The Hon’ble Sikkim High Court in SICPA India Private Limited & Anr. v. Union of India & Ors. [WP(C) No. 54 of 2023, dated June 10, 2025] held that refund of unutilized Input Tax Credit (“ITC”) can be claimed even in case of closure of business. Further, the Court observed that there is no express prohibition under Section 49(6) read with Sections 54 and 54(3) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) restricting such refund. Although Section 54(3) of the CGST Act prescribes specific scenarios where refund is generally permitted, the Court emphasized that the statute does not authorize retention of tax without legal backing, thereby supporting the entitlement to refund in such cases.
Facts:
M/s SICPA India Private Limited & Anr. (“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 in the period 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 CGST Act. The Petitioners had an accumulated balance of ITC amounting to Rs. 4,37,61,402/-, on account of the closure of its business and accordingly filed the refund application, which was rejected vide order dated February 08, 2022 passed by the Assistant Commissioner, Central Goods and Services Tax (CGST) and Central Excise, Gangtok Division, Gangtok, Sikkim.
The Petitioners filed the appeal against the order before the Additional Commissioner of CGST and Central Excise, Siliguri Appeals Commissionerate (“the Respondent”), however, the Appellate Authority, vide Order dated March 22, 2023 (“the Impugned Order”), upheld the Order dated February 08, 2022, of the Assistant Commissioner on the ground that on a combined reading of Sections 54(3) and 29 of the CGST Act, it is evident that the current regulations do not provide for refund of unutilized ITC in case of discontinuation or closure of business.
The Petitioner submitted that Section 49(6) of the CGST Act provides for refund of the balance in Electronic Cash Ledger (“ECL”) and Electronic Credit Ledger (“ECrL”) 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 person 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. It is contended that the said exemption cannot take away the vested right of ITC. To buttress the submissions, reliance was placed on Shabnam Petrofils Pvt. Ltd. v. Union of India [[2019] 29 GSTL 225 (Gujarat)], The Union of India v. Slovak India Trading Company Private Limited [[2006] 5 STT 332 (Kar.)], and Eicher Motors Ltd. and Another v. Union of India and Others [(1999) 2 SCC 361].
On the other side, the Respondents argued that the 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.
Hence, aggrieved by the Impugned Order, the Petitioners have filed the present Writ Petition.
Issue:
Whether the refund of unutilized ITC can be claimed upon discontinuation of business?
Held:
The Hon’ble Sikkim High Court in WP(C) No. 54 of 2023 held as under:
- Relied in the case of State of U.P. and Others v. M/s. Indian Hume Pipe Co. Ltd. [(1977) 2 SCC 724], in which the Supreme Court observed that there is no rule of law that the High Court should not entertain a Writ Petition where an alternative remedy is available to a party. It is always a matter of discretion with the Court and if the discretion has been exercised by the High Court not unreasonably or perversely, it is the settled practice of the Supreme Court not to interfere with the exercise of discretion by the High Court. The High Court in the said matter had entertained the Writ Petition and decided the question of law arising in it, which the Supreme Court opined was correct and the same was reiterated in a recent judgement of M/s. Godrej Sara Lee Ltd. v. Excise and Taxation Officer-cum-Assessing Authority and Others [AIR 2023 SC 781].
- Noted that, the Appellate Authority in the Impugned Order dated March 22, 2023, was of the view that Section 54(3) of the CGST Act was applicable only to the two circumstances mentioned in the said Section and would not extend to refund of unutilized input tax on account of closure of business.
- Relied on the Judgement of Hon’ble Karnatak High Court in the matter of Union of India v. Slovak India Trading Company Private Limited [[2006] 5 STT 332 (Kar.)], wherein, the company had applied for refund for unutilized input credit, which was available, at the time of closure of unit. The Customs, Excise and Service Tax Appellate Tribunal (“the CESTAT”) allowed the refund stating inter alia that it cannot be rejected on closure of the company. The High Court agreed and opined that there is no express prohibition in Rule 5 of the Central Value Added Tax Credit Rules, 2002 (“the CENVAT Credit Rules”)
- Held that, similar to the case of Slovak India Trading Company Pvt. Ltd. (supra), 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 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. Consequently, the Court is of the considered view that the Petitioners are entitled to the refund of unutilized ITC claimed by them on closure of business. Accordingly, the Impugned Order dated March 22, 2023, of the Appellate Authority is set aside and the Writ Petition is accordingly allowed and disposed of.
Our Comments:
Section 49 of the CGST Act provides “Payment of tax, interest, penalty and other amounts”. Further, Section 49 (6) of the CGST Act states that the balance in the electronic cash ledger or electronic credit ledger after payment of tax, interest, penalty, fee or any other amount payable under this Act or the rules made thereunder may be refunded in accordance with the provisions of section 54 of the CGST Act.
Section 54 of the CGST Act states “Refund of Tax”. Further, Section 54(3) of the CGST Act allows a registered person to claim refund of unutilized ITC at the end of a tax period, but only in two cases:
(i) Zero-rated supplies made without payment of tax, and
(ii) Accumulation of credit due to higher tax rate on inputs than outputs (excluding nil-rated or exempt supplies and certain notified goods/services).
Provided also that no refund of ITC shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.
But, there is no specific restriction that refund of unutilized ITC is not available on closure of business.
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