome of a proposed Special Leave Petition before the Supreme Court, noting that until such time as the higher court sets aside the Division Bench's ruling, it remains applicable. Consequently, the Court set aside the recovery demand and allowed the writ petition, leaving other questions of law open for future consideration.

End Notes:

The judgment in Torrent Pharmaceuticals Ltd. v. Union of India underscores the importance of judicial consistency and the binding nature of appellate decisions within the same jurisdiction. By setting aside the recovery of budgetary support on grounds that had already been invalidated in earlier appeals, the Court reaffirmed that administrative actions must align with prevailing judicial interpretations. It also clarified that mere initiation or intent to file a Special Leave Petition before the Supreme Court does not dilute the authority of a binding Division Bench decision. This case serves as a precedent for similarly situated entities facing recovery of benefits under the Budgetary Support Scheme due to ownership changes, and highlights the judiciary's role in ensuring fairness and legal certainty in tax administration.

Author:Madhurima Bose

Edited by: Shaily Gupta