IGST on ocean freight: illegal levy found; refund ordered with interest from payment date and higher interest for delay

IGST charged on the ocean freight component pursuant to contested notifications was held to be an unlawful levy, constituting retention contrary to the constitutional prohibition on taxation without authority, and therefore refundable. The Court ruled that where tax collected is held illegal, interest accrues from the date the taxpayer parted with the money because retention unfairly restrains its use; accordingly the competent authority must pay simple interest at 6% per annum on the refunded IGST from payment date until actual refund, payable within eight weeks, and 9% per annum for any further delay. The decision treats unjust enrichment and composite supply arguments as operative to restitution.

---

---

Issues: Whether the petitioner is entitled to simple interest on the IGST amount collected (on ocean freight) and later refunded to the petitioner from the date of deposit until the date of actual refund, where the notifications under which the IGST was levied were declared invalid/ultra vires.

Analysis: The Court examined whether interest follows where tax was collected without authority of law because the notifications enabling levy of IGST on ocean freight were held unconstitutional. It considered Section 54 and Section 56 of the CGST Act concerning refund and interest on delayed refunds, Article 265 (no tax except by authority of law), and established doctrines of restitution and unjust enrichment. The Court distinguished refunds withheld during statutory proceedings from refunds flowing from an unauthorized collection: where a levy is held invalid ab initio, the State having retained and used money collected without authority is liable in restitution and equity to refund with interest. The Court surveyed precedents applying restitution and awarding interest where revenue has retained sums collected without legal authority and noted that the law declared by the Supreme Court operates from inception unless expressly made prospective. Authorities and coordinate High Court decisions holding that interest must be paid on IGST refunded in similar factual matrices were considered, and the departmental stand based solely on timeliness of refund under Section 56 was held insufficient to negate the obligation to pay interest where collection was unauthorized.

Conclusion: The petitioner is entitled to simple interest at 6% per annum on the refunded IGST amount (relating to ocean freight) from the date of deposit of such IGST until the date of actual refund; if payment of interest is delayed beyond the period directed for payment, the authority shall pay simple interest at 9% per annum for the period of such delay. The orders refusing and confirming denial of interest are set aside and quashed, and the authority is directed to pay the interest accordingly.

---