Bombay HC: West India Continental v. UOI and Ors. [W.P. No. 3000/2023]
Background: The petitioner, West India Continental Oils Fats Pvt. Ltd., engaged in importing palm oil, had paid ₹2.62 crore as IGST on ocean freight under reverse charge, in terms of Notifications No. 8/2017 and 10/2017 – Integrated Tax (Rate). Subsequently, these notifications were declared unconstitutional by the Bombay High Court in the petitioner’s own earlier case following the Supreme Court’s ruling in Union of India v. Mohit Minerals Pvt. Ltd. The Court had directed refund of the IGST along with applicable interest. Pursuant to that, the petitioner sought refund of ₹2.62 crore along with interest of ₹71.31 lakh. Though the refund of tax was sanctioned, interest was denied by the Department vide order dated 31 January 2023.
Department Contention : The Department contended that the refund was granted within the prescribed 60 days under Sections 54 and 56 of the CGST Act, and therefore no interest was payable. It was further argued that the petitioner failed to file the refund application within eight weeks as directed by the earlier judgment and was thus not entitled to claim interest. The respondents maintained that the refund process was done through the GST portal and completed within time, making the claim of interest inadmissible and illegal.
Decision of the court: The Court rejected the Department’s contention, holding that Sections 54 and 56 apply only to tax lawfully collected, and not to amounts collected without authority of law. Since the levy of IGST on ocean freight was held unconstitutional, the Department’s retention of such amount was illegal and violated Article 265 of the Constitution. The Court emphasized that the Government could not unjustly enrich itself and was bound, under the doctrine of restitution, to compensate the petitioner by paying interest from the date of deposit till refund. The Court further observed that the petitioner had bona fide pursued the refund claim and could not be penalized for procedural delays. Accordingly, the Court directed the Department to sanction and pay interest of ₹71,31,225 within four weeks, holding that denial of interest would amount to a premium on unjust enrichment. The rule was made absolute, with no order as to costs.
Comment: The court underscores that the IGST collected under the reverse charge mechanism on ocean freight was “itself illegal and in fact unconstitutional,” and that the petitioner “cannot therefore 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.” It rejected the notion that timely refunds under Section 54/56 negate interest, noting that withholding money collected without authority of law would amount to unjust enrichment. The court emphasizes constitutional mandate and restitution principles, stating that denying interest in such circumstances would constitute a premium on unjust enrichment.
GST Law India is a blog on GST and allied commercial laws managed by members of the law firm ALA Legal.