Doctrine of Unjust Enrichment in GST Refund: 2026 Guide

Refund sanctioned on paper but the money never actually reaches your bank account? Somewhere in that process, the refund may be credited to the Consumer Welfare Fund if the statutory conditions for payment to the applicant are not satisfied.

The principle of unjust enrichment generally requires the applicant to establish that the incidence of the tax or other amount claimed as a refund has not been passed on to another person, subject to statutory exceptions, and the burden falls entirely on you to prove otherwise.

This guide explains what unjust enrichment under GST actually means, when it applies, how to prove non-passing of tax in a GST refund, and what to do when a refund gets rejected on this ground.

What Is Unjust Enrichment Under GST?

Unjust enrichment under GST is a legal safeguard that prevents a taxpayer from claiming a refund of tax that was already collected from a customer and passed on as part of the sale price.

The government's reasoning is simple. If a business charged GST to its customer, kept the invoice price inclusive of that tax, and then also claimed the same amount back as a refund, it would end up pocketing money twice for the same tax event, once from the customer and once from the government.

The doctrine of unjust enrichment in India was authoritatively settled by the nine-judge Supreme Court bench in Mafatlal Industries Ltd. v. Union of India, decided in 1997 under the earlier excise and customs framework, and this reasoning was carried forward almost entirely into how GST refund unjust enrichment is applied today.

GST Refund and the Doctrine of Unjust Enrichment

GST refund and the doctrine of unjust enrichment intersect at exactly one question: who actually bore the economic burden of the refunded tax? If the applicant paid it themselves, the refund goes directly to them.

If it was passed on to someone else, typically the customer, the law treats a refund to the applicant as an undue benefit and redirects it to the Consumer Welfare Fund instead.

If your GST refund claim is affected by unjust enrichment, professional MYSGT Refund review of the refund documents and applicable appellate remedies can help determine the appropriate next step.

Section 54 and Unjust Enrichment in GST Refunds

Section 54 governs GST refunds, while Rule 89 specifies the documentary evidence and declaration/certificate requirements for establishing that the incidence of tax has not been passed on, establishing two separate things, not just one.

According to Section 54(4) of the CGST Act, 2017, in conjunction with Rule 89(2) of the CGST rules, 2017, the applicant has to establish the following:

• That the refund claimed is genuinely due to them, and
• That the incidence of tax and interest for which the refund is sought has not been passed on to any other person

The second condition is where unjust enrichment under GST actually lives. Even a refund that is otherwise perfectly valid on eligibility grounds can still be denied direct payment if this second condition is not satisfied.

When Does Unjust Enrichment Apply in GST Refunds?

When does unjust enrichment apply in GST refunds is best understood by which refund categories automatically face this scrutiny.

How to Prove Non-Passing of Tax in GST Refund

How to prove non-passing of tax in a GST refund depends heavily on the amount involved, and this is where documentation discipline actually decides the outcome.

Beyond the formal certificate, the following records genuinely strengthen a claim during scrutiny:

• Sale invoices showing the price charged remained unchanged regardless of the tax dispute.
• A credit note issued to the customer where the tax amount was actually returned to them
• Books of account and balance sheet treatment showing the disputed amount was shown as a recoverable claim, not as an expense passed into cost of goods sold.
• A CA-approved reconciliation between the amount of the refund and ledger entries and invoices.

When Does Unjust Enrichment Not Apply?

Not every refund faces this test. Section 54(8) of the CGST Act carves out specific exceptions where unjust enrichment simply does not apply, either because the tax was never realistically passed on, or because policy considerations, such as encouraging exports, override the concern entirely.

Categories generally exempt from unjust enrichment scrutiny include:

• Refund of tax paid on zero-rated supplies, including exports and supplies to SEZ
• Refund of unutilised ITC under Section 54(3), including eligible refunds relating to zero-rated supplies without payment of tax and accumulation due to an inverted duty structure, is covered by the relevant exception
• Refund of tax paid on a supply that was never actually provided, where the invoice itself was cancelled
• Refund claimed by specified categories of persons or agencies as notified by the government.
• Refund of tax paid on advance where the supply did not materialise and no invoice was raised.

GST Refund Rejected Due to Unjust Enrichment: What Next?

A refund not paid to the applicant on account of unjust enrichment may be subject to the applicable statutory remedy, including appeal where available.

• Request a certified copy of the rejection order specifying the exact ground and reasoning applied.
• Where an appealable order has been passed, the applicant may file an appeal before the Appellate Authority under Section 107, subject to the statutory time limit and applicable conditions.
• Strengthen the appeal with fresh documentary evidence, particularly a CA certificate if one was missing from the original application.
• Further remedy may be available before the Appellate Tribunal and, where legally applicable, the High Court, subject to the statutory appellate framework.
• Track whether the sanctioned amount was actually credited to the Consumer Welfare Fund, since this confirms the department accepted the refund was due but redirected it on unjust enrichment grounds specifically

Practical Examples

The following fact scenarios illustrate situations where the doctrine of unjust enrichment is applicable in various contexts of GST refunds.

Example 1: GST Collected From Customer

A trader charges a higher-than-correct rate of GST on the invoice, receives the full charge from the customer, and is then alerted to the error. Since the customer already paid the excess tax as part of the invoice value, a refund claim by the trader without returning that amount to the customer first would fail the unjust enrichment test.

Example 2: GST Paid by Mistake but Not Recovered

When a business makes an intra-state transaction and mistakenly pays IGST instead of CGST and SGST, but the customer paid the correct CGST and SGST in the invoice based on the facts, then IGST was paid. In this scenario, the IGST paid is not passed on to the customer, and hence, it meets the basis for the unjust enrichment criteria of a self-declaration or CA certificate.

Example 3: Unutilised ITC Refund

A manufacturer accumulates ITC due to an inverted duty structure and applies for a refund under Section 54(3). 
For this ITC, the specific exception would apply as it was never collected from a customer as output tax; therefore, there is no need whatsoever to look at the issue of unjust enrichment.

Example 4: Export/Zero-Rated Refund

An exporter pays IGST on export supplies and claims a refund since the transaction is zero-rated. 
It is specifically excluded by Section 54(8) of the CGST Act, 2017 -  Mandatory correction, as a domestic customer will not use the goods but will be used by an overseas customer, who will be the final customer as far as VAT is concerned.

Example 5: Electronic Cash Ledger Refund

A business deposited excess cash into its electronic cash ledger by mistake and never used it to discharge any output tax liability on an actual sale. 

This money was not originally part of the regular business of the customer, and does not subject itself to the "unjust enrichment" doctrine when looking at it as a refund based on the supply of any goods or services.

Conclusion

The doctrine of unjust enrichment in GST refund is only to prevent a specific type of double receipt and certainly not to create a thicker double hurdle in the procedure for claiming a refund.

Understanding which category your claim falls into, keeping the 2 lakh rupee documentation threshold in mind, and maintaining clean invoice and ledger records from the start protects a genuinely valid refund from getting diverted to the Consumer Welfare Fund over a documentation gap rather than a real eligibility issue.

Frequently Asked Questions

1. How can I prove that GST was not passed on to the customer? 
Submit a self-declaration for claims up to 2 lakh rupees, or a Chartered Accountant or Cost Accountant certificate for larger amounts, supported by invoices, credit notes, and ledger entries showing the tax amount was never recovered from or retained in the customer's payment.

2. What documents prove non-payment of tax? 
Sale invoices showing consistent pricing, credit notes issued to customers, CA-certified reconciliation statements, and balance sheet treatment showing the disputed amount as a recoverable claim rather than an expense passed into the cost of goods sold.

3. Can a GST refund be rejected due to unjust enrichment? 
Yes, a refund can be sanctioned as legally due but still redirected to the Consumer Welfare Fund instead of the applicant if the officer is not satisfied that the tax incidence was not passed on to another person.

4. Does unjust enrichment apply to ITC refunds? 
No, refund of unutilised input tax credit under Section 54(3), such as for exports or inverted duty structure, is specifically exempt from unjust enrichment scrutiny under Section 54(8).

5. Does unjust enrichment apply to export refunds? 
No, refunds arising from zero-rated supplies, including exports and supplies to SEZ, are exempt from unjust enrichment scrutiny since there is no domestic customer who ultimately bears the tax burden.

6. What can I do if my GST refund is rejected? 
Submit the appeal within three months to the Appellate Authority under section 107 and support it with additional documentary evidence like a CA certificate where necessary, and if the appeal fails, appeal it to the Appellate Tribunal or High Court.