Orissa High Court Mandates Interest on Refund of IGST Paid on Ocean Freight from Date of Deposit
In a significant legal development concerning the Goods and Services Tax (GST) regime, the Orissa High Court has delivered a pivotal judgment in the case of Paradeep Phosphates Limited Vs Additional Commissioner. The Court addressed the contentious issue regarding the entitlement of interest on refunds arising from the unconstitutional levy of Integrated Goods and Services Tax (IGST) on ocean freight.
The High Court ruled in favor of the assessee, establishing that when a tax collection is declared unconstitutional, the refund must carry interest calculated from the date the tax was initially deposited, rather than merely from the date of the refund application. This decision reinforces the principle of restitution and offers substantial relief to importers operating under Cost, Insurance, and Freight (CIF) contracts.
Factual Matrix of the Case
The petitioner, Paradeep Phosphates Limited, is a registered company engaged in the manufacture of fertilizers. To facilitate its manufacturing process, the assessee imports various raw materials, including Rock Phosphates, Sulphuric Acid, and Ammonia, from foreign suppliers. These imports were executed on a CIF basis, meaning the foreign supplier was responsible for the transportation costs to the Indian port.
During the period spanning April 2018 to May 2018, the assessee discharged its Customs Duty obligations under the Customs Act, 1962 and the Customs Tariff Act, 1975. Furthermore, complying with the prevailing GST regulations, the assessee paid IGST on the "ocean freight" component of these imports under the Reverse Charge Mechanism (RCM). This liability was discharged at a rate of 5% pursuant to Notification No. 8/2017-Integrated Tax (Rate) and Notification No. 10/2017-Integrated Tax (Rate), both dated June 28, 2017.
Crucially, the assessee consistently contested this levy. While they deposited the tax to comply with statutory requirements and filed returns in Form GSTR-3B, they formally intimated the authorities that the IGST on ocean freight was being paid "under protest."
Legal Backdrop: The Mohit Minerals Precedent
The core of the assessee's challenge relied on the landmark jurisprudence established by the Gujarat High Court and subsequently affirmed by the Supreme Court of India in the case of Union of India Vs Mohit Minerals Pvt. Ltd.
In that seminal case, the Courts held that in a CIF contract, the importer is not the recipient of the transportation service, as the contract for transport lies between the foreign exporter and the shipping line. Consequently, the Notifications levying IGST on ocean freight under RCM were declared ultra vires and unconstitutional. The Supreme Court clarified that levying tax on the service component of a composite supply (which already suffered customs duty) violated Section 8 of the Central Goods and Services Tax Act, 2017.
Following this authoritative pronouncement, the Orissa High Court had previously disposed of a writ petition filed by Paradeep Phosphates Limited, allowing them to seek a refund.