IGST levy on ocean freight ruled unconstitutional, refund directed following Mohit Minerals precedent

Gujarat HC held that IGST levy on ocean freight paid by petitioner was unconstitutional, following SC precedent in Mohit Minerals case. The court determined that when notification imposing IGST on CIF value transactions is struck down, authorities cannot insist on levy collection. Applying Mafatlal Industries principles, the court found petitioner's writ petition for refund maintainable as this constituted unconstitutional levy rather than illegal levy or voluntary payment under mistake of law. The petition was allowed and refund directed.

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Issues:
1. Whether the levy of IGST on transactions of CIF value can be imposed by the Department by way of Notification.
2. If the answer to the first issue is negative, whether the Court has the power to direct the refund of the levy as prayed for by the petitioner.

Analysis:
The petitioner in this case sought relief through a writ petition under Article 226 of the Constitution of India, challenging the imposition of IGST on ocean freight paid during the import of goods. The petitioner contended that the levy was unconstitutional and ultra vires of the IGST Act, 2017. The petitioner also sought the quashing of the rejection order by Respondent No. 2 and a direction for the refund of the IGST amount paid. The petitioner had imported Bituminous Coal and paid IGST on ocean freight under reverse charge basis. The petitioner's claim for refund was based on the judgment of the Hon'ble Supreme Court affirming the unconstitutionality of the notifications imposing the IGST levy. The respondent rejected the refund claim citing a delay in filing the application beyond the prescribed period of 2 years from the relevant date.

The primary issue before the Court was whether the levy of IGST on CIF transactions could be imposed through a notification. The Court referred to the decision of the Hon'ble Supreme Court and various High Courts, including a case involving similar issues. It was established that when a notification is struck down, authorities cannot insist on the levy of IGST. The Court then considered the maintainability of the refund claim and the power to direct the refund. Referring to the Mafatlal Industries case, the Court differentiated between unconstitutional levy, illegal levy, and payment under a mistake of law. In this case, the payment was deemed voluntary but based on a mistake of law. The Court held that the writ petition seeking a refund of IGST was maintainable and allowed, as the levy had been declared unconstitutional.

In conclusion, the Court allowed the petition, quashed the impugned order, and directed the refund of the IGST amount paid by the petitioner. The Court found in favor of the petitioner, emphasizing the unconstitutionality of the levy and the petitioner's right to seek a refund under writ jurisdiction. The judgment set aside the rejection of the refund claim and made the rule absolute without any order as to costs.

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