In the case of SICPA India Private Limited and Another vs Union of India and Others reported in 2025 (6) TMI 834 – SIKKIM HIGH COURT, dated 10.06.2025, it is held by Hon’ble High Court that refund of ITC lying in balance due to closure/discontinuation of business, can be allowed. In this regard reliance is placed on Union of India vs Slovak India Trading Co. Pvt. Ltd. reported in 2006 (7) TMI 9 – Karnataka High Court and provisions of Section 49(6) of CGST Act and Section 54(3) of CGST Act were considered.
2. It would be pertinent to examine the decision in Slovak India (Supra) wherein the provision of Rule 5 of CENVAT Credit Rules (CCR) 2004 read as follows:
“Rule 5. Refund of CENVAT Credit: When any inputs are used in the final products which are cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, the CENVAT credit in respect of the inputs so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safe guards, conditions and limitations as may be specified by the Central Government by notification:
3. In view of the above provision wherein CENVAT Credit could be refunded, where for any reason such adjustment is not possible, the refund was allowed in Slovak India. Further, it was held in the said decision that there is no express prohibition in terms of Rule 5 (CCR Rules 2004) and also that as manufacturing activity is closed, the refund under Rule 5 is available. This Slovak India, Hon’ble Karnataka High Court decision is appealed to Hon’ble Supreme Court by Department and while dismissing the SLP, the Supreme Court [Union of India v. Slovak India Trading Co. Pvt. Ltd. – 2008 (223) E.L.T. A170 (S.C.)] passed the following order:
“Delay condoned.
The Tribunal while allowing the appeal filed by the respondent assessee has relied upon the following decisions :
1.Eicher Tractors v. CCE, Hyderabad, 2002 (147) E.L.T. 457 (Tri.-Del.);
2. Shree Prakash Textiles (Guj.) Ltd. v. CCE, Ahmedabad, 2004 (169) E.L.T. 162 (Tri. – Mumbai);
3. CCE, Ahmedabad v. Babu Textile Industries, 2003 (158) E.L.T. 215 (Tri. – Mumbai); and
4. CCE, Ahmedabad v. Arcoy Industries, 2004 (170) E.L.T. 507 (Tri. – Mumbai).
of the Tribunal in which it has been held that the assessee is entitled to refund of the amount deposited if the assessee has gone out of the Modvat Scheme or their unit is closed. Aggrieved against the order of the Tribunal, revenue filed C.E.A. No. 5/2006 in the High Court of Karnataka at Bangalore. The High Court by its impugned order has affirmed the order of the tribunal and dismissed C.E.A. No. 5/2006 filed by the revenue.
Learned ASG appearing for the Union of India fairly concedes that those decisions of the Tribunal, which were relied upon by the Tribunal, have not been appealed against.
In view of the concession made by the learned ASG, this special leave petition is dismissed.”
4. In view of the above decision of Hon’ble Supreme Court in Slovak India (Supra), it is evident that the Department’s Special Leave Petition (SLP) is dismissed by Supreme Court based on the concession made by the learned ASG, as such it does not have any precedent value. In view of the above Supreme Court decision, any decision including the instant Hon’ble Sikkim High Court decision in SICPA INDIA (Supra), based only on Hon’ble Karnataka High Court decision in Slovak India (Supra) appears to be erroneous. It appears that the fact that Slovak India High Court decision is appealed to Supreme Court is not brought to the notice of Hon’ble Sikkim High Court.
5. Further, it is pertinent to note that the Hon’ble Supreme Court in the case of Union of India & Ors. vs VKC Footsteps India Pvt Ltd. reported in 2021 (9) TMI 626 – SUPREME COURT, held as follows;
48. The provisions of Section 16 and Section 49 indicate the following position:
(i) The ITC in the electronic credit ledger may be availed of for making any payment towards output tax under the CGST Act or under the IGST Act;
(ii) The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the CGST Act or its rules;
(iii) The balance in the electronic cash ledger or electronic credit ledger after the payment of tax, interest, penalty, fees or any other amount payable under the Act or rules may be refunded in accordance with the provisions of Section 54; and
(iv) Sub Section (6) of Section 49, in other words contemplates a refund of the balance which remains in the electronic cash ledger or electronic credit ledger in the manner stipulated by the provisions of Section 54.
55…..While enacting Clause (ii) of the first proviso to Section 54(3) in the CGST Act, Parliament, took legislative notice of a specific eventuality namely “where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies”. Parliament would be cognizant of the fact that ITC may accumulate for a variety of reasons, of which an inverted duty structure is one situation. Parliament was legislating to provide for a refund and therefore restricted it to the two situations spelt out in clauses (i) and (ii) of the first proviso. The opening words of the substantive part of Section 54(3) contemplate a claim of refund of “any unutilized input tax credit”. Undoubtedly, any unutilized ITC would include credit on account of tax charged on any supply of goods or services or both. The opening sentence of Section 54(3) provides for (i) a claim of refund by a registered person; (ii) of any unutilized input tax credit; (iii) at the end of any tax period. But the impact of the first proviso, as its opening words indicate, is that:
(i) “No refund” of unutilized ITC “shall be allowed” “in cases other than” (i) and (ii);
(ii) The expression “claim” in the substantive part must be distinguished from the phrase “shall be allowed” in the opening sentence of the first proviso. Likewise, the expression “may claim refund” in the opening part must be distinguished from “no refund” in the opening part of the first proviso;
(iii) The impact of the first proviso is that a refund of unutilized ITC shall be allowed only in cases falling under (i) and (ii). The expression ‘only’ in the previous sentence is not a judicial addition to statutory language but follows plainly from the expressions “no refund” of unutilized ITC shall be allowed “in cases other than”;
(iv) The expression “in cases other than” is a clear indicator that clauses (i) and (ii) are restrictive and not conditions of eligibility. A refund, in other words, can be allowed in the two contingencies spelt out in clauses (i) and (ii) of the first proviso;
(v)…..
(vi) ….
(vii)….
(viii) ….
62….. …..Given these intrinsic complexities, the legislature has to draw the balance when it decides upon granting a refund of accumulated ITC which has remained unutilized. In doing so, Parliament while enacting sub-Section (3) of Section 54 has stipulated that no refund of unutilized ITC shall be allowed other than in the two specific situations envisaged in clauses (i) and (ii) of the first proviso. Whereas clause (i) has dealt with zero rated supplies made without the payment of tax, clause (ii), which governs domestic supplies, has envisaged a more restricted ambit where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies. While the CGST Act defines the expression ‘input’ in Section 2(59) by bracketing it with goods other than capital goods, it is true that the plural expression ‘inputs’ has not been specifically defined. But there is no reason why the ordinary principle of construing the plural in the same plane as the singular should not be applied. To construe ‘inputs’ so as to include both input goods and input services would do violence to the provisions of Section 54(3) and would run contrary to the terms of Explanation-I which have been noted earlier. Consequently, it is not open to the Court to accept the argument of the assessee that in the process of construing Section 54(3) contextually, the Court should broaden the expression ‘inputs’ to cover both goods and services.
The Section 54 (3) of CGST is as follows;
“(3) Subject to the provisions of sub-section (10), 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;
(ii) 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:”
6. In the above Hon’ble Supreme Court decision, it is clearly held that sub Section 6 of Section 49 of CGST Act contemplates a refund of the balance which remains in electronic credit ledger in the manner stipulated by the provision of Section 54 of CGST
Act. Therefore, refund of balance in electronic credit ledger due to discontinuation of business is not contemplated in Section 54 of CGST Act. Therefore, it appears, the question of grant of refund of unutilized ITC lying in electronic credit ledger upon discontinuation of business, does not arise in view of the categorical provisions of Section 54 and Hon’ble Supreme Court decision in VKC Footsteps (Supra). However, unfortunately the Hon’ble Supreme Court decision in the case of VKC Footsteps, was not brought to the notice of Hon’ble Sikkim High Court in SICPA INDIA Case.
7. Further, the Hon’ble Tribunal, New Delhi in the case of M/s Mahavir Metal Manufacturing Company, in Appeal No.E/51200/2022, held as follows;
“8. In the light of these admitted facts, foremost it is necessary to look into the scope of Rule 5 of Cenvat Credit Rules. I observe that the said rule has undergone an amendment w.e.f. 01.04.2012. The period involved in the present case is post April, 2012. The amended provision reads as follows :-
5. Refund of Cenvat credit – (1) A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of Cenvat credit as determined by the following formula subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette ……..”
“10. Though the appellant had relied upon the decision of Karnataka High Court in Slovak India Trading Company Pvt. Ltd. reported as 2006 (201) E.L.T. 559 (Kar.) which was also confirmed by the Hon’ble Supreme Court but the said case declared that refund claims of Cenvat cannot be subjected to limitation of time irrespective. The period involved is prior or post amendment. In the present case, since the refund claim was filed under Rule 5 of Cenvat Credit Rules, 2004 and after it got amended after April 2012. The amended Rule 5 does not permit refund of such Cenvat credit which could not be utilized for any possible reason. I drawn support to this finding from the decision of Lata Hydrocarbon (supra). “A refund claim was filed after 01.04.2012 which is the issue in dispute – Therefore, the assessee was not entitled to refund as there was no saving clause when Rule 5 of CCR was amended – Besides, the limitation period was also violated as the refund claim was filed more than six years after the closure of the factory – Hence the OIA warrants no interference with”.
8. In view of the above, it is evident that there is an amendment in Rule 5 of CCR 2004, with effect from 01.04.2012, wherein the amended Rule 5 does not permit refund of such CENVAT Credit which could not be utilised for any possible reason, which includes the closure of business. Thus, it is apparent that the Karnataka High Court decision in Slovak India (Supra) is not applicable for refund of CENVAT Credit lying unutilized even in case of closure of business post 01.04.2012. Thus, the decision of Slovak India is rendered irrelevant for refund of unutilized credit post 01.0.2012. This change in law in Rule 5 is also unfortunately not brought to the notice of Hon’ble Sikkim High Court in SIPCA INDIA case.
9. In view of the above, with due regards to Hon’ble Sikkim High Court, it appears that the Hon’ble Sikkim High Court decision in SIPCA INDIA case, was rendered without reference to the following;
(i) Supreme Court decision in Slovak India;
(ii) Supreme Court decision in VKC Footsteps;
(iii) Change in Rule 5 of CCR 2004;
(iv) Relevant subsequent Tribunal decisions vide Mahavir Metal Manufacturing Company vs Commissioner, Jodhpur, Rajasthan in Excise Appeal No. 51200/2022 of CESTAT, New Delhi and;
(v) Lata Hydrocarbon Resources Pvt. Ltd. vs Commissioner of Central Tax, Hyderabad reported in 2019 (12) TMI 1060 – CESTAT HYDERABAD.
10. Thus, the Hon’ble Sikkim High Court decision in SIPCA INDIA case dated 10.06.2025, appears to be erroneous and untenable in law and also does not have any precedent value.
****
Author: V.R. Pavan Kumar, LLM, Superintendent (AR), CESTAT, Hyderabad.
The views expressed in the article are personal views.
Author Bio
Timely article on why ITC refund should not be granted due to business closure in GST era as the same is not provided for under Section 54(3) of CGST Act 2017. It seems that Hon’ble Court was not appraised of the change in Rule 5 of CCR and the differently worded GST refund provisions.
Good effort in bringing to the notice of all the stake holders why the Hon’ble High Court’s judgement cannot be relied upon to grant refund of ITC refund in other cases in view of substantial change in the wordings of Rule 5 of CCR 2004 and the differently worded Section 54(3).