2025 (2) TMI 299 - HC - GST

Petitioner entitled to IGST and service tax refund on ocean freight; notification quashed; refunds must be passed to affected consumers

The HC held the petitioner entitled to refund of IGST and service tax paid on ocean freight, finding the impugned Notification unconstitutional and ... Refund of the amount paid towards ocean freight which is held to be unconstitutional - reverse charge mechanism - violation of Article 225 of the Constitution of India - HELD THAT:- In view of the facts of the case, it is undisputed fact that the petitioner is entitled to the refund of both IGST and Service Tax paid by the petitioner on the ocean freight in view of the decision of this Court in case of Mohit Minerals Private Limited [2022 (5) TMI 968 - SUPREME COURT] which is affirmed by the Hon’ble Supreme Court and in view of the orders passed by this Court in the Writ Petitions filed by the petitioner for refund of such amount which was collected by the respondent-Authorities under Notification No.10 of 2017 which was held to be unconstitutional. Considering the averments made in the affidavit together with the Board Resolution of the petitioner-Company, it is amply clear that the petitioner is not at all interested in having unjust enrichment over the amount of refund and the petitioner is to refund the same to the consumers who have borne the loss of such amount of tax which was passed on by the petitioner by including the same in the tarrif charged by it. The consumers of the petitioner have suffered the real loss who can claim the refund of the amount of the IGST and the Service Tax paid by the petitioner, however, such persons are now being represented by the petitioner as a custodian of its consumer and the methodology by which the petitioner has come forward by keeping the amount of refund in a seperate bank account to be considered as a revenue in the tarrif determination by the Gujarat Electricity Board as per the provisions of the Electricity Act, 2003, it cannot be said that it is not possible to refund the amount to such consumers for one or other reason. Therefore, it would not be just and appropriate that the respondent- Authorities can retain the amount of refund by transferring the same to the Consumer Welfare Fund. Conclusion - The refund is only permissible if the petitioner has not passed on the tax burden to others or if the refund can be effectively returned to those who bore the burden. The orders transferring the refund amount to the Consumer Welfare Fund quashed. The impugned orders passed by the respondent-Authorities, so far as it relates to transfer of the amount of refund of Rs.19 Crores and 4 Crores to the Consumer Welfare Fund, are hereby quashed and set aside - The respondent-Authorities are directed to refund the aforesaid amount to the petitioner within a period of two weeks from the date of receipt of the copy of this order. Petition allowed. The core issues considered by the Court in this case were:1. Whether the petitioner is entitled to a refund of the Integrated Goods and Services Tax (IGST) and Service Tax paid on ocean freight, which was declared unconstitutional by the Supreme Court.2. Whether the refund amount should be transferred to the Consumer Welfare Fund due to the principle of unjust enrichment, as the petitioner had passed on the tax burden to consumers.The Court analyzed these issues in detail:Relevant Legal Framework and Precedents:The legal framework involved the Integrated Goods and Services Tax Act, 2017, the Finance Act, 1994, and the Central Excise Act, 1944. The Court relied on precedents such as the Supreme Court's decision in Union of India v. Mohit Minerals Private Limited, which declared the tax on ocean freight unconstitutional. The Court also considered the principles established in Mafatlal Industries Ltd. v. Union of India and Sahakari Khand Udyog Mandal Ltd. v. Commissioner of Central Excise & Customs, which addressed unjust enrichment and refund claims.Court's Interpretation and Reasoning:The Court acknowledged that the petitioner was entitled to a refund of the IGST and Service Tax paid on ocean freight, as these taxes were collected under a provision later declared unconstitutional. However, the Court also recognized the principle of unjust enrichment, which prevents a party from benefiting from a refund if the tax burden was passed on to consumers. The Court noted the petitioner's commitment to refund the amount to consumers through tariff adjustments.Key Evidence and Findings:The Court considered the affidavit submitted by the petitioner, which outlined a plan to deposit the refund amount in a separate bank account and not utilize it until it was recognized as revenue for tariff determination by the Gujarat Electricity Regulatory Commission (GERC). The petitioner also undertook to return the refund amount if it was not accepted as revenue for tariff purposes.Application of Law to Facts:The Court applied the legal principles to the facts, determining that the petitioner's methodology of refunding the amount to consumers through tariff adjustments was consistent with the guidelines established by the Supreme Court. The Court found that the petitioner's approach ensured that the consumers who bore the tax burden would benefit from the refund.Treatment of Competing Arguments:The respondents argued that the petitioner was not entitled to a refund unless the tax burden was returned to consumers or not passed on to them. They cited the doctrine of unjust enrichment and the need for the petitioner to fulfill certain conditions before claiming a refund. The Court addressed these arguments by emphasizing the petitioner's affidavit and plan to ensure the refund reached consumers.Conclusions:The Court concluded that the petitioner was entitled to the refund of IGST and Service Tax paid on ocean freight. The Court found that the petitioner's proposed method of refunding the amount to consumers through tariff adjustments was appropriate and consistent with legal principles.Significant Holdings:Core Principles Established:The Court reaffirmed the principle that a refund is only permissible if the petitioner has not passed on the tax burden to others or if the refund can be effectively returned to those who bore the burden. The Court emphasized that unjust enrichment should be avoided, and refunds should benefit the consumers who ultimately paid the tax.Final Determinations on Each Issue:The Court quashed the orders transferring the refund amount to the Consumer Welfare Fund and directed the respondents to refund the amount to the petitioner. The Court outlined a detailed process for the petitioner to deposit the refund in a separate bank account and ensure it was used for tariff adjustments to benefit consumers.The Court's decision provided a clear framework for handling refund claims in cases where the tax provision was declared unconstitutional, balancing the need to prevent unjust enrichment with ensuring that consumers benefit from refunds.