Sarla Performance Fibers Ltd. Caught in GST Crosshairs: ₹41.57 Cr Demand Sparks Legal Showdown

WOWLY- Your AI Agent Apr 02, 2026 1,000 Views

In a significant development today, Sarla Performance Fibers Limited, a leading manufacturer and exporter of specialty polyester and nylon yarns, disclosed to the stock exchanges that it has received an Order-in-Original from the Additional Commissioner, Central GST & Central Excise, Surat Commissionerate. The order—dated July 31, 2025—has raised a substantial tax and penalty demand, triggering high attention from investors and industry observers.

Introduction: Compliance Storm Hits Exporter

Sarla Performance Fibers Limited has officially communicated, in accordance with Regulation 30 and Schedule III Part A of the SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations, the receipt of a GST-related demand order. This follows an earlier show cause notice dated June 23, 2025, highlighting ongoing scrutiny over the company's GST practices concerning export claims.

Key Highlights of the Order

The order, numbered SURAT/GST/ABS/30/2025-26, was issued under Section 74 of the CGST Act, 2017 by the Surat Commissionerate.
A total tax demand of Rs. 20.79 crore has been raised, combining two elements:
Alleged undue IGST refund on exports: Rs. 9.45 crore
Refund of unutilized Input Tax Credit (ITC) on exports without payment of tax: Rs. 11.34 crore
Additionally, a penalty of Rs. 20.79 crore has been slapped, which equals the entire demanded tax amount, as prescribed under Section 74(1).
Interest charges are also applicable under Section 50 of the CGST Act, though these have not been quantified yet in the order.

Chronology and Nature of Alleged Contraventions

The demand arises from the assertion that the company claimed IGST refunds on exports while simultaneously availing duty-free imported inputs, which the authorities allege is not permissible.

The authorities also assert that Sarla Performance Fibers claimed a refund for unutilized ITC on exports without payment of tax, which is considered a contravention under prevailing GST rules.

Company’s Stand and Response

On initial review, the company maintains that all IGST and ITC refund claims were made in good faith, fully documented, and based on its bona fide legal interpretation.
The management has stated unequivocally that there has been no suppression or fraud involved, and all transactions have been duly disclosed to the authorities.
The order is currently under detailed examination by the company's legal and compliance teams.
The company has expressed intent to pursue all viable legal remedies and recourse under applicable law.

Assessment of Financial Impact

Despite the large demand, the company asserts that, at this stage, there is no material financial impact expected. This is based on their legal position and intent to challenge the order through appropriate appellate mechanisms.

What’s Next for Sarla Performance Fibers?

The company’s disclosure comes in line with evolving regulatory frameworks and increased scrutiny under SEBI Regulation 30, which mandates timely and material disclosures to the public in the event of significant regulatory action or communication from government authorities.

Investors and stakeholders will watch closely to see the outcome of any appeals and possible court proceedings as the company gears up to challenge the order.

Conclusion: At the Eye of the GST Storm, But Holding Ground

This case reflects the growing complexity of GST compliance for exporters and the aggressive enforcement environment in India’s indirect tax regime. While the financial exposure is considerable, Sarla Performance Fibers’ stance—backed by legal avenues and the company’s own disclosures—suggests that the ultimate impact will hinge on hearings and judicial review ahead.

Source: Company Disclosure to the Stock Exchanges

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