Refund of Unutilised ITC on Business Closure Not Allowed, being Beyond Statutory Conditions: Sikkim HC
Summary: The Sikkim High Court, in the case of Union of India v. SICPA India Private Limited (W.A. No. 02 of 2025), ruled that a registered person is not entitled to a refund of unutilised Input Tax Credit (ITC) from the electronic credit ledger upon business closure. The court held that Section 49(6) of the CGST Act, which mentions a possible refund of the balance in the electronic credit ledger, is not a standalone provision but must be read with Section 54. Section 54 strictly confines the refund of unutilised ITC to only two specific contingencies: zero-rated supplies made without tax payment, and accumulation due to an inverted duty structure. Since business closure does not fall under either of these statutory conditions, the court found the refund claim unsustainable and reversed the Single Judge’s order. The High Court stressed that expanding the refund grounds would amount to impermissible judicial rewriting of the tax statute and noted that any accumulated credit on business closure must be reversed under Section 29(5) of the CGST Act.
Facts:
SICPA India Private Limited (“the Petitioner”) was engaged in manufacturing security inks and solutions and ceased operations at its Sikkim unit due to lack of orders.
The Union of India through various revenue authorities (“the Respondents”) rejected the Petitioner’s refund claim of approximately Rs. 4.37 crore for unutilised ITC under Section 49(6) of the CGST Act, following closure of business.
The Petitioner contended that refund of such accumulated ITC was permissible under Section 49(6) read with Section 54, claiming entitlement upon business closure.
The Respondent contended that Section 49(6) does not independently grant refund rights and requires conformity with Section 54, which restricts refunds of ITC to two specified conditions: zero-rated supplies without payment of tax and accumulation due to inverted duty structure; business closure is not covered.
The Petitioner’s grievance was that rejection of refund claim was unlawful, and therefore approached the High Court by writ appeal challenging the order dated June 10, 2025, passed by the Single Judge in W.P.C No. 54 of 2023.
Issue:
Whether a registered person is entitled to refund of unutilised ITC in electronic credit ledger on account of closure of business under Section 49(6) of the CGST Act, 2017, independent of the conditions enumerated in Section 54?
Held:
The Hon’ble Sikkim High Court in W.A. No. 02 of 2025 held as under:
- Observed that, Section 49(6) is not a standalone refund provision but requires refunds to be given only in accordance with Section 54, which strictly limits refund of unutilised ITC to two contingencies.
- Noted that, Section 54 confines refund of unutilised ITC to zero-rated supplies without payment of tax and cases of accumulation due to inverted duty structure.
- Held that, business closure does not fall within the ambit of Section 54 for refund and therefore the refund claim on such ground is not sustainable.
- Held that, the refund application under Section 49(6) must be processed in accordance with Section 54 and any deviation amounts to judicial rewriting of the statute.
- Affirmed that, accumulated credit on account of business closure must be reversed under Section 29(5) of CGST Act and no refund is permissible under Sections 49(6) and 54 read with relevant rules without statutory eligibility and allowed the Revenue’s writ appeal and set aside the Single Judge’s order directing refund to the Petitioner.
Our Comments:
This decision reinforces the Supreme Court’s authoritative interpretation in Union of India v. VKC Footsteps India Pvt. Ltd., [(2022) 2 SCC 603], wherein it was held that refund of unutilised ITC is confined to the two categories under Section 54(3) proviso (zero-rated supplies without payment and accumulation due to inverted duty structure). The Sikkim HC applies the VKC Footsteps ruling, underscoring that a taxing statute must be interpreted strictly by its clear language and judicial legislation to expand refund grounds is impermissible.
The Court distinguishes the earlier Karnataka High Court precedent in Slovak India Trading Co. Ltd. [2006 SCC OnLine Kar 854] which dealt with pre-GST CENVAT credit regime and held refunds upon closure permissible under that regime, but the CGST Act’s specific provisions negate such a broad reading.
The emphasis on Section 29(5) in relation to reversal of ITC on cancellation of registration provides a cohesive statutory framework preventing grant of refund in absence of compliance with reversal provisions on business closure.
Relevant Provisions:
Section 49(6), CGST Act, 2017:
“49. Payment of tax, interest, penalty and other amounts.-
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.”
Section 54(3) and Proviso, CGST Act, 2017:
“ 54. Refund of tax.-
Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:
Provided that no refund of unutilised input tax credit shall be allowed in cases other than —
(i) zero-rated supplies made without payment of tax; and
(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies…”
Section 29(5), the CGST Act, 2017:
“29. Cancellation or suspension of registration-
(5) Every registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed:
Provided that in case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under section 15, whichever is higher.”
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