Legal principle

Tax paid under a mistake of law on a levy later declared unconstitutional must be refunded with applicable statutory interest, and such a refund claim cannot be defeated by limitation since retention of tax collected without authority of law is barred by Article 265 of the Constitution.

Court decision

The Division Bench (Justices Yashwant Varma and Dharmesh Sharma) allowed the writ petitions and directed the respondents to attend to and dispose of the refund claims forthwith, with the refund to be computed along with applicable statutory interest; it held the claims were not barred by limitation.

Facts

Two importer companies, Tavrur Oils and Fats Pvt Ltd and South India Krishna Oils and Fats Pvt Ltd, filed writ petitions seeking mandamus for refund of service tax paid on ocean freight for April-June 2017 under CIF contracts, where the overseas supplier bears the transportation charges. Importers became liable for this levy after amendments effective 13 April 2017 to Section 2(26) of the Customs Act, 1962 and Rule 2(1)(d)(EEC) of the Service Tax Rules, 1994, a levy later declared unconstitutional by the Gujarat High Court in Sal Steel. The respondents (the tax authorities) resisted the refund claims, the surviving submission at the hearing being that the claims were barred by limitation under Section 17(1)(c) of the Limitation Act.

Key provisions

• Section 11, Customs Act, 1962 — Power to prohibit importation or exportation of goods
• Section 27, Customs Act, 1962 — Claim of refund duty
• Section 2(26), Customs Act, 1962 — Definitions