The Bombay High Court clarified that a separate levy of IGST by the revenue on the component of ocean freight under the reverse charge mechanism (RCM), premised on the IGST notifications 8 and 10 of 2017, violates Section 8 of the CGST Act and the overall scheme of the GST legislation. Thus, the Court ruled that the GST Department is legally obligated to refund the IGST of Rs. 2.62 crores paid by the petitioner on ocean freight for the imported goods.
Reference was made to the decision in the case of Union of India vs. Mohit Minerals Pvt Ltd [2022 (61) G.S.T.L. 257 (S.C.)], where the Apex Court had settled the issue as to whether an Indian importer can be subject to the levy of the IGST on the component of ocean freight paid by the foreign seller to a foreign shipping line, on a reverse charge basis.
The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna observed that when IGST paid by the petitioner/ importer under the reverse charge mechanism was itself illegal and therefore, directed to be refunded by this Court vide its order dated August 10, 2022, then as a fortiori, the petitioner is legally entitled to claim interest on such refunded amount of tax paid without authority of law and contrary to Article 265 of the Constitution.
The Bench further observed that one cannot enrich oneself illegally and, consequently, one is bound to return the amount wrongfully paid without legal authority. Admittedly, the petitioner had paid the amount of IGST, which the respondents utilized up to the date of the grant of the refund.
Having utilized amounts of the petitioner, there is no justification, legal or otherwise, to deny interest to the petitioner. Thus, the Bench emphasized that to deprive the petitioner of interest, in the given facts, would run contrary to the well-recognized legal principle of restitution, which also finds statutory force under Section 144 of the Civil Procedure Code (CPC).
As the IGST collected from the petitioner under the reverse charge mechanism on the ocean freight is itself illegal and in fact unconstitutional, the Bench concluded that the petitioner cannot be deprived of its right to be paid interest on the amount of IGST refunded to the petitioner, who was, in the very first place, not at all liable to pay such tax.
Briefly, in this case, the petitioner company, engaged in the import of palm oil for trading in India, was fastened with the liability to pay Integrated Goods and Services Tax (IGST) on a reverse charge basis. The petitioner paid IGST of INR 2.62 crores on ocean freight for the goods imported at the ports in the State of Maharashtra, and later, challenged the notification Nos 8 & 10 of 2017, being contrary to Section 5(3) of the IGST Act and beyond the legislative competence.
In 2022, a part of the said notification was declared unconstitutional by the Bombay High Court to the extent it sought to levy IGST on ocean freight, and the Department was directed to refund the amount of IGST along with applicable interest thereon. In pursuance of the same, the respondent Department directed the Petitioner to file a refund application on the common portal, which was mistakenly filed under the wrong category.
Accordingly, the petitioner filed another refund application on the common portal seeking the refund of IGST of Rs. 2.62 crores paid by it, on ocean freight under the reverse charge mechanism, along with interest of Rs. 71.31 lacs. The respondent, though sanctioned the refund, however, rejected the interest claim, being barred by limitation under Section 54 read with Section 56 of the CGST Act.
Case Relied On:
Union of India vs. Mohit Minerals Pvt Ltd [2022 (61) G.S.T.L. 257 (S.C.)]
Appearances:
Advocates Jas Sanghavi, Linzy Sharan, and Vikas Poojary, for the Petitioner/ Taxpayer
Advocates Y. R. Mishra and Saket R. Ketkar, for the Respondents/ Revenue
