Introduction
When a court strikes down a tax, revenue authorities often resist refunds by arguing that the judgment operates only from its date or benefits only the litigants. These arguments have been raised repeatedly against importers seeking refunds of IGST on ocean freight after the Supreme Court’s decision in Union of India v. Mohit Minerals Pvt. Ltd.
In Assistant Commissioner, CGST & Central Excise, Division-VII, Bharuch v. Filatex India Ltd. (Appeal Nos. APL/11/SRT/2026 to APL/56/SRT/2026), the Goods and Services Tax Appellate Tribunal (“GSTAT”), Surat Bench, vide order dated 20.09.2026, rejected both arguments across forty-six (46) departmental appeals arising from refund claims filed in April 2023. The Hon’ble Tribunal held that a judgment declaring a levy unconstitutional operates from the levy’s inception unless the court expressly makes it prospective and that a taxpayer need not have been a party to claim a refund. The Court also clarified the scope of departmental appeals under Section 112(3) of the CGST Act and the treatment of utilized IGST credit.
Background of the Case
Filatex India Limited, a manufacturer at Dahej, Gujarat, paid IGST under reverse charge on ocean freight for its imports under Entry 10 of Notification No. 10/2017-Integrated Tax (Rate), read with Entry 9(ii) of Notification No. 8/2017-Integrated Tax (Rate). The Gujarat High Court in Mohit Minerals declared both entries ultra vires and unconstitutional on 23 January 2020, and the Supreme Court upheld that decision on 19.05.2022.
In April 2023, Filatex filed forty-six refund applications. The adjudicating authority rejected them, holding that the Supreme Court’s judgment was not retrospective and that Filatex had availed and utilized the IGST credit, so a refund would amount to unjust enrichment. Filatex had replied that it held sufficient CGST and SGST balances and that the law required IGST credit to be used first.
The Additional Commissioner (Appeals), CGST Vadodara, set aside all 46 rejection orders vide order dated 28.03.2024, holding that an unconstitutional levy is deemed never to have existed and that Filatex could not have retained its IGST credit, since the law does not compel the impossible. Following the Commissioner’s review order of 05.12.2024, the Department appealed to the GSTAT.
Contentions of the Parties
The Department advanced the following:
- Under Rule 89(2) of the CGST Rules, the applicant must produce the order establishing its refund entitlement, and Filatex was not a party to Mohit Minerals.
- The Supreme Court’s judgment did not mention retrospective effect and operated only from 19.05.2022.
- Notifications cannot apply retrospectively unless they say so, relying on Krishna Reddy, Adani Exports and Indian Organic, and no notification enabling refunds had followed Mohit Minerals, unlike the statute discussed in Mafatlal Industries.
- Nagaraj v. Union of India recognized that judgments may be applied prospectively where justice requires.
- At the hearing, the Representative argued that utilized IGST credit cannot be refunded regardless of CGST and SGST balances, relying on SN Tradelink Pvt. Ltd. v. State of Gujarat, (2025) 36 Centax 100 (Guj.).
Filatex contended:
- A notification declared ultra vires, is void from its issue, and the judgment contained no direction limiting it to the future.
- A declaration of invalidity binds all authorities and benefits every taxpayer, and the judgment itself is the order under Rule 89(2).
- The Department’s notification cases concern executive exemptions, and M. Nagaraj concerned a constitutional amendment.
- The utilization point was not raised in the appeal and could not be argued at the hearing.
The appellant relied on Kanishk Sinha v. State of West Bengal, M.A. Murthy v. State of Karnataka, Louis Dreyfus Company Pvt. Ltd. v. Union of India (A.P.) and refund decisions including Comsol Energy and Shree Mahesh Oil Products.
The Statutory Framework
- Articles 265 and 300A of the Constitution bar the levy or collection of tax, and the deprivation of property, except by authority of law.
- Section 54 of the CGST Act and Rule 89(2) govern refund applications and the supporting order or evidence.
- Sections 49(5), 49A and 49B and Rule 88A require IGST credit to be utilized before CGST and SGST credit.
- Section 112(3) permits a departmental appeal only on the points specified in the Commissioner’s review order.
- Section 56 provides for interest on refunds delayed beyond sixty days
The Tribunal also relied on the nine-judge Bench judgment in Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536, which treats refunds of an unconstitutional levy as a distinct category falling outside the taxing statute.
The Tribunal’s Reasoning
The ground concerning utilization of credit was not authorized as a ground of appeal in the Commissioner’s review order. Although the order noted the Appellate Authority’s finding on utilization, it did not adopt that finding as a basis for challenging the order. The Tribunal held that an officer’s authority under Section 112(3) is circumscribed by the grounds specified in the Commissioner’s review order. Accordingly, the Department’s authorized representative could not revive that ground at the hearing. The Tribunal clarified, however, that this does not preclude the raising of additional grounds where otherwise permissible under law.
Utilization of IGST credit and unjust enrichment. The Tribunal acknowledged that the IGST credit had been utilized but rejected the Department’s contention that this necessarily barred a refund. Examining SN Tradelink Pvt. Ltd. v. State of Gujarat, on which the Department relied, it was observed that a refund could be allowed where an equivalent amount was reversed or debited using available CGST or SGST credit. In the present case, the Tribunal held that a combined unutilized CGST and SGST balance equivalent to the refund amount, applied towards debiting that amount from the credit ledger, amounted to non-utilization in substance. On those facts, a double benefit did not arise.
Judgments operate retrospectively. Unless otherwise specified, laws are prospective and judgments retrospective, because courts declare the law rather than make it. The levy was always unconstitutional, and the State never had authority to collect it. Prospective overruling, first applied in Golak Nath v. State of Punjab, applies only where the court expressly invokes it. The Tribunal relied on Kanishk Sinha, 2025 INSC 278, and on Louis Dreyfus, where the Andhra Pradesh High Court rejected the same argument about Mohit Minerals. M. Nagaraj only showed that the Supreme Court says so expressly when it intends a ruling to be prospective.
Refund claims by non-parties. The Tribunal held that a taxpayer may rely on a judgment declaring a levy unconstitutional even if it was not a party to the proceedings in which the declaration was made. Referring to Mafatlal Industries Ltd. v. Union of India, it recognized an exception where the taxpayer had itself challenged the levy and the adverse decision had attained finality. The Tribunal’s reasoning is grounded in the principle that tax cannot be retained without authority of law under Article 265 of the Constitution, read alongside the protection of property under Article 300A. In the present case, the Tribunal accepted the judgment declaring the levy unconstitutional as an order contemplated under Rule 89(2) of the CGST Rules; accordingly, a separate order in the individual claimant’s name was not required for that purpose.
The Tribunal noted that High Courts, including in Comsol Energy and Shree Mahesh Oil Products, had allowed identical refunds, and that Comsol Energy concerned limitation, which was not raised here.
The Order
The appeal filed by the Department was dismissed, and the Tribunal passed the following order.
- The Appellate Authority’s order dated 28.03.2024 was upheld and all forty-six appeals were dismissed.
- The Department was directed to pay the refunds with interest, to the extent not already paid.
- Interest under Section 56 runs from sixty days after each application until payment; for applications filed on 22.04.2023, from 22.06.2023. The appeal filed by the Department was dismissed.
An Important Caveat in the Judgment
The Tribunal did not decide limitation, since the Department did not raise it in the appeals. Accordingly, the judgment should not be read as conclusively determining the limitation period applicable to other refund claims. On unjust enrichment, the Tribunal’s discussion focused on whether the refund would confer a double benefit through the utilization of input tax credit. It accepted, on the facts before it, that an equivalent unutilized balance of CGST and SGST credit could establish non-utilization in substance. This reasoning is fact-specific and should not be treated as an automatic entitlement to a refund where sufficient equivalent credit is unavailable. In such circumstances, the possibility of reversal or debit in the manner discussed in SN Tradelink Pvt. Ltd. v. State of Gujarat may require consideration.
Why This Matters from a GST Perspective
- A judgment striking down a levy applied from a levy’s inception unless the court expressly limits it.
- Non-parties may claim refunds unless they challenged the provision themselves and lost.
- The judgment declaring the levy void satisfies Rule 89(2).
- Departmental appeals under Section 112(3) are confined to the points in the Commissioner’s review order.
- A matching unused CGST and SGST balance means IGST credit is unutilized in substance.
- Section 56 interest runs from sixty days after the original application.
AMLEGALS REMARKS
The decision reinforces the principle that the State cannot retain tax collected under a levy declared unconstitutional merely by arguing that the judicial declaration operates prospectively or benefits only the parties to the original litigation. Relying on Articles 265 and 300A of the Constitution and the principles laid down in Mafatlal Industries Ltd. v. Union of India, the Tribunal applied this framework to refund claims arising from the levy of IGST on ocean freight.
The decision is also significant for its treatment of credit utilization and the scope of departmental appeals under Section 112(3) of the CGST Act. The Tribunal held that an equivalent unutilized balance of CGST and SGST credit could, on the facts before it, establish non-utilization in substance and prevent a double benefit. It also clarified that a ground considered but not authorized by the Commissioner could not be revived by the Department’s authorized representative at the hearing.
Importantly, the Tribunal did not decide limitation, as that issue was not raised in the appeals. Nor should its reasoning on credit utilization be treated as an automatic entitlement to refunds in every case. The ruling therefore offers important guidance to taxpayers pursuing similar claims, while leaving the applicable procedural requirements and individual facts to be considered in each case.
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