GST Case law on Refund of Unutilized ITC on Business Closure.

SICPA India Pvt limited

VS

Union of India and Others

Appeal Number WP(C) No 54 of 2023

Date of Judgement 10/06/2025

The Sikkim High Court says a refund of ITC on closure of business is allowed on the principle that the law does not permit the retention of tax without legal authority.

FACT OF THE CASE:

SICPA sought refund of unutilized Input Tax Credit (ITC) amounting to ₹4.37 crores lying in their Electronic Credit Ledger after discontinuation of business in Sikkim. The Assistant Commissioner (CGST) rejected the refund citing Section 54(3) of the CGST Act, which permits refund of unutilized ITC only in cases of: Zero-rated supplies made without payment of tax, or Accumulation of credit due to inverted duty structure. Petitioner argued that Section 49(6) of the CGST Act allows refund of balance in the Electronic Credit Ledger after payment of tax, interest, and penalties. This provision does not restrict refund only to cases listed under Section 54(3). Denying refund amounts to violation of vested rights, especially when ITC has already been reversed appropriately during closure. Respondents’ Argued that: Refund is not permitted on closure of business. Section 49(6) does not independently grant a refund right; it is subject to Section 54. Section 29(5) only provides for ITC reversal, not refund, on cancellation. Petitioner had not exhausted statutory appellate remedy under Section 112.

ISSUE RAISED:

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?

IMPORTANT PARA:

PARA 8.  To comprehend the matter regarding the refund claimed, it is essential to consider the provisions cited hereinabove.  Section 49(6) of the CGST Act provides as follows;

“49. Payment of tax, interest, penalty and other amounts. —………………………………………………..

(6) 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. …………………………………………………………………………………”

(i)  Section 49 of the CGST lays down the method of payment of tax, interest, penalty and other amounts.  Section 49(6) of the CGST Act extracted hereinabove deals with how the balance after payment of tax, interest, penalty, fee, etc., is to be dealt with.  It lays downs that the refund of such balance will be made in accordance with the provisions of Section 54 of the CGST Act.  Section 54 of the CGST Act provides as follows;

“54. Refund of tax.—(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed: Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in the return furnished under section 39 in such manner as may be prescribed.”

(ii) Section 54(3) of the CGST Act reads as follows;

“54. ……..…………………………….………………..………

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilized input tax credit at the end of any tax period:

             Provided that no refund of unutilized input tax credit shall be allowed in cases other than—

• zero rated supplies made without payment of tax;
• where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit 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.”

(iii) The Appellate forum in the impugned Order dated 2203-2023, 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.

(iv) On this facet, we may relevantly consider the decision in Slovak India Trading Company Private Limited (supra) where the High Court of Karnataka, at Bangalore, was considering;

(a) Whether under the facts and circumstances of the case the Tribunal is right in ordering for refund, even if there is no provision in Rule 5 of CENVAT Credit Rules, 2002, to refund the unutilized Credit?;

(b) Whether under the facts and circumstances of the case the Tribunal is right in ordering refund even if there is no production and there is no clearance of finished goods? ; and

(c) Whether under the facts and circumstances of the case the Tribunal is right in holding that respondent is entitle for refund even if it goes out of MODVAT Scheme or Company is closed.  The Court considered Rule 5 of CENVAT Credit Rules, which deals with Refund of CENVAT Credit and observed as follows;

“5. There is no express prohibition in terms of Rule 5. Even otherwise, it refers to a manufacturer as we see from Rule 5 itself. Admittedly, in the case on hand, there is no manufacture in the light of closure of the Company. Therefore, Rule 5 is not available for the purpose of rejection as rightly ruled by the Tribunal. The Tribunal has noticed various case laws in which similar claims were allowed. The Tribunal, in our view, is fully justified in ordering refund particularly in the light of the closure of the factory and in the light of the assessee coming out of the Modvat Scheme. In these circumstances, we answer all the three questions as framed in para 17 against the Revenue and in favour of the assessee.”

PARA 9.  As can be seen in Slovak India Trading Company Private Limited (supra) 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 (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 CENVAT Credit Rules, 2002.

(i)  Similarly, in the instant matter 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, I am of the considered view that the Petitioners are entitled to the the refund of unutilized ITC claimed by them and it is ordered so.

HELD BY COURT:

The Court held that SICPA India Pvt. Ltd. is entitled to refund of the unutilized ITC. The Appellate Authority’s order dated 22.03.2023 was set aside. The Writ Petition was allowed and the refund claim was directed to be processed.