Orissa High Court Directs GST Dept to Pay 6% Interest On IGST Refunds For Ocean Freight

The Orissa High Court on 22 January directed the GST authorities to pay interest to M/s. Paradeep Phosphates Limited, a fertilizer company on the Integrated Goods and Services Tax (IGST) refunded on ocean freight. It held that the tax had been collected without the authority of law and that interest must follow as a matter of restitution.

A Division Bench comprising Chief Justice Harish Tandon and Justice Murahari Sri Raman allowed the company's writ petition challenging the rejection of its claim for interest on the refunded amount. The Court observed:

“When the levy of tax is found to be illegal and unconstitutional by quashment of statutory notifications, interest is liable to be paid on the amount of refund, even as the statute is silent regarding award of interest.”

The petitioner M/s. Paradeep Phosphates had paid IGST under protest on the ocean freight component of imports made on a cost, insurance and freight (CIF) basis during April–May 2018 pursuant to central notifications issued in June 2017. Those notifications were subsequently struck down by the Supreme Court in Union of India v. Mohit Minerals Pvt. Ltd., which held that a separate levy of IGST on ocean freight in CIF contracts violated the concept of composite supply under the GST Act.

Following the Supreme Court ruling, a Single Bench of the Orissa High Court had disposed of Paradeep Phosphates' earlier writ petition in August 2022, granting liberty to seek refund. The tax department sanctioned a refund of Rs. 8.37 crore in September 2022 but declined to pay interest, reasoning that the refund had been processed within 60 days and therefore no statutory interest under Section 56 of the CGST Act was applicable.

Rejecting this, the High Court held that once the levy itself was held to be unauthorised under Article 265 of the Constitution, the State could not retain interest on the amount collected. Interest flows from the doctrine of restitution and is payable from the date of deposit till the date of actual refund, irrespective of the time-frame for routine refunds.

The Court further noted:

“It is not gainsaid that the petitioner-Company has deposited the IGST on the value of goods imported by including therein the amount of 'ocean freight', which was disclosed in the returns and the said amount stands refunded in its favour after the decision was rendered in Mohit Minerals Pvt. Ltd. (supra) and in pursuance of Order dated 01.08.2022 passed in WP(C) No.1684 of 2019 in its own case. This Court is, therefore, inclined to hold that it is entitled to interest at the rate of 6% per annum from the date of such deposit shown to have been made by the petitioner.”

The Court set aside the appellate order dated 15 January 2024 and the underlying adjudication order, directing the GST authorities to grant interest on the refunded IGST amount at the applicable rate. It further clarified that any further delay would attract simple interest at 9% per annum on the refunded sum.