Calcutta High Court orders reconsideration of IGST refund denied for illegible shipping documents

Background of the dispute

In Indorama India Pvt. Ltd. vs State of West Bengal & Ors., the Calcutta High Court examined the legality of an appellate order passed under Section 107 of the Central Goods and Services Tax Act, 2017 (CGST Act). The controversy stemmed from the reversal of a previously sanctioned refund relating to Integrated Goods and Services Tax (IGST) paid on ocean freight.

The assessee had relied on the judgment of the Hon’ble Supreme Court in Union of India vs. Mohit Minerals Pvt. Ltd. to seek refund of IGST paid on the ocean freight component for certain imports, contending that such levy was not sustainable in law. While the original refund authority had accepted this position and sanctioned the refund, the departmental appeal succeeded before the appellate authority, primarily on an evidentiary issue regarding the nature of the shipping lines involved.

Refund claim under GST and its processing

Filing of refund application

The assessee filed a refund application in Form GST-RFD-01 dated December 29, 2022, claiming a refund of Rs. 1,04,37,127/-. The claim related to IGST paid on the ocean freight element in respect of imports undertaken between November 1, 2018 and November 30, 2018.

The legal foundation of the refund claim was the Supreme Court’s decision in Union of India vs. M/s. Mohit Minerals Pvt. Ltd., reported at 2022 (61) G.S.T.L. 257 (SC), where the levy of IGST on ocean freight under reverse charge in specified situations was held to be unsustainable. Relying on this precedent, the assessee approached the refund sanctioning authority for reimbursement of the IGST already paid.

Sanction of refund by original authority

The refund sanctioning authority examined the claim and, by an order dated February 24, 2023, allowed the refund of Rs. 1,04,37,127/- under the provisions of the CGST Act. This order effectively accepted that the IGST paid on ocean freight during the relevant period was refundable in light of the decision in Mohit Minerals Pvt. Ltd..

Departmental appeal and reversal of refund

Appeal under Section 107 of CGST Act

The department did not accept the refund sanction and filed an appeal under Section 107 of the CGST Act, challenging the order dated February 24, 2023. The appellate authority subsequently passed an order dated April 26, 2024, by which the earlier refund sanction was set aside.

Core reasoning of the appellate authority

The appellate authority’s decision hinged on an alleged failure by the refund sanctioning authority to determine a crucial factual issue: whether the shipping lines involved were foreign shipping lines or Indian shipping lines. This distinction was considered material in the context of applying the ratio of Union of India vs. Mohit Minerals Pvt. Ltd..

The appellate order reproduces its key reasoning in paragraph 5.4.4, which reads as follows:

“5.4.4 However, agreeing with the view of the Reviewing Authority I find that RSA has neither made any analysis nor given any findings as to whether the Shipping Lines involved in this case were Foreign Shipping Lines or Indian Shipping Lines. The respondent in their reply dated 16.10.2023 stated that in the instant case, foreign shipping line was engaged by the foreign supplier. And according to them to evident the said fact they enclosed bill of lading wherein in the details of the shipping line involved is clearly mentioned.