Where GST is collected without authority of law, the period of limitation under Section 54 shall not restrict the applicability of interest – Bombay High Court
The Bombay High Court, in the case involving West India Continental Oils Fats Pvt. Ltd., held that the IGST collected under the reverse charge mechanism on ocean freight was illegal and unconstitutional, as the levy itself lacked authority of law. Since the tax was wrongfully collected, the Court ruled that Section 54’s limitation provisions cannot restrict the Petitioner’s entitlement to interest on the refunded amount. The Court observed that Section 54 applies only to refunds of taxes validly levied under the CGST framework and not to amounts collected without legal authority. Denial of interest, it held, would violate Article 265 and result in unjust enrichment by the revenue. Consequently, the Petitioner is entitled to interest on the refunded IGST, as the original collection was unconstitutional and beyond the powers of the department.
In a recent case of West India Continental Oils Fats Pvt. Ltd. vs UOI and others, the Bombay High Court held that the IGST collected under the reverse charge mechanism on ocean freight is itself illegal and, in fact, unconstitutional. Therefore, the Petitioner cannot be deprived of its right to be paid interest on the amount of IGST refunded. Rejecting the interest claimed by the Petitioner would tantamount to conferring a premium on unjust enrichment.
Background
The Petitioner is a company engaged in the import of palm oil for trading in India. The Petitioner paid IGST under RCM on ocean freight for goods imported at the ports during the period July 2017 to April 2019. This was challenged by the Petitioner, and the Bombay High Court later declared that the entry relating to the payment of GST under RCM on ocean freight was unconstitutional to the extent that it sought to levy IGST.
The Court directed the GST department to grant a refund of the IGST paid by the Petitioner on ocean freight under the reverse charge mechanism, along with interest thereon. The refund of IGST was sanctioned, but the claim for interest was rejected.
Court’s Observations
Section 54 of the Act can apply only to claims for a refund of tax that is paid in accordance with, and under the framework of, the CGST Act and its extant provisions.
This Section would not apply in a situation where the revenue had no authority to collect the IGST paid by the Petitioner on reverse charge mechanism on ocean freight.
The rejection by the respondents of the Petitioner’s demand for interest, in the given facts and in terms of the Bombay High Court order, would violate the constitutional mandate under Article 265. One cannot enrich oneself illegally, and consequently, one is bound to return the amount wrongfully paid without legal authority.
Conclusion of the Court
The IGST collected from the Petitioner under the reverse charge mechanism on ocean freight is itself illegal and unconstitutional, as declared by the Bombay High Court. The Petitioner therefore cannot be deprived of its right to be paid interest on the amount of IGST refunded to it, which was, in the very first place, collected without authority of law.
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