The Sikkim High Court has ruled that companies shutting down operations are not entitled to claim refunds of unutilised Input Tax Credit (ITC) under the Goods and Services Tax (GST) framework.
A Division Bench led by Chief Justice Biswanath Somadder and Justice Bhaskar Raj Pradhan overturned an earlier single-judge order that had allowed such a refund, holding that the law does not permit it.
The dispute arose after a company engaged in the manufacture of security inks and solutions discontinued its operations in Sikkim. The unit had been functioning under GST registration until January 2019, when it stopped production due to lack of fresh orders from its principal client, the Reserve Bank of India.
By the end of the financial year 2019–2020, the company had sold off its machinery and assets. At this stage, it claimed that a substantial sum of ₹4.37 crore remained unutilised as ITC in its electronic credit ledger. The company argued that since its business was permanently closed, this accumulated credit should be refunded under Section 49(6) of the CGST Act, 2017.
Accordingly, the firm filed a refund application in Form GST RFD-01 under the category “any other,” specifically citing Section 49(6) as the basis for refund of the ITC balance on discontinuance of business.
However, the claim was rejected by the Assistant Commissioner of GST and Central Excise in February 2022. The Appellate Authority upheld this rejection in March 2023, reasoning that refund provisions are strictly limited under the law.
Challenging these concurrent findings, the company moved the High Court. In June 2025, a single-judge bench allowed the refund, reasoning that there was no explicit prohibition in the law against refund of ITC upon closure of a unit.
The Union of India, through the Department of Revenue and GST authorities, appealed this decision before the Division Bench, setting the stage for the present judgment.
The central question before the court was whether accumulated ITC lying in the electronic credit ledger could be refunded when a business closes down.
The Bench held that Section 49(6) of the CGST Act, 2017, which mentions refunds of balance in electronic ledgers, must be read strictly with Section 54(3). Refund of ITC is allowed only in two scenarios: (i) zero-rated supplies made without payment of tax, and (ii) accumulation due to an inverted duty structure. Business closure is not a ground for refund.
Relying on the Supreme Court’s landmark judgment in Union of India vs. VKC Footsteps (2022), the Bench clarified that refunds are a statutory concession, not a right. Any interpretation beyond the two conditions under Section 54(3) would amount to judicial rewriting of the law.
The court further observed that refund claims based on closure could undermine the legislative intent of the GST framework, which strictly regulates ITC utilisation and refunds.
Case Details
Case Title: UOI Versus SICPA India Private Limited
Case No.: W.A. No. 02 of 2025
Date: 5th September, 2025
Counsel For Petitioner: Sangita Pradhan
Counsel For Respondent: Ankit Kanodia
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