In the case of M/s Paradeep Phosphates Ltd. v. Additional Commissioner (GST Appeals) & Ors., the Orissa High Court addressed the issue of whether interest is payable on the refund of Integrated Goods and Services Tax (IGST) collected without legal authority. The petitioner had paid IGST on ocean freight under a reverse charge mechanism for CIF imports in 2018, doing so under protest. This levy was later deemed unconstitutional by the Supreme Court in the case of Mohit Minerals Pvt. Ltd.
Although the petitioner received a refund of the IGST, they were denied interest on the refunded amount. The department argued that the refund was processed within the statutory timeframe as prescribed under Section 56 of the CGST Act. The central issue was whether interest should be paid on tax refunds collected without legal authority, even if processed within the statutory time limit.
Read More: Calcutta High Court: Courts declaring a levy unconstitutional apply retrospectively unless expressly made prospective - IGST on ocean freight not leviable even for pre-2023 period; Mohit Minerals judgment applies retrospectively [Order attached]
The Court ruled that tax collected without legal authority contravenes Article 265 of the Constitution. It emphasized that refunds of unconstitutional levies differ from regular statutory refunds. As such, interest is warranted as compensation for the unlawful retention of the taxpayer’s money. The Court clarified that Section 56 of the CGST Act does not preclude the payment of interest in cases involving unconstitutional tax collection. Consequently, the Court quashed the orders denying interest and directed the authorities to grant the interest due.
Parties: M/s Paradeep Phosphates Ltd. v. Additional Commissioner (GST Appeals) & Ors.
Order Date: 22nd January, 2026
Facts –
- The petitioner paid IGST on ocean freight under reverse charge for CIF imports during 2018, under protest.
- The levy was subsequently declared unconstitutional by the Supreme Court in Mohit Minerals Pvt. Ltd.
- Although refund of IGST was granted, interest on the refunded amount was denied.
- The department contended that refund was processed within the statutory time prescribed under Section 56 of the CGST Act.
Issue –
- Whether interest is payable on refund of tax collected without authority of law, even when the refund is granted within the statutory time limit?
Order –
- The Court held that tax collected without authority of law violates Article 265 of the Constitution.
- Refund of an unconstitutional levy stands on a different footing from routine statutory refunds.
- Interest is payable as compensation for unlawful retention of the taxpayer’s money.
- Section 56 of the CGST Act does not bar payment of interest in cases of unconstitutional tax collection.
- Orders denying interest were quashed and authorities were directed to grant interest.
