Bombay High Court Orders ₹71.31 Lakh Interest to Importer on Refund of Wrongfully Collected IGST Under Reverse Charge on Ocean Freight
Isabella Mariam
The High Court of Judicature at Bombay, Division Bench of Justice M.S. Sonak and Justice Advait M. Sethna directed the tax department to pay Rs. 71.31 lakh as interest to an importer on the refund of Integrated Goods and Services Tax (IGST) wrongly collected under the Reverse Charge Mechanism (RCM) on ocean freight. The Court observed that the authorities had utilized the amount till the refund was granted and found no legal justification to withhold interest. Emphasizing the principle of restitution under Section 144 of the Civil Procedure Code, the Bench held that denial of interest would contravene settled legal and constitutional norms following the earlier declaration of such levy as unconstitutional.
The petitioner, West India Continental Oils Fats Pvt. Ltd., a company engaged in importing palm oil for trading, had paid IGST of Rs. 2,62,37,558 between July 2017 and April 2019 under the reverse charge mechanism, based on Notifications No. 8 and 10 of 2017 and the corrigendum dated 30 June 2017. The company challenged these notifications as being beyond the legislative competence of the authorities. In August 2022, the Bombay High Court, relying on the Supreme Court’s decision in Union of India v. Mohit Minerals Pvt. Ltd., held the notifications unconstitutional to the extent that they imposed IGST on ocean freight.
Pursuant to this judgment, the petitioner sought a refund of IGST along with interest. The respondents refunded the principal amount but denied interest, citing Sections 54 and 56 of the Central Goods and Services Tax (CGST) Act, claiming that the refund had been processed within the 60-day statutory period. The petitioner argued that these sections did not apply, as the amount collected was not a lawful tax but one collected without authority of law, invoking Article 265 of the Constitution. The company contended that the authorities were obligated to refund the amount with applicable interest in accordance with the Court’s earlier judgement and the doctrine of restitution. The Assistant Commissioner’s order dated 31 January 2023, rejecting the interest claim, was challenged in this writ petition.
The Bench recorded that "the collection of the said tax by the respondents was rooted in the Notifications No. 8 and 10 of 2017 read with the corrigendum dated 30 June 2017," and recalled its previous judgement in the petitioner’s own case that declared the notifications unconstitutional. The Court stated, "What follows thus is that the revenue/respondents were legally obligated and liable to refund the amount of Rs. 2,62,37,558 towards IGST paid by the Petitioner on ocean freight for the imported goods, which they eventually did."
Referring to the reasoning in Mohit Minerals Pvt. Ltd., the Court held that "a separate levy of IGST by the revenue on the component of ocean freight under the reverse charge mechanism was in violation of Section 8 of the CGST Act and the overall scheme of the GST legislation." The Bench rejected the respondents’ reliance on the 60-day limitation under Sections 54 and 56 of the CGST Act, observing that "Section 54 can only be applicable for claiming refund of any tax which is paid in accordance with and under the framework of the CGST Act and its extant provisions. The said Section would not apply in a situation where revenue has no authority to collect the IGST paid by the Petitioner."
The Court further remarked that "the respondents cannot shirk the statutory obligation to pay interest within the timeline of 60 days as stipulated under Section 54 read with Section 56 of the CGST Act," and found the rejection of the petitioner’s claim inconsistent with constitutional mandates. It held that "the rejection of the respondents to pay the interest as demanded by the Petitioner, in the given facts, would violate the constitutional mandate under Article 265."
The Bench stated the applicability of the doctrine of unjust enrichment, citing Mafatlal Industries v. Union of India, stating that "one cannot enrich oneself illegally and consequently, one is bound to return the amount wrongfully paid without legal authority." It observed that "having utilized such amounts of the Petitioner there is no justification, legal or otherwise, to deny interest to the Petitioner." The Court concluded that depriving the petitioner of interest "would run contrary to the well recognized legal principle of restitution which also finds statutory force under Section 144 of the Civil Procedure Code."
“For all of the above reasons, in our view, the Petitioner has made out a fit case for claiming interest of Rs.71,31,225/- which ought to be sanctioned and paid to the Petitioner forthwith and in no event later than 4 weeks from the date of uploading of this judgment. At this juncture, we clarify that in the absence of any material placed on record by the respondents, to the contrary, we do not find any reason to doubt and/or disbelieve the interest quantified at Rs.71,31,225/- claimed by the Petitioner in the present proceedings.”
“The rule is made absolute in the above terms. No order as to costs.”
Advocates Representing the Parties:
For the Petitioner: Mr. Jas Sanghavi along with Ms. Linzy Sharan and Mr. Vikas Poojary, instructed by PDS Legal.
For the Respondents: Mr. Y. R. Mishra along with Mr. Saket R. Ketkar.
Case Title: West India Continental Oils Fats Pvt. Ltd. v. Union of India & Ors.
Neutral Citation: 2025:BHC-OS:19595-DB
Case Number: Writ Petition No. 3000 of 2023
Bench: Justice M. S. Sonak and Justice Advait M. Sethna
