Unconstitutional GST Levies: AP High Court Mandates Interest on Ocean Freight Refunds from Date of Deposit

The intersection of statutory refund mechanisms and constitutional jurisprudence often creates complex battlegrounds in indirect taxation. A landmark judicial summary emerges from the Andhra Pradesh High Court in the matter of Jwala Energy Resources Private Limited Vs Assistant Commissioners GST, which fundamentally alters how the revenue department must treat funds collected under a tax levy that is subsequently declared unconstitutional.

This comprehensive analysis delves into the High Court's ruling, which categorically distinguishes between standard statutory refunds and the restitution of illegally extracted taxes, specifically focusing on the payment of interest for the period an assessee is deprived of their rightful funds.

Background of the Dispute: The Ocean Freight Conundrum

The genesis of this protracted legal battle lies in the importation of coal. The assessee, operating a power generation facility, procured coal from overseas suppliers on a Cost, Insurance, and Freight (CIF) basis. As part of these international transactions, the assessee discharged ocean freight charges.

Relying on Entry No.10 of Notification No.10 of 2017, the jurisdictional tax authorities compelled the assessee to remit Goods and Services Tax (GST) on the ocean freight component under the Reverse Charge Mechanism (RCM). The assessee complied with this mandate but deposited the contested tax amounts under protest.

The Judicial Turning Point

The legal landscape surrounding this specific levy experienced a seismic shift when the Gujarat High Court pronounced its verdict in M/s. Mohit Minerals Pvt. Ltd. Vs. Union of India & another. The Court effectively struck down the contentious Entry No.10, declaring the levy of IGST on ocean freight in CIF contracts as legally unsustainable.

This landmark decision was subsequently challenged by the revenue department but found ultimate affirmation when the Supreme Court dismissed the Union's appeal in the case of Union of India & another Vs. M/s. Mohit Minerals Pvt. Ltd. on 19.05.2022. This apex court ruling definitively rendered the tax collection on such ocean freight unconstitutional from its very inception.

The Assessee's Protracted Quest for Restitution

Armed with the Supreme Court's decisive ruling, the assessee initiated efforts to reclaim the unlawfully collected taxes for the financial period 2018-2019. The procedural timeline of this reclamation effort highlights the administrative hurdles frequently encountered by an assessee: