Namaste DOST.

Have you ever deposited GST just to avoid trouble, thinking you will sort it out later?

And when you finally win, the department says: “Refund given in time, so no interest”?

The Orissa High Court has now answered this situation very clearly.

Summary

This case deals with interest on GST refund where the tax itself was later held to be illegal and unconstitutional. Paradeep Phosphates Limited had paid IGST on ocean freight under reverse charge. Later, courts held that such levy was not permitted under GST law. The company received a refund, but the department denied interest, arguing that the refund was granted within 60 days under Sections 54 and 56 of the CGST Act.

The Orissa High Court rejected this approach. It held that this was not a refund delay case, but a case of unauthorised tax collection. Therefore, interest must be paid from the date of deposit till the date of refund, even if the refund was processed within 60 days. The Court directed interest at 6%, with higher interest if delayed.

Facts of the Case (Background)

Paradeep Phosphates Limited is a company engaged in manufacturing fertilizers. During April–May 2018, it imported raw materials on CIF basis. At that time, the GST department required importers to pay IGST on ocean freight under the reverse charge mechanism, based on specific notifications.

The company paid IGST on ocean freight but objected to the levy. The payments were made under protest, and the company consistently disputed the tax.

The validity of GST on ocean freight was challenged before various High Courts. The Gujarat High Court held that GST on ocean freight under reverse charge was not legally leviable. This view was later confirmed by the Supreme Court, which held that taxing ocean freight separately violated the composite supply principle under GST.

After the Supreme Court decision, Paradeep Phosphates’ own writ petition was disposed of. The company applied for refund of the IGST paid on ocean freight. The refund was sanctioned and paid.

However, when the company claimed interest on the refunded amount, the department rejected the claim. The reason given was simple: the refund had been granted within 60 days of filing the refund application. The appellate authority also upheld this view.

This led the company to approach the Orissa High Court.

Legal Issue

The core legal issue before the Court was:

Can the department deny interest on GST refund by applying Sections 54 and 56, when the tax itself was collected without authority of law?

In simple words, was this a case of delayed refund, or a case of illegal tax collection?

Arguments by the Parties

The taxpayer argued that once the levy itself was declared unconstitutional, the tax collection became illegal. Under the Constitution, the State cannot retain money collected without authority of law. Therefore, interest must be paid from the date the money was taken.

The department argued that interest under Section 56 applies only when a refund is delayed beyond 60 days. Since the refund was processed within time, no interest was payable.

Court’s Decision

The Orissa High Court ruled in favour of the taxpayer.

The Court held that this was not a case of refund delay under Section 56. Instead, it was a case where tax was collected without authority of law, which directly attracts Article 265 of the Constitution of India.

The Court set aside the appellate order and the order rejecting interest. It directed the department to pay interest at 6% per annum from the date of deposit till the date of refund. The interest was to be paid within eight weeks. If delayed, interest at 9% would apply.

Legal Reasoning Explained Simply

The Court’s reasoning is important.

First, Article 265 states that no tax can be levied or collected except by authority of law. When a levy is declared unconstitutional, it is treated as if it never legally existed.

Second, Sections 54 and 56 deal with the procedure for refund and interest on delayed refunds. These provisions apply only when tax is validly leviable. They cannot be used to justify retention of money collected illegally.

Third, the Court explained that interest is not a favour. It is restitution or compensation. When the government retains money that does not belong to it, it must compensate the taxpayer for the period of deprivation.

In short, once the levy fails, the clock for interest starts from the date the money was taken, not from the date of refund application.

Important Message for Business Owners

• Not every refund case is a “60-day” case under Section 56.

• If the tax levy itself is illegal, interest starts from the date of deposit.

• Always record objections and pay disputed taxes under protest.

• Maintain a clear paper trail of disputes, payments, and refund claims.

• Do not assume that refund without interest is the end of the story.

Why This Judgment Matters

This ruling draws a clear line between refund delay and illegal tax collection. It reinforces constitutional discipline in tax administration and protects taxpayers from losing interest merely because the department processed the refund quickly.

Conclusion

Many taxpayers deposit tax to buy peace, hoping fairness will follow later. This judgment restores that fairness. It makes one thing clear: the State cannot profit from an illegal levy, even for a short period. Interest is not charity. It is correction.

At GST DOST, we see this judgment as a strong reminder that knowing your rights is as important as complying with the law.

📞 Need help with a similar GST refund or interest dispute? GST DOST is here to guide you.

FAQ

Q: What was the dispute in this case?

A: Whether interest is payable on GST refund when the tax itself was illegally collected.

Q: What did the Orissa High Court decide?

A: Interest must be paid from the date of deposit, even if refund was granted within 60 days.

Q: Does Section 56 always apply to refund interest?

A: No. Section 56 applies to delayed refunds, not to refunds arising from illegal tax collection.

Q: If GST was wrongly collected, can interest be claimed?

A: Yes. This judgment confirms interest is payable as compensation.

References

• M/s Paradeep Phosphates Limited vs. Additional Commissioner, GST (Appeals) & Ors.
  Orissa High Court, Cuttack
  W.P.(C) No. 11618 of 2024
  Judgment dated 22 January 2026

• Article 265, Constitution of India

• Sections 54 and 56, CGST Act, 2017

Written by CA Vikash Dhanania | Reviewed by GST DOST Legal Research Team | Updated on 25/01/2026

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