When the Levy is Unconstitutional, the GST Act’s Silence on Interest is Not a Bar — A Detailed Note on the AP HC’s Jwala Energy Ruling
The principle, stated plainly
If the government collects a tax under a provision that is later declared unconstitutional, it has held money it had no right to hold. The taxpayer’s right to get that money back is not a creature of the statute under which it was collected — it is a constitutional right. And a constitutional right to recovery necessarily carries with it the right to be compensated for the period during which the money was wrongfully retained. That compensation is interest. The fact that the GST Act does not specifically provide for interest in such a situation does not extinguish the right; it simply means that the right is sourced outside the GST Act.
This is the principle that the Andhra Pradesh High Court has reaffirmed in Jwala Energy Resources Pvt. Ltd. v. Asst. Commissioner GST, Visakhapatnam Division (WP 22135/2024, decided 08 April 2026), by a Division Bench of Justices R. Raghunandan Rao and T.C.D. Sekhar.
The statutory framework — Section 54 and Section 56 of the CGST Act
The department’s defence in Jwala Energy was built around two sections.
Section 54 governs the refund procedure under the GST regime. It prescribes a two-year limitation for filing refund applications and lays down the conditions and procedure for refund of tax, interest, penalty, fees or any other amount paid. It is, in form and substance, a refund statute for amounts collected lawfully under the GST framework.
Section 56 governs interest on delayed refunds. It provides that where any tax ordered to be refunded under Section 54(5) is not refunded within sixty days from the date of receipt of the refund application, interest shall be payable on such refund at the prescribed rate (currently 6% per annum) from the date immediately after the expiry of sixty days till the date of refund. The critical phrase is “from the date immediately after the expiry of sixty days” — interest under Section 56 runs from the end of the statutory processing window, not from the date the tax was actually deposited.
If Section 56 is the source of the right to interest, then a department that refunds within sixty days of the application owes no interest at all — irrespective of how long the money was lying with the government before the application was made. That is exactly what the GST authorities argued in Jwala Energy. The department’s case was that since the refund was processed within the statutory timeline, no interest was payable under Section 56, and Section 54 did not, by itself, create an independent right to interest.
The constitutional override — why Sections 54 and 56 do not govern
The Court rejected this defence. Its reasoning has three pillars.
First, the refund in Jwala Energy did not flow from the GST Act at all. It flowed from the Supreme Court’s declaration in Union of India v. Mohit Minerals Pvt. Ltd. (19 May 2022) that the levy under Entry 10 of Notification 10/2017 — IGST on ocean freight under RCM — was unconstitutional. Once that declaration was made, the levy was void ab initio. The amount collected under that levy was not “tax” at all in the eyes of the law — it was an “illegal extraction of money”, to use the Court’s phrase. Sections 54 and 56 are the GST Act’s framework for refunds of lawfully collected amounts. They have no application to amounts that were never lawfully collected in the first place.
Second, the right to interest in such a situation rests on a constitutional principle, not on a statutory provision. Article 265 of the Constitution declares that no tax shall be levied or collected except by authority of law. When a levy is struck down, the collection is without authority of law and the principle of restitution applies. The principle of restitution, well-established in Indian jurisprudence, requires that a person wrongfully deprived of money be restored, as nearly as possible, to the position they would have occupied had the wrongful deprivation not occurred. That necessarily includes interest for the period during which the money was wrongfully retained — the loss of use of money is the loss being compensated.
Third, the principle that interest is compensation for loss of use of money is not a private-law principle confined to commercial disputes. It applies equally to the State when the State wrongfully retains a citizen’s money. The Court drew on this proposition to hold that the absence of a specific interest provision in the GST Act could not be read as a legislative refusal to compensate — because the legislature was never given the power to refuse compensation for amounts collected without authority of law in the first place.
The cross-jurisdictional trend
The Andhra Pradesh High Court did not create new law in Jwala Energy. It joined a consolidating line of High Court decisions on the same principle. The Bombay High Court and the Orissa High Court have, in earlier rulings, held that where a tax levy is itself unconstitutional, limitation provisions governing ordinary refunds do not apply and taxpayers are entitled to interest from the date of deposit. Earlier Andhra Pradesh High Court decisions had moved in the same direction. The trend across High Courts is now consistent and citable. For a defender preparing a similar refund claim, the right move is to cite the line collectively, demonstrate the consolidating principle, and pre-empt the department’s predictable Section 54/56 defence by framing the refund as constitutional rather than statutory.
The decision — quantum and direction
On the merits, the Court directed the department to pay interest at 6% per annum on ₹68.36 lakh from the date of deposit till 7 June 2024 (the date on which the principal was finally refunded), with payment to be completed within three months. The rejection of interest was set aside. The petitioner’s deprivation of the use of ₹68.36 lakh, from the date of payment till the refund, was held to be the loss being compensated.
The takeaway for defenders and finance heads
Three practical takeaways stand out.
One — any refund claim flowing from a Supreme Court or High Court decision that strikes down a GST notification or provision is not a Section 54 refund. It is a constitutional refund. Plead it as such in the writ. Frame the prayer to seek refund with interest from the date of deposit. Do not let the department drag the dispute into the Section 54/56 framework, where their procedural defences are stronger.
Two — the two-year limitation under Section 54 does not apply to refunds arising from a declaration of unconstitutionality. The Court reaffirmed in Jwala Energy what other High Courts have already held — limitation provisions governing ordinary refunds are inapplicable where the levy itself is void. This is a powerful tool for taxpayers who became aware of their refund entitlement only after a constitutional ruling.
Three — document the protest. The Court noted that the petitioner had paid GST “under protest”. A clean record of protest at the time of payment makes the constitutional refund case substantially stronger, because it negates any argument that the payment was voluntary and removes the doctrine of unjust enrichment from the equation. For finance heads facing similar levies in the future, the practical advice is unchanged — pay where compelled, but pay under protest in writing, and preserve that record.
The right to interest on a refund of unconstitutionally collected tax is, at its heart, a question of who bears the cost of the State’s mistake. Jwala Energy reaffirms that the answer is the State, not the citizen — and that the GST Act’s silence is not an answer the State can hide behind.
Author Bio
