The Sikkim High Court has allowed the refund of unutilized input tax credit (ITC) on closure of business.
The bench of Justice Meenakshi Madan Rai has observed that there is no express prohibition in Section 49(6) read with Section 54 and 54(3) of the CGST Act, for claiming a refund of ITC on closure of the unit. Although, Section 54(3) of the CGST Act deals only with two circumstances where refunds can be made, however the statute also does not provide for retention of tax without the authority of law.
The Assistant Commissioner, Central Goods and Services Tax (CGST) and Central Excise, Gangtok Division, Gangtok, Sikkim rejected the refund application filed by the Petitioners, claiming unutilized Input Tax Credit (ITC), lying in Electronic Credit Ledger amounting to Rs. 4,37,61,402, upon discontinuance of business. The Petitioners were before the Additional Commissioner of CGST and Central Excise, Siliguri Appeals Commissionerate, assailing the same.
The Appellate Authority upheld the Order of the Assistant Commissioner. It was reasoned that on a combined reading of Sections 54(3) and 29 of the Central Goods and Services Tax Act, 2017, it is evident that the current regulations do not provide for refund of unutilized ITC in case of discontinuation or closure of business. That, it is evidently clear from the provisions mandated in Section 54(3) of the CGST Act which is restricted to circumstances under which the unutilized ITC is allowed for refund, discontinuation/closure is not one of them.
The Petitioners was engaged in the business of manufacturing security inks and solutions with GST registration in the State of Sikkim. The manufacturing units of the Petitioners were in full operation in the pre-GST regime. The Petitioners in January, 2019, decided to discontinue its operation in the State of Sikkim, pursuant to which the Petitioners sold all the machineries and manufacturing facilities from April, 2019 to March, 2020.
At the time of sale of assets the Petitioners had appropriately reversed the ITC as per the applicable provisions under the GST law. The Petitioners had accumulated balance of ITC amounting to Rs. 4,37,61,402, on account of the closure of its business and accordingly claimed refund of such unutilized ITC balance, in terms of Section 49(6) of the CGST Act, which entails that the balance in Electronic Credit Ledger after payment of tax, penalty, fee or in every amount payable may be refunded in accordance with the provisions of Section 54 of the CGST Act, which was refused and has given rise to the Petition.
The Petitioners submitted that Section 49(6) of the CGST Act provides for refund of the balance in Electronic Cash Ledger and Electronic Credit Ledger after payment of tax in accordance with the provisions of Section 54 of the CGST Act which lays down the procedure for refund. Section 54(3) of the CGST Act is the exception carved out in the provision, which requires that a registered company may claim refund of unutilized ITC at the end of any tax period, provided that, no refund of unutilized ITC shall be allowed except as provided in Section 54(3)(i) and (ii) of the CGST Act.
The department argued that closure of business is not recognized under the statute as an eligible ground for refund and Section 49(6) of the CGST Act does not independently provide for refund but is dependent on the conditions stipulated under Section 54 of the CGST Act. Moreover, Section 29(5) of the CGST Act provides for reversal of ITC upon cancellation of registration but not a refund. Besides, an effective alternative statutory remedy exists under Section 112 of the CGST Act which has not been exhausted by the Petitioners. The Order being reasoned, proportionate and as per the statutory framework is not erroneous. The Petitioners attempt to seek refund of unutilized ITC on account of business closure is devoid of support in the statute.
The issue raised was whether the refund of ITC under Section 49(6) of the CGST Act is only limited to companies carved out under Section 54(3) of the CGST Act or does every registered company have a right to refund of ITC in case of discontinuance of business?
The court while allowing the writ petition held that the Petitioners are entitled to the the refund of unutilized ITC claimed by them.
Case Details
Case Title: SICPA India Private Limited and Another versus Union of India and Others
Case No.: WP(C) No.54 of 2023
Date: 10th June, 2025
Counsel For Petitioner: Ankit Kanodia and Passang Tshering Bhutia
Counsel For Respondent: Sangita Pradhan, Deputy Solicitor General of India
