Gujarat High Court Orders IGST Refund on Unconstitutional Ocean Freight Levy

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 18.07.2026

Gujarat High Court Orders IGST Refund on Unconstitutional Ocean Freight Levy

The Gujarat High Court’s recent judgment in the case of M/s Comsol Energy Private Limited vs. State of Gujarat has significant implications for businesses seeking refunds of Integrated Goods and Services Tax (IGST) paid under the reverse charge mechanism (RCM) on ocean freight. This article provides a detailed overview of the case, the legal principles involved, and the broader impact on taxpayers and tax administration.

Background of the Case

M/s Comsol Energy Private Limited filed a writ petition challenging the rejection of their IGST refund claims. The company had paid IGST on ocean freight under RCM, following government notifications that were later declared unconstitutional by the Gujarat High Court in the landmark Mohit Minerals case. After this decision, Comsol Energy sought a refund of Rs. 93.54 lakhs for IGST paid in February and March 2018.

However, the tax authorities issued deficiency memos, rejecting the refund claims on the grounds that they were not filed within the statutory time limit under Section 54 of the Central Goods and Services Tax (CGST) Act, and that there was no specific category for such refunds.

Key Legal Issues

1. Legislative Competency and Constitutionality
   • The Court reaffirmed its earlier decision that the notifications imposing IGST on ocean freight under RCM lacked legislative competency and were unconstitutional.
   • Article 265 of the Constitution of India mandates that no tax shall be levied or collected except by authority of law. Any tax collected without such authority must be refunded.
2. Applicability of Refund Provisions
   • The authorities argued that Section 54 of the CGST Act, which prescribes a time limit for refund claims, applied to the case.
   • The Court held that since the IGST was collected without authority of law, it did not qualify as a ‘tax’ under the Act. Therefore, Section 54 did not apply.
   • Instead, Section 17 of the Limitation Act, 1963, which deals with relief from the consequences of a mistake, was deemed applicable. This allows a three-year limitation period starting from the date the mistake is discovered.
3. Precedents Cited
   • The judgment referenced several key cases:
     • State of Madhya Pradesh vs. Bhailal Bhai: Payments made under a mistake of law must be refunded by the government.
     • Binani Cement Ltd. vs. Union of India: Refunds of duties collected without authority are not bound by special law limitations; the Limitation Act applies.
     • Joshi Technology International vs. Union of India: Refund claims for amounts paid under mistake of law are outside the purview of the enactment and governed by the Limitation Act.
     • 3E Infotech Ltd. vs. CESTAT: Service tax paid by mistake must be refunded, regardless of statutory time limits.

Court’s Decision and Directions

• The High Court quashed the deficiency memos rejecting the refund claims.
• It directed the tax authorities to process the refund application for Rs. 93.54 lakhs, along with simple interest at 6% per annum.
• The authorities were instructed not to raise technical objections and to complete the process by a specified deadline.

Implications for Taxpayers

1. Refunds for Unconstitutional Levies
   • Taxpayers who have paid taxes under notifications or provisions later declared unconstitutional are entitled to refunds, even if the statutory time limit under the GST Act has expired.
2. Limitation Period
   • The three-year limitation period under the Limitation Act applies, starting from when the taxpayer becomes aware of the mistake.
3. Interest on Refunds
   • Taxpayers are entitled to interest on the refunded amount, reinforcing the principle that the government cannot unjustly retain money collected without authority.
4. No Technical Barriers
   • Tax authorities must process such refund claims without raising technical or procedural objections, ensuring speedy redressal for taxpayers.

Conclusion

This judgment strengthens the rights of taxpayers to claim refunds for taxes paid under unconstitutional provisions. It clarifies that the general law of limitation applies in such cases, and that the government is obligated to return amounts collected without authority, with interest. Businesses affected by similar issues should review their tax payments and consider seeking refunds where appropriate.

Connected Matter

CESTAT Bangalore Allows Refund: Quashing of Unconstitutional Export Duty on SEZ Supplies

Source: Gujarat High Court

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