Orissa High Court Grants Interest on Refunded IGST for ‘Ocean Freight’
The Verdict
In a significant ruling for taxpayers, the Orissa High Court has held that the government must pay interest on the refund of Integrated Goods and Services Tax (IGST) paid on “ocean freight,” calculated from the original date of deposit. The court awarded simple interest at 6% per annum from the date of payment until the actual refund date.
The Case Background
The petitioner, Paradeep Phosphates Limited, had paid IGST under protest on ocean freight in CIF (Cost, Insurance, and Freight) contracts. This payment was made pursuant to government notifications that were later declared unconstitutional by the Supreme Court in the landmark Mohit Minerals case. While the tax authorities eventually sanctioned the refund of the principal amount, they denied the claim for interest, arguing that the refund was processed within the statutory 60-day window from the date of the application.
Court’s Reasoning
The High Court rejected the Revenue’s reliance on standard statutory timelines, noting that:
• Constitutional Invalidity: Because the underlying levy was declared unconstitutional, the state had no right to retain the funds from the moment they were deposited.
• Beyond Statutory Silence: Although Section 56 of the GST Act is silent on interest for refunds arising from “ultra vires” notifications, the court emphasized that consistent legal jurisprudence supports compensating taxpayers when tax collection is found to be illegal.
• Compensation for Retention: The court ruled that interest serves as compensation for the period the government retained the petitioner’s money without legal authority.
Final Directive
The court ordered the authorities to pay the 6% interest within eight weeks. Should there be further delays, the interest rate will increase to 9% per annum for the period of delay.