Facts of the Case

The petitioner, M/s. South India Krishna Oil and Fats Pvt Ltd, a company incorporated under the Companies Act, 1956 and registered under GST, regularly imports goods, an activity that already attracts customs duty. The respondent, the Assistant Commissioner of GST, Central Tax, Central Excise, Thanjavur Division, had additionally imposed GST on the service/freight component (ocean freight) of such imports. The petitioner filed a refund application dated 18.05.2023, which was rejected by Order-in-Original No.15/2023-GST Refund dated 18.07.2023. The petitioner challenged this rejection before the Madurai Bench of the Madras High Court under Article 226, seeking a Writ of Certiorarified Mandamus to quash the order and direct disposal of the refund application in accordance with law.

Issues Involved

  1. Whether GST could be separately levied on the service component (ocean freight) of an import transaction that had already suffered levy of customs duty (including IGST) on the composite value of goods.
  2. Whether the refund claim could be rejected on the ground of limitation given the pendency of the underlying legal issue before higher courts.

Petitioner's Arguments

  • The Gujarat High Court in Mohit Minerals Pvt. Ltd. v. Union of India had struck down the notification imposing IGST on ocean freight as a separate service, holding that separate tax on the service component of a composite supply already taxed as goods was impermissible.
  • The Supreme Court, in Union of India v. Mohit Minerals Pvt. Ltd., 2022 (61) G.S.T.L. 257 (S.C.), had dismissed the Revenue's appeal and upheld the striking down, and the jurisdictional Madras High Court itself had followed this position in W.P.(MD) No. 10330 of 2019 (batch), confirming the Gujarat High Court's ruling.
  • The department could not reject the refund claim on limitation grounds when the underlying legal issue remained sub judice before the courts until finally settled by the Supreme Court.

Respondent's Arguments

  • The Gujarat High Court's judgment was not binding on the respondent.
  • The Supreme Court's ruling in Mohit Minerals could only be treated as binding "in persona" and not "in rem", since the present taxpayer was not a party to that litigation before the Apex Court.
  • The refund application ought to have been filed within a period of two years, and the petitioner's application was beyond that period.

Court Order / Findings

  • The Court held that once the very notification imposing the levy had been struck down by the Supreme Court, that notification ceased to exist in the eye of law, so the question of the judgment being "in persona" rather than "in rem" did not arise — the respondents simply had no power in law to impose GST on the service/freight component.
  • The Court held the respondents' stand that the Supreme Court ruling did not bind them, and that it applied only in persona, reflected total non-application of mind and misinterpretation of the legal position.
  • On limitation, the Court held that since the issue was pending before various courts until settled by the Supreme Court, the department could not reject the refund on the ground that the two-year limitation period had expired.
  • The respondents were directed to refund the claimed amount within four weeks from receipt of the order.

Important Clarification

Once a taxing notification is struck down by a constitutional court and that striking-down is upheld by the Supreme Court, it ceases to exist in law for all taxpayers, not merely the litigants before the Supreme Court; a refund claim founded on such a struck-down levy cannot be rejected on limitation grounds where the underlying legal controversy remained sub judice until the Supreme Court's final ruling.

Sections Involved

  • Integrated Goods and Services Tax Act, 2017 – under which IGST on ocean freight (as a separate service on a composite import of goods) was sought to be levied and was ultimately held impermissible.
  • Central Goods and Services Tax Act, 2017 – refund provisions (Section 54) – governs the filing and limitation period for refund claims.

Decision – In Favour of

The decision was in favour of the Assessee, with the Court directing refund of the GST wrongly collected on ocean freight, rejecting both the "in persona" argument and the limitation objection.

Case Details

  • Court: Madurai Bench of the Madras High Court
  • Case Number: W.P.(MD).No.19991 of 2023 (with W.M.P.(MD).No.16488 of 2023)
  • Coram: Hon'ble Mrs. Justice S. Srimathy
  • Date of Order: 22 September 2023

Link to Download the Order

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