Judicial declarations of unconstitutionality are retrospective by default; refund of IGST paid on ocean freight cannot be denied on ground that the taxpayer was not a party to the judgment: GSTAT Surat

The Tribunal drew a clear distinction between laws, which are prospective by default, and judicial pronouncements, which are retrospective unless expressly declared otherwise by the Court, and upheld the refund of IGST paid under notifications declared ultra vires in Mohit Minerals.

The Goods and Services Tax Appellate Tribunal, Surat Bench, has dismissed 46 departmental appeals challenging the grant of refund of IGST paid on ocean freight under the reverse charge mechanism, reaffirming that when a levy is declared unconstitutional by the Supreme Court, the declaration operates retrospectively from inception and the benefit is available to every taxpayer regardless of whether they were a party to the judgment [The Assistant Commissioner, CGST & Central Excise, Bharuch v. M/s Filatex India Limited].

The respondent had paid IGST on ocean freight under Entry 10 of Notification No. 10/2017-ITR read with Entry 9(ii) of Notification No. 8/2017-ITR during the material period. Both notifications were subsequently declared ultra vires by the Gujarat High Court in Mohit Minerals Pvt. Ltd. v. Union of India, and the declaration was upheld by the Supreme Court. The respondent filed 46 refund claims, all of which were rejected by the adjudicating authority on the ground that the Supreme Court's judgment did not specify retrospective application. The First Appellate Authority reversed the rejection and allowed the refunds. The Department carried the matter to the Tribunal contending that the judgment was prospective, that the respondent was not a party to the Mohit Minerals litigation, and that the credit of IGST having already been utilised, refund would amount to unjust enrichment.

The Bench of Sanjaykumar Dwivedi (Judicial Member) and Ramesh Kumar Hadvani (Technical Member) delivered an extensively reasoned order addressing each contention. On the central question, the Tribunal articulated the settled legal principle: all laws are prospective by default and all judgments are retrospective by default. Courts interpret and declare the law; they do not legislate. When the Supreme Court declared the levy unconstitutional, it meant the levy was always unconstitutional — the Court merely discovered and declared this position. Relying on the Supreme Court's recent pronouncement in Kanishk Sinha v. State of West Bengal [2025 INSC 278], the Tribunal held that the doctrine of prospective overruling is an exception that operates only when the Supreme Court itself expressly so directs. Since the Mohit Minerals judgment contained no such direction, the declaration was retrospective from the date of issuance of the offending notifications.

On the question of the respondent not being a party to the litigation, the Tribunal drew upon the nine-Judge Bench decision in Mafatlal Industries Ltd. v. Union of India [1997 (5) SCC 536] which distinguished between unconstitutional levies and levies challenged on grounds of interpretation. Where the levy itself is declared unconstitutional, any taxpayer who paid tax under that levy may claim refund regardless of whether they participated in the litigation, unless they themselves unsuccessfully challenged the provision and allowed that adverse decision to attain finality. On the unjust enrichment argument relating to utilisation of IGST credit, the Tribunal held that since the mandatory methodology under the GST law required IGST to be exhausted first, and sufficient balances remained under CGST and SGST heads, the respondent's compliance with the prescribed utilisation sequence could not be held against it. Refund was directed with interest under Section 56 computed from 60 days after the date of each original application.

2026-juristway.com-2825-GSTAT(Surat)-GST  |  GSTAT Surat  |  APL/11 to 56/SRT/2026  |  30.09.2026