Aarti Drugs Limited, a well-known pharmaceutical company, has received ad-interim relief from the Bombay High Court in a significant legal development involving a substantial GST dispute amounting to ₹230.70 crores. The relief comes as a major breather for the company amid allegations of contravention under Rule 96(10) of the CGST Rules, with the tax authority earlier issuing a Show Cause Notice and consequential order.

The company had previously intimated stock exchanges on August 3, 2024, and February 7, 2025, regarding this ongoing matter. This latest disclosure, dated May 7, 2025, outlines that the High Court of Judicature at Bombay has restrained the CGST & C.Ex. Authority from initiating any coercive recovery actions, pending the final outcome of the writ petition filed by Aarti Drugs.

Background of the Case

The controversy stems from a Show Cause Notice issued to Aarti Drugs, proposing the recovery of IGST amounting to ₹230.70 crores along with applicable interest and penalties for the financial years 2017-18 to 2021-22. The CGST & Central Excise Authority passed an order which included:

• A demand of ₹20.72 crores for erroneously sanctioned IGST refunds under Section 74(9) of the CGST Act, 2017.

• Dropping of the remaining ₹209.98 crore demand under Section 74 of the CGST Act read with Section 20 of the IGST Act, 2017.

• Interest demands as per Section 50(1) of the CGST Act, 2017.

• A penalty of ₹20.72 crores under Section 74(9) read with Section 122(2)(b) of the CGST Act.

Following this order, the company filed a writ petition challenging the legality and fairness of the imposed demands and sanctions. The Hon’ble High Court of Bombay, upon hearing the case, passed an order granting ad-interim relief, thus putting a hold on any recovery attempts until further judicial examination.

Legal Standpoint and Impact

The relief is granted as part of an interim judicial intervention, not a final decision on merits. The court has merely restrained the tax authority from executing recovery actions until the matter is resolved. As a result, no financial outflow or penalty payment has been enforced at this stage.

In a filing to the BSE and NSE, Aarti Drugs emphasized that the financial impact of the tax demand is presently indeterminable, pending the outcome of the case. The company has also reiterated its commitment to updating the stock exchanges as and when further material developments occur.

This matter comes under the purview of Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which mandates disclosure of material developments that may have financial, operational, or reputational implications.

Disclosure Details as per Form A

As per the additional information submitted under Form A, in compliance with Regulation 30(13) of the SEBI LODR Regulations, the following key points were disclosed:

1. Communication Type: Order granting ad-interim relief.

2. Date of Receipt: May 6, 2025.

3. Authority: The High Court of Judicature at Bombay.

4. Details of Communication: A stay on coercive recovery related to the disputed IGST refund.

5. Expected Financial Impact: Currently unquantifiable, as it depends on the final decision.

6. Allegations by Authority: Violation of Rule 96(10), along with associated demands and penalties.

7. Penalty or Restriction Imposed: None as of now.

8. Company's Action: Filed writ petition and obtained relief.

Legal and Industry Implications

This case is yet another instance where the pharmaceutical and export-driven industries face scrutiny over complex GST refund rules, particularly Rule 96(10), which governs eligibility of exporters for claiming IGST refunds. The contention usually revolves around whether companies availed certain tax credits that would disqualify them from refunds.

The ₹230.70 crore IGST demand, of which ₹209.98 crore has been dropped, still leaves ₹20.72 crore in dispute, including interest and penalties. Legal experts note that such interim reliefs are essential to safeguard businesses from financial distress while courts examine the technical merits of such tax demands.

If Aarti Drugs succeeds in its petition, it could set a precedent for similar exporters caught in comparable disputes, particularly those under scrutiny for post-export refund validations.

Next Steps and Investor Awareness

Aarti Drugs has stated that it will continue to monitor the legal proceedings and comply with disclosure obligations under the Listing Regulations. Investors and stakeholders are advised to stay updated via stock exchange announcements, as the outcome of this writ petition could influence the company's financial risk exposure.

Until the adjudication is concluded, the company maintains that the monetary impact cannot be assessed and remains subject to judicial review. For now, the status quo is maintained with no recovery actions initiated by the CGST & C.Ex. Authority.

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