Interest on Ocean Freight IGST Refund applies from Date of Deposit, No from Refund Application: Orissa HC [Read Order]

The Orissa High Court has held that interest on refund of IGST ( Integrated Goods and Services Tax ) paid on “ocean freight” is payable from the date of deposit of tax. The court ordered 6% interest.

As per the bench of Chief Justice Harish Tandon and Justice Murahari Sri Raman, “If the tax has to be refunded, and in fact, has been refunded to the petitioner, clearly, therefore, in the considered view of the Court, the interest thereon should begin to run from the date of the deposit of such tax.”

In the present case, M/s Paradeep Phosphates Ltd., a fertiliser manufacturer, had imported raw materials on a CIF basis and paid IGST on the “ocean freight” component under the reverse charge mechanism. The payment was made under protest.

The company challenged the levy of IGST on ocean freight in light of the legal position eventually settled by the Supreme Court in Mohit Minerals.

Later, the assessee filed a refund claim. The same was sanctioned.

However, the department denied interest on the ground that the refund was issued within the statutory timeline of 60 days from the refund application. Therefore Section 56 of the CGST Act was not attracted.

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The court referred to Ujjam Bai Vrs. State of Uttar Pradesh and observed that “that a tax cannot be levied by the State, unless a law to that effect exists, and that law must follow and obey all the directions in the Constitution about the making of laws.”

The High Court clarified that the present matter was not a case of delayed refund under Section 56, but a case of illegal collection of tax, since the levy was unsustainable.

The Orissa high court held that as the apex court struck down the IGST on Ocean Freight, then itself it is clear that the tax never existed. Therefore, the department holding money that will never be collected is illegal and unsustainable.

“it is clear that the petitioner is entitled to interest on the amount refunded with respect to IGST collected on “ocean freight” for the period the opposite parties retained the same and restrained the petitioner from utilising it. In other words, such interest should commence to run from the date on which the petitioner parted with the money in the first instance and was restrained from using such amount representing the IGST on the component of “ocean freight” said the court.

Accordingly, the court ordered the GST department to pay 6% per annum interest to the petitioner within 8 weeks. And if the department fails to pay interest within time limit, then authority shall be 9% interest per annum.

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