Big GST Refund Relief: Orissa HC Orders Interest on IGST from Date of Deposit

M/s. Paradeep Phosphates Limited paid IGST on ocean freight under the reverse charge mechanism pursuant to Notification No. 8/2017–IGST (Rate). After the Supreme Court, in Union of India v. Mohit Minerals Pvt. Ltd., held such levy to be unconstitutional, the petitioner sought and obtained a refund of Rs. 8.37 crore on 29.09.2022. However, the GST Department denied interest, stating that the refund was sanctioned within 60 days of the refund application under Section 56 of the CGST Act.

Aggrieved, the petitioner approached the Orissa High Court seeking interest from the date of tax deposit.

Main Issue: Whether interest on refund of IGST paid under an unconstitutional levy is payable from the date of original tax deposit or only after 60 days from the refund application under Section 56 of the CGST Act.

HC’s Order: The Hon’ble High Court allowed the writ petition and held that tax collected under an unconstitutional levy violates Article 265 of the Constitution, as it is collected without authority of law. The Court ruled that statutory provisions under Sections 54 and 56 of the CGST Act, including the 60-day limitation for grant of interest, have no application where the levy itself is unconstitutional.

The Court held that the State cannot unjustly retain money collected without legal authority and must compensate the taxpayer for such retention. Thus, the respondents were directed to pay simple interest at 6% per annum from the date of deposit of IGST till the date of refund. The Court further directed that if the interest amount is not paid within eight weeks, it shall thereafter carry interest at 9% per annum.

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