2025 (8) TMI 989 - HC - GST

Earlier decision striking down ocean freight tax applies retrospectively; GST refunds under Section 54 not barred by limitation

Louis Dreyfus Company Private Limited Versus The Union Of India and Others, The State of Andhra Pradesh, The Commissioner of Central Tax & Customs (Appeals), The Additional Commissioner (GST Appeals), O/o. The Commissioner of Central Tax & Customs (Appeals), The Deputy Commissioner of Central Tax, Guntur CGST Division, The Assistant Commissioner of Central Tax, Guntur CGST Division

Louis Dreyfus Company Private Limited Versus The Union Of India and Others, The State of Andhra Pradesh, The Commissioner of Central Tax & Customs ... 1. ISSUES PRESENTED AND CONSIDERED 1. Whether an application for refund of GST paid on ocean freight under CIF imports, filed after the two-year period prescribed by Section 54(1) of the CGST Act, is maintainable where the levy has been subsequently declared invalid. 2. Whether the judgment of the apex court striking down Notifications authorizing tax on ocean freight operates prospectively or retrospectively for purposes of refund of amounts paid before the date of that judgment. 3. Whether Section 54(1) of the CGST Act (two-year limitation for refund applications) applies where the amount was collected without authority of law, or whether the Limitation Act (Section 17) governs refund claims arising from a mistake of law/illegal tax collection. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of refund applications filed beyond Section 54(1) where levy is subsequently declared invalid Legal framework: 1. Section 54(1), CGST Act - prescribes that any person claiming refund of tax paid must make an application before the expiry of two years from the relevant date (subject to exceptions and procedural provisions contained in Section 54). Precedent treatment (followed/distinguished): 2. The High Court of Gujarat in Comsol Energy applied the principle that amounts collected without authority of law are not 'tax' within the special statute and hence are not governed by the limitation in the special law; instead, the Limitation Act applies for refund claims. The judgment in State of Madhya Pradesh v. Bhailal Bhai was cited for the proposition that courts may direct repayment of amounts collected without authority of law. Interpretation and reasoning: 3. The Court agrees with the proposition that where a levy is declared invalid, payments made in discharge of that levy are payments under a mistake of law and cannot be treated as payments of 'tax' under the statute. Such payments are not within the scope of amounts whose refund is governed exclusively by Section 54. 4. Treating payments made in discharge of an invalid levy as not being 'tax' avoids applying the statutory time bar in Section 54 that would otherwise extinguish a bona fide claim for restitution of amounts paid without legal authority. The Court reasons that Article 265 requires taxation to have authority of law; where that authority is absent or struck down, restitution principles apply. Ratio vs. Obiter: 5. Ratio - Where a statutory levy is declared invalid, payments made under that levy are recoverable as payments made under a mistake of law and are not to be treated as payments of 'tax' for the purposes of the limitation in Section 54; therefore the Limitation Act (Section 17) may govern such refund claims. Conclusions: 6. The Court holds that the refund applications filed on 30.03.2023 cannot be rejected solely on the ground that they are beyond the two-year period prescribed by Section 54(1); the authorities must consider the refund claims on merits in light of the apex court's declaration that the levy was invalid. The impugned rejections are set aside and the original authority directed to reconsider the refund applications without adjudicating time-bar under Section 54. Issue 2 - Temporal operation of the apex court judgment invalidating the levy (prospective vs retrospective effect) Legal framework: 1. General principle: a court's declaration of law ordinarily has retrospective effect because the court is declaring what the law has always been; however, the apex court has recognized the doctrine of prospective overruling in exceptional cases and may in a given judgment specify prospective operation to avoid dislocation. Precedent treatment (followed/distinguished): 2. The judgment in Baburam v. C.C. Jacob was relied upon by respondents for the proposition that a court may limit the retrospective effect of its rulings to avoid multiplicity of proceedings and public dislocation; that decision explains the rationale for prospective declarations where expressly made by the court. Interpretation and reasoning: 3. The Court notes the settled legal position that, absent an express pronouncement by the apex court limiting retrospective effect, a declaratory judgment operates retrospectively. The apex court's decision invalidating the notifications contains no express declaration limiting its retrospective operation. Ratio vs. Obiter: 4. Ratio - The invalidation of Notifications authorizing tax on ocean freight operates retrospectively unless the declaring court explicitly provides for prospective operation; therefore payments made earlier are subject to restitution consistent with the declaration of law. Conclusions: 5. The Court rejects the contention that the apex court's judgment operates only prospectively; it holds the judgment is declaratory and retrospective in effect and thus supports refund claims arising from taxes collected earlier that lacked legal authority. Issue 3 - Applicability of Section 54 limitation vs. Limitation Act where tax was collected without authority of law Legal framework: 1. Article 265 requires that taxes be levied by authority of law. Where a collection is made without such authority or the enabling notification/enactment is invalid, the collection is characterized as made without authority of law. The Limitation Act, 1963 (Section 17) provides for suits/applications for relief from consequences of a mistake. Precedent treatment (followed/distinguished): 2. Decisions such as Binani Cement and Gokul Agro (as cited from Gujarat High Court decisions) support the proposition that where duty/tax is collected without authority, the special statutory limitation for refund under the taxing statute does not apply and the Limitation Act governs. The Court refers to State of Madhya Pradesh v. Bhailal Bhai on the High Court's power to direct repayment for amounts collected without authority. Interpretation and reasoning: 3. The Court reasons that Section 54 is intended to regulate refunds of amounts properly within the statutory scheme of the CGST Act; it is not apt to block restitution where the very foundation of the tax is invalid. Where an amount was paid under a mistake of law (i.e., in discharge of an invalid levy), the remedy lies in restitution and the Limitation Act governs limitation issues concerning such claims. 4. The Court notes an alternative view by the Madras High Court that the time bar in Section 54 may be directory rather than mandatory, but the present Court leaves that question open for future consideration and adopts the Limitation Act approach in the present factual matrix. Ratio vs. Obiter: 5. Ratio - Refund claims for amounts paid pursuant to a levy subsequently declared invalid are not to be foreclosed by the statutory limitation in Section 54; limitation under the Limitation Act (mistake of law) is the appropriate provision to apply. Conclusions: 6. The Court directs reconsideration of the refund applications without rejecting them on the sole ground of time-bar under Section 54, observing that amounts paid under the invalidated notifications were collected without authority and the Limitation Act principles apply. The original authority is ordered to decide the refund applications within four weeks without adjudicating the Section 54 time-limit question. Cross-references and procedural direction 1. The Court cross-refers to the apex court's invalidation of the notifications authorizing tax on ocean freight (which underpins entitlement to refund) and to the jurisprudence permitting refund/restitution where collections were without authority of law (State of Madhya Pradesh v. Bhailal Bhai, Binani Cement and High Court decisions cited). 2. Direction: impugned orders rejecting refund applications are set aside and the competent authority is directed to reconsider the refund claims filed on 30.03.2023 on merits, without rejecting them on the basis of Section 54(1) time-bar, and to pass orders within four weeks. Disposition 1. Writ petitions allowed to the extent indicated; orders of rejection and appellate confirmation set aside; remand to original authority to decide refund claim in accordance with law and this judgment within four weeks. No order as to costs.