The Bombay High Court ruled that the authority must pay ₹71.31 lakh as interest on the refund of illegally collected IGST (Integrated Goods and Services Tax) under the Reverse Charge Mechanism (RCM) on ocean freight.
Justices M.S. Sonak and Advait M. Sethna considered that the applicant had submitted IGST, which the respondents used up to the date of the grant of the refund. Despite the use of these amounts by the applicant, no justification is there, legal or otherwise, to refuse the interest to the applicant.
By not providing the interest to the applicant in the facts will not be in favour of the well-recognised legal principle of restitution, which also finds statutory force u/s 144 of the Civil Procedure Code (CPC).
The business of the applicant is the trading in India of the import of palm oil (crude and refined).
The applicant is obligated to pay Integrated Goods and Services Tax (“IGST”) on a reverse charge basis in terms of notification No.8 of 2017-Integrated Tax (Rate), read with notification No.10/2017-Integrated Tax (Rate) and corrigendum dated 30 June 2017 to the said notification No.8 of 2017 by the respondents/department.
Rs 2.6 crore of IGST has been filed by the taxpayer from July 2017 to April 2019, on ocean freight for the goods imported at the ports, by the taxpayer in Maharashtra.
The taxpayer has submitted a writ petition contesting the notifications No.8 of 2017 and 10 of 2017, respectively. Taxpayers said that these notifications are opposite to Section 5(3) of the IGST Act and beyond the legislative competence of the department to issue the expressed notifications.
The Bombay High Court held and declared that serial No.10 of the said notifications, read with the corrigendum dated 30 June 2017 to the said notification No.8 of 2017, were unconstitutional to the extent they asked to levy IGST on ocean freight.
The court asked the department to refund the IGST, including the applicable interest thereon, as per the law.
Through the letter/communication, the taxpayer asked the commissioner/respondent No.3 to grant a refund of IGST of Rs. 2,62,37,558 paid by them on ocean freight, under the reverse charge mechanism, including the interest thereon.
A refund application has been submitted by the taxpayer on the common portal asking for a refund of IGST of Rs 2,62,37,558 paid via it, on ocean freight under the reverse charge mechanism, including the interest of Rs 71,31,225.
The Respondent No.2/ Assistant Commissioner, by Order, issued in FORM GST RFD-06, sanctioned a refund of Rs. 2.6 crore in favour of the taxpayer and rejected the claim of the taxpayer for interest of Rs. 71,31,225, under reasons recorded in the said order.
The applicability of section 54 is only for claiming a refund of tax which is paid under the provisions of the said act, the taxpayer stated. Since the collected amount by the department was without the authority of law. The department’s reliance on Section 54 of the CGST Act to explain its action is misplaced and misconceived.
The affirmation of the department that the claims of the taxpayer for the grant of interest are explained under sections 54 and 56 of the CGST Act has not been agreed by the bench.
The bench, Section 54 of the Act, can solely be applicable for claiming a refund of any tax which is paid in accordance with and under the CGST Act and its actual provisions. In a case, the cited section shall not be applicable where the revenue or the respondents do not have any authority to collect the IGST filed via the applicant on a reverse charge mechanism on the ocean freight, from the date of payment to the date of refund.
Read Also: Easy Guide to RCM (Reverse Charge Mechanism) in GST
As per the bench, the taxpayer was consistently and in a bona fide manner pursuing its refund claim with the department/respondents.
Thereafter, the bench said that the department must pay the interest of Rs. 71,31,225 to the taxpayer.
The bench in the above-said view permitted the petition.
| Case Title | West India Continental Oils Fats Pvt. Ltd. vs. The Union of India |
| Case No. | WRIT PETITION NO. 3000 OF 2023 |
| For Petitioner | Mr Jas Sanghavi, Ms Linzy Sharan, Mr Vikas Poojary |
| For Respondent | Mr Y. R. Mishra, Mr Saket R. Ketkar |
| Bombay High Court | Read Order |
