Ocean freight service tax refund petition allowed based on unconstitutional statutory provisions under Article 265 Constitution

Delhi HC allowed petition for service tax refund on ocean freight for April-June 2017. Court held that refund claims based on unconstitutional statutory provisions fall outside the principal enactment's purview per Mafatlal Industries SC precedent. Such claims are maintainable under Article 265 Constitution and Section 72 Contract Act. Limitation period calculated under Section 17(1)(c) Limitation Act, excluding March 2020-February 2022 period. Section 11B Central Excise Act held inapplicable. Respondents directed to process refund claims immediately.

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Issues Involved:

1. Refund of service tax on ocean freight for CIF contracts.
2. Constitutionality of service tax levy on ocean freight.
3. Applicability of limitation period for refund claims.
4. Impact of judicial precedents on the refund claim.
5. Application of the doctrine of unjust enrichment.

Issue-wise Detailed Analysis:

1. Refund of Service Tax on Ocean Freight for CIF Contracts:

The petitioners sought a writ of mandamus for the refund of service tax paid on ocean freight from April 2017 to June 2017. They argued that under a CIF contract, the overseas supplier bears the transportation charges, and thus, the local importer should not be liable for service tax on ocean freight. The court acknowledged the petitioners' contention that the service tax on ocean freight for CIF transactions was not justified, especially after the Gujarat High Court's decision in M/s Sal Steel Ltd., which declared such a levy unconstitutional.

2. Constitutionality of Service Tax Levy on Ocean Freight:

The court addressed the constitutional validity of the service tax levy on ocean freight. It referenced the Gujarat High Court's judgment in M/s Sal Steel Ltd., which found the amendments imposing service tax on ocean freight ultra vires the Finance Act, 1994. Furthermore, the Supreme Court's decision in Union of India vs. Mohit Minerals Pvt. Ltd. reinforced this position by declaring that the imposition of IGST on ocean freight amounted to double taxation and was unconstitutional. The court emphasized that once a statutory provision is declared unconstitutional, any levy under it is invalid.

3. Applicability of Limitation Period for Refund Claims:

The respondents argued that the refund claim was barred by limitation under Section 11B of the Central Excise Act and the Limitation Act, 1963. However, the court found this argument unmerited, citing the Constitution Bench in Mafatlal Industries Ltd., which held that claims for refunds due to unconstitutional levies fall outside the purview of the enactment and are not bound by the statutory limitation periods. The court further referenced the Supreme Court's extension of limitation periods due to the COVID-19 pandemic, which applied to the petitioners' case, making their claim timely.

4. Impact of Judicial Precedents on the Refund Claim:

The court considered various judicial precedents, including the Gujarat High Court's decision in Comsol Energy (P) Ltd. and the Tribunal's decision in Kiri Dyes and Chemicals, which upheld the unconstitutionality of the service tax on ocean freight. These decisions supported the petitioners' claim for a refund. The court noted that the absence of a stay on these judgments by the Supreme Court further validated the petitioners' position.

5. Application of the Doctrine of Unjust Enrichment:

The court examined the doctrine of unjust enrichment, which prevents a claimant from being unjustly enriched at the expense of another. It was determined that the petitioners had not passed on the burden of the tax to another party, thus justifying their refund claim. The court reiterated that the doctrine of unjust enrichment does not apply to the state, as the state represents the people and cannot be unjustly enriched.

Conclusion:

The court allowed the writ petitions, directing the respondents to process and dispose of the refund claims with applicable statutory interest. The court's decision was based on the unconstitutionality of the service tax levy on ocean freight, the timely filing of the refund claim considering the extended limitation period, and the absence of unjust enrichment.

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