The Bombay High Court, in the case of West India Continental Oils Fats Pvt. Ltd. v. Union of India & Ors., ruled that interest is payable on the refund of IGST collected on ocean freight, which was declared unconstitutional. The petitioner, an importer of palm oil, had paid IGST of ₹2.62 crore on ocean freight under a reverse charge mechanism between July 2017 and April 2019, based on Notifications No. 8/2017 and 10/2017. Following the Supreme Court's decision in Mohit Minerals Pvt. Ltd. v. Union of India, which found the levy unconstitutional, the petitioner sought a refund with interest amounting to ₹71.31 lakh.
The tax department refunded the principal amount but denied the interest, arguing that the refund was processed within 60 days as per Sections 54 and 56 of the CGST Act. The petitioner argued that since the levy was without legal authority, it did not constitute a "tax" under Section 54, and thus, interest should be due from the date of payment. The Court agreed, stating that the provisions for interest on tax refunds apply only to taxes lawfully collected under the CGST framework. Since the amount was illegally collected, the sections cited by the department did not apply.
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The Court emphasized that retaining money collected without legal authority contravenes Article 265 and the doctrine of restitution. Citing precedents, the Court ordered the government to pay the petitioner interest of ₹71.31 lakh within four weeks, reinforcing the principle that the government must return unlawfully collected sums with interest.
Order Date: 17 October 2025
Case Title: West India Continental Oils Fats Pvt. Ltd. v. Union of India & Ors.
Facts -
- The petitioner, an importer of palm oil, paid IGST of ₹2.62 crore on ocean freight under reverse charge mechanism during July 2017–April 2019 pursuant to Notifications No. 8/2017 and 10/2017.
- Following the decision in Mohit Minerals Pvt. Ltd. v. Union of India, where such levy was held unconstitutional, the petitioner sought refund along with interest of ₹71.31 lakh.
- The department sanctioned the refund of the tax but rejected the interest claim, citing that the refund was made within 60 days under Sections 54 and 56 of the CGST Act.
- The petitioner contended that since the levy itself was without authority of law, the amount collected was not “tax” under Section 54, and therefore, interest was due from the date of payment till refund.
Issue -
- Whether the petitioner is entitled to interest on refund of IGST paid on ocean freight when the levy was later held unconstitutional?
Order -
- The Court reaffirmed that the levy of IGST on ocean freight under Notifications No. 8/2017 and 10/2017 was unconstitutional, following the Supreme Court’s ruling in Mohit Minerals Pvt. Ltd.
- The provisions governing interest on tax refunds apply only where tax is lawfully collected under the CGST framework. Since the amount was illegally collected, these sections do not govern the case.
- Retaining money collected without legal authority violates Article 265 and the doctrine of restitution. The Court relied on Ranbaxy Laboratories Ltd., Hamdard (Waqf) Laboratories, and Mafatlal Industries Ltd. to hold that the government must pay interest on unlawfully collected sums.
- The petitioner was held entitled to interest of ₹71.31 lakh, to be paid within four weeks from the date of uploading of the judgment.
