Taxpayer Can Seek GST Refund Even If Not Party To Case Striking Down Levy: GSTAT Surat

The Goods and Services Tax Appellate Tribunal (GSTAT), at Surat, has held that a taxpayer can claim a refund of tax paid under a levy subsequently declared unconstitutional, even if the taxpayer was not a party to the proceedings in which the levy was struck down.

“Therefore, a taxpayer may claim refund of tax collected under a levy subsequently declared ultra vires or unconstitutional in a judgment even if he was not a party to such judgment,” the tribunal held.

The ruling came in 46 departmental appeals concerning refund claims filed by Filatex India Limited for IGST paid on ocean freight.

A coram comprising Judicial Member Sanjaykumar Dwivedi and Technical Member Rameshkumar G. Hadvani dismissed the appeals and upheld the Appellate Authority's orders allowing the refunds.

Filatex had paid IGST under reverse charge on ocean freight on imported goods. In Mohit Minerals Pvt. Ltd. v. Union of India, the Gujarat High Court declared the notifications imposing the levy ultra vires the IGST Act and unconstitutional. The Supreme Court dismissed the Union government's appeals against the judgment on May 19, 2022.

The department argued that Filatex could not claim a refund because the Mohit Minerals judgment did not expressly state that it would operate retrospectively. It also objected to the refund on the ground that Filatex had availed and utilised the IGST credit, contending that allowing the refund would result in unjust enrichment.

The tribunal rejected these objections.

It held that the declaration by the court that the levy was unconstitutional and void from the beginning itself provided the legal basis for a refund.

“The declaration by the court that the levy was ab initio void is itself the legal foundation for entitlement to refund. No further order in the name of the claimant is required. The entitlement to refund flows directly from Article 265 and does not depend on adjudication inter partes,” it held.

The tribunal also held that the Mohit Minerals judgment could be relied upon by taxpayers who were not parties to that litigation. It noted an exception recognised in Mafatlal Industries Ltd. v. Union of India: a person who had himself challenged the validity of the levy, lost that challenge, and allowed the decision to attain finality could not later claim a refund on the basis of another person's successful challenge.

That was not the case with Filatex.

“The Respondent paid tax under that very levy. It did not itself litigate the question of constitutional validity and lose on the constitutional question,” the tribunal observed.

On the retrospective effect of judgments, the tribunal held that judgments operate retrospectively unless the court specifically directs that they operate prospectively. It therefore rejected the department's contention that the refund could not be granted because Mohit Minerals did not expressly state that it was retrospective.

The tribunal also rejected the objection based on the utilization of IGST credit. It found that Filatex had a combined unutilised CGST and SGST balance equivalent to the refund amount. It held that this amounted to non-utilisation of the credit in substance and did not result in a double benefit.

The tribunal directed the department to process the refund claims and pay the refund amounts along with interest. Interest under Section 56 was directed to be paid for any delay beyond 60 days from the date of the original refund applications.