Illegal levy on ocean freight IGST attracts refund interest where tax was collected without authority of law.

IGST collected on ocean freight under reverse charge was treated as an illegal levy because the notification-based levy had already been held unconstitutional and was inconsistent with the GST scheme for composite supply; the refunded tax was therefore payable back to the taxpayer. Interest on the refunded amount was also held payable, as refund provisions could not be used to defeat restitution for money retained without authority of law. The ruling applied Article 265, unjust enrichment, and the principle that statutory interest follows wrongful retention of money, and rejected reliance on Sections 54 and 56 to deny interest on the refund.

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Issues: (i) Whether IGST collected on ocean freight under reverse charge mechanism, pursuant to the impugned notifications, was liable to be refunded as an illegal levy. (ii) Whether interest was payable on the refunded amount, and whether Sections 54 and 56 of the Central Goods and Services Tax Act, 2017 could be relied upon to deny such interest.

Issue (i): Whether IGST collected on ocean freight under reverse charge mechanism, pursuant to the impugned notifications, was liable to be refunded as an illegal levy.

Analysis: The levy on ocean freight had already been declared unconstitutional in the petitioner's own earlier proceedings, following the Supreme Court's ruling on the validity of the notification-based levy. The collection was therefore without authority of law and inconsistent with the scheme of composite supply under the GST legislation.

Conclusion: The levy was illegal and the refunded IGST was rightly payable to the petitioner.

Issue (ii): Whether interest was payable on the refunded amount, and whether Sections 54 and 56 of the Central Goods and Services Tax Act, 2017 could be relied upon to deny such interest.

Analysis: Interest could not be denied on the footing that the refund was processed within 60 days of the later portal application, because the amount itself had been collected without legal authority. The refund provisions relied upon by the revenue were held inapplicable to money retained without lawful power. The Court also relied on the doctrine of restitution, unjust enrichment, Article 265 of the Constitution of India, and the settled principle that statutory interest follows wrongful retention of money.

Conclusion: Interest of Rs. 71,31,225/- was payable to the petitioner.

Final Conclusion: The impugned rejection of interest was unsustainable, and the petitioner was held entitled to receive interest on the refunded IGST amount within the time directed by the Court.

Ratio Decidendi: Amounts collected by the revenue without authority of law and later refunded carry interest, and refund provisions applicable to lawful tax refunds cannot be used to defeat restitution for wrongful retention.

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