GST Refund of IGST on ocean freight is allowed if filed after the Notification was struck down

[CA Bimal Jain]

The Hon’ble Gujarat High Court in the case of M/S HK ENTERPRISE VERSUS UNION OF INDIA AND ORS. - 2024 (11) TMI 1330 - GUJARAT HIGH COURT quashes rejection of refund application of Integrated Goods and Service Tax (“IGST”) paid on ocean freight filed subsequent to Notification No.10/2017-IT (Rate) dated June 28, 2017 (“the Reverse Charge Notification”) being struck down by Hon’ble Supreme Court in Mohit Minerals case on ground of time bar. Assessee's refund claim for the unutilized GST paid on Ocean Freight under the Reverse Charge Mechanism (“RCM”) for June 2018 was rejected because it was found to be filed after the statutory two-year period from the relevant date, following judgment in Mohit Minerals case. Accordingly, it was held that the application for refund having been filed within a reasonable time thereafter, cannot be held to be time barred and the writ petition was allowed by quashing the orders.

Facts:

M/s H K Enterprise (“the Petitioner”) filed a GST refund claim for the period of June 2018 on March 29, 2023 for the IGST paid on ocean freight for the month of June, 2018 by filing an application of Refund under FORM GST RFD-01. The said refund claim was specifically stated to have been made on account of unutilized amount of GST paid on Ocean Freight under RCM on import of goods in India.

However, on June 15, 2023, the Petitioner was issued with the Notice for rejection of refund application vide FORM GST RFD-08 asking to show cause as to why the refund application should not be rejected on the ground of delay.

However, the Respondent vide FORM GST RFD-06 dated July 15, 2023 (“the Impugned Order”) rejected the refund claim of the Petitioner on the ground that the Petitioner’s refund claim is beyond the statutory period of two years from the relevant date and hence, barred by time. Thereafter, the Petitioner filed an appeal before the Appellate Authority which too came to be dismissed on the very same ground. Aggrieved by the Impugned Order, the Petitioner has filed the present writ petition.

Issue:

Whether GST Refund of IGST on ocean freight paid in accordance with Notification No. 8/2017-IT (Rate) dated June 28, 2017 and Notification No.10/2017 dated June 28, 2017, during June 2018?

Held:

The Hon’ble Gujarat High Court in M/S HK ENTERPRISE VERSUS UNION OF INDIA AND ORS. - 2024 (11) TMI 1330 - GUJARAT HIGH COURT held as under:

• Noted that, the issue of levy of IGST on ocean freight is no longer res integra and has been decided by the Hon’ble Apex Court in case of UNION OF INDIA & ANR. VERSUS M/S MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR - 2022 (5) TMI 968 - SUPREME COURT and the decision of various High Courts including this Court in case of BLA COKE PVT. LTD. VERSUS UNION OF INDIA & ORS. - 2024 (10) TMI 492 - GUJARAT HIGH COURT, wherein, it was categorically held that when the Notification itself is struck down, the Authorities cannot insist for levy of IGST on the amount of ocean freight. Such being the position, the main issue falls for determination of this Court is whether the prayers for refund of the amount of levy are maintainable and whether this Court must direct the Authorities to refund the same to the Petitioner. In case of MAFATLAL INDUSTRIES LTD. VERSUS UNION OF INDIA - 1996 (12) TMI 50 - SUPREME COURT the Apex Court has contemplated three situations where the right to refund may arise.

1. Where the statutory provision under which the tax is levied itself challenged by the Assessee on the ground of being violative of some provisions of constitution. In this class of cases, the claim for refund arises outside the provision of the CGST Act inasmuch as, this is not situation contemplated by the CGST Act.
2. Where the tax is collected by the Authorities under misconstruction of the statute (including rule or notification) or by erroneous determination. In this class of cases, the claim for refund arises under the provision of the Act itself, inasmuch as, these are the situations contemplated by the Act and Rules and
3. Where, the Assessee pays a tax under mistake of law. This is not a case either of unconstitutional levy or illegal levy but, voluntary payment upon mistake of law.

• Relied on, Mafatlal Industries and Others v. Union of India and Ors [Supra], the Apex Court has gone on to hold that for the first type of cases namely unconstitutional levy, the remedy of writ jurisdiction exists, both under Articles 32 and 226 of the Constitution of India, respectively.
• Observed that, it is but implicit that to obviate the impossible, it must be held that the Petitioner could have filed the application for refund only after the Reverse Charge Notification in question has finally struck down and appeal of the Union of India dismissed in the year 2022. Therefore, this Court holds that the application for refund having been filed within a reasonable time thereafter, cannot be held to be time barred.
• Held that, the writ petition filed by the Petitioner seeking GST Refund of the IGST is maintainable and must be allowed as the levy has been held to be unconstitutional. The petition, therefore, succeeds and is accordingly allowed. The Impugned Order was hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to costs.

Our Comments:

Earlier, Sl. No. 9(ii) of Notification No. 8/2017-Integrated Tax (Rate) dated June 28, 2017 (“the IGST Service Rate Notification”) provided that on the inter-state supply of services of “Transport of goods in a vessel including services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India” was leviable to Integrated Tax @5%.

Further, SI. No. 10 of the Reverse Charge Service Notification states that services supplied by a person located in non-taxable territory to a person located in non-taxable territory of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, is taxable under reverse charge basis. Accordingly, the importer was liable to pay IGST on ocean freight paid on imported goods under the RCM in terms of the Reverse Charge Service Notification and the IGST Service Rate Notification irrespective of the fact that ocean freight component having been part of CIF value of imported goods, on which Customs Duty including IGST was leviable.

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