Compensatory interest on unconstitutional GST levy paid on ocean freight is payable from deposit until refund.

Tax collected on ocean freight under reverse charge, after the underlying levy was later struck down as unconstitutional, was treated as money wrongfully retained until refund. The Court held that compensatory interest was payable from the date of deposit to the date of refund, because the taxpayer was deprived of use of the amount during that period. It further held that the ordinary refund limitation in Section 54 of the GST Act did not govern a claim arising from an unconstitutional levy, and that Section 56 did not defeat entitlement to interest. The interest rate of 6% was treated as fair and consistent with the compensatory principle.

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Issues: Whether interest was payable on the refunded GST amount collected on ocean freight under a levy later held unconstitutional, and whether Sections 54 and 56 of the Andhra Pradesh Goods and Services Tax Act, 2017 barred such claim.

Analysis: The refund claim arose from tax collected on ocean freight under reverse charge, after the levy embodied in Entry No. 10 of Notification No. 10 of 2017 had been struck down. The decision treated the tax already paid under protest as money of which the taxpayer had been deprived of use from the date of deposit until refund. It held that refund claims arising from a levy declared unconstitutional are not governed by the limitation framework of Section 54, and that Section 56 does not defeat entitlement to interest where the amount was retained until refund. Interest was viewed as compensation for loss of use of money, and the rate of 6% was found fair and consistent with the compensatory principle.

Conclusion: Interest was payable from the date of deposit of the tax until the date of refund, and the rejection of the interest claim was set aside; the petitioner succeeded on this issue.

Ratio Decidendi: Where tax is collected under a levy subsequently declared unconstitutional, the payer is entitled to compensatory interest from the date of deposit till refund, and the ordinary refund limitation under the GST statute does not govern such claim.

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