Aarti Drugs Gets High Court Relief in ₹230 Crore GST Dispute

Introduction

Aarti Drugs Limited has secured a significant ad-interim relief from the Bombay High Court in a contentious Goods and Services Tax (GST) matter. On May 6, 2025, the court directed tax authorities to refrain from taking coercive measures to recover penalties related to a substantial Integrated GST (IGST) demand. This development provides the pharmaceutical company with temporary respite as it navigates a series of complex legal and regulatory challenges.

The Genesis of the GST Dispute

The case originates from a Show Cause Notice (SCN) issued by the Central Goods & Service Tax (CGST) & Central Excise (C.Ex.) Authority. The notice alleged a contravention of Rule 96(10) of the CGST Rules, proposing a demand of ₹230.70 crores. This amount pertained to IGST refunds claimed by the company for the financial years spanning from 2017-18 to 2021-22. The SCN, dated August 2, 2024, marked the beginning of a significant tax dispute for the company.

The Adjudication Order from Tax Authorities

Following the SCN, the CGST authority passed an Order-in-Original on February 3, 2025, with the formal communication (GST DRC-07) received by the company on February 7, 2025. The order provided a mixed outcome. It confirmed a demand for what it termed an 'erroneous' sanctioned IGST refund amounting to ₹20.72 crores under Section 74(9) of the CGST Act, 2017. However, it dropped the larger portion of the initial demand, amounting to ₹209.98 crores. Despite this partial relief, the authority also imposed a penalty equivalent to the confirmed demand, totaling ₹20.72 crores, under Section 74(9) and Section 122(2)(b) of the CGST Act. Additionally, interest was demanded on the confirmed amount as per Section 50(1) of the act.

High Court Grants Crucial Interim Relief

In response to the order, Aarti Drugs approached the Bombay High Court to challenge the confirmed demand and the penalty. The company's petition led to a favorable ad-interim order on May 6, 2025. The High Court specifically instructed the CGST & C.Ex. Authority not to initiate any coercive actions for the recovery of the disputed penalty. This stay provides the company with crucial breathing room while the merits of the case are further adjudicated. The company has stated its intention to formally appeal the order as per the procedure laid down under Section 107 of the CGST Act.

Summary of the GST Demand

Other Regulatory and Legal Headwinds

Beyond the significant IGST case, Aarti Drugs has been contending with other regulatory issues on multiple fronts, indicating a challenging operational environment.

Maharashtra GST Department Action

Separately, the Office of the Joint Commissioner of State Tax in Mumbai issued an order for the provisional attachment of Aarti Drugs' bank accounts with Union Bank of India and State Bank of India. This action, under Section 83 of the Maharashtra GST (MGST) Act, 2017, was related to a claimed tax liability. While one report cited a liability of ₹13.36 crore, the official order mentioned a larger claim of ₹213.36 crore, including interest and penalty. The company has announced its plan to file an objection against this attachment order.

Environmental Compliance Directives

On the environmental front, the company faced directives from the Maharashtra Pollution Control Board (MPCB). In an announcement dated September 9, 2025, Aarti Drugs stated it would voluntarily close the chlorosulfonation process at its T-150 unit in Tarapur to comply with the MPCB's directions.

Customs Duty Tariff Petition

In another legal matter, Aarti Drugs petitioned the Bombay High Court concerning customs tariffs. The company sought the retrospective correction of what it termed a 'clerical error' in the tariff rate for a specific chemical sub-heading, which would have lowered the Basic Customs Duty from 10% to 7.5% effective from May 1, 2022. The court, however, did not grant this relief, noting that while the legislature had made prospective changes effective from February 1, 2025, it was not for the court to direct a retrospective application.

Company's Stance and Market Impact

Throughout these challenges, Aarti Drugs has maintained that the potential demands are unlikely to materialize into final liabilities. The company has consistently informed stock exchanges of its intent to appeal unfavorable orders and defend its position through the appropriate legal channels. The interim relief from the Bombay High Court in the ₹230.70 crore GST case is a positive development that mitigates immediate financial risk from coercive recovery. However, the multiple ongoing disputes across GST, environmental, and customs regulations highlight a period of heightened scrutiny for the company.

Conclusion

Aarti Drugs Limited has successfully obtained temporary protection from the Bombay High Court in a major tax dispute, preventing immediate penalty recovery. This legal victory is significant, yet it is one part of a broader landscape of regulatory challenges the company faces. Investors and stakeholders will be closely monitoring the final outcomes of these various legal proceedings, which will be crucial in determining the full financial and operational impact on the company.