Company Gets ₹4+ Crore Back: Court Says No Law Stops GST Refund When Business Shuts Down

The Hon'ble High Court of Sikkim at Gangtok in SICPA India Private Limited and Another vs Union of India and Others [WP(C) No.54 of 2023, dated June 10, 2025] held 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 Input Tax Credit (ITC) on closure of business unit. The Court ruled that while Section 54(3) deals only with two specific circumstances where refunds can be made, the statute also does not provide for retention of tax without the authority of law, and therefore the Petitioners were entitled to refund of unutilized ITC amounting to ₹4,37,61,402/- upon discontinuance of business.

FACTS OF THE CASE

The Petitioners, SICPA India Private Limited and Another, were 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. In January 2019, the Petitioners decided to discontinue their operation in the State of Sikkim, pursuant to which they 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. However, the Petitioners had accumulated balance of ITC amounting to ₹4,37,61,402/- (Rupees four crores, thirty seven lakhs, sixty one thousand, four hundred and two) only, on account of the closure of their business. The Petitioners 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 any other amount payable may be refunded in accordance with the provisions of Section 54 of the CGST Act.

The Assistant Commissioner, Central Goods and Services Tax (CGST) and Central Excise, Gangtok Division, Gangtok, Sikkim, vide Order dated February 8, 2022, rejected the refund application filed by the Petitioners, claiming unutilized Input Tax Credit (ITC) lying in Electronic Credit Ledger upon discontinuance of business.

The Petitioners approached the Additional Commissioner of CGST and Central Excise, Siliguri Appeals Commissionerate, assailing the same. However, the Appellate Authority, vide Order dated March 22, 2023, upheld the Order dated February 8, 2022, 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 was evident that the current regulations do not provide for refund of unutilized ITC in case of discontinuation or closure of business. The Appellate Authority held that it was evidently clear from the provisions mandated in Section 54(3) of the CGST Act which was restricted to circumstances under which the unutilized ITC was allowed for refund, and discontinuation/closure was not one of them.

The Petitioners were aggrieved by the rejection of their refund claim and approached the Hon'ble High Court seeking quashing of the impugned Order dated March 22, 2023, and claiming that the proviso to Section 54(3) of the CGST Act was not applicable in respect of refund of unutilized balance of ITC under Section 49(6) of the CGST Act.

ISSUE

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?

HELD BY THE COURT

The Hon'ble High Court of Sikkim in WP(C) No.54 of 2023 held that:

The Court first addressed the preliminary objection regarding non-exhaustion of statutory remedy under Section 112 of the CGST Act. The Court observed that there was no rule of law that the High Court should not entertain a Writ Petition where an alternative remedy was available to a party. It was always a matter of discretion with the Court, and the power to issue prerogative writs under Article 226 of the Constitution of India was plenary in nature. The Court relied on the Supreme Court decisions in State of U.P. and Others vs M/s Indian Hume Pipe Co. Ltd. and M/s Godrej Sara Lee Ltd. vs Excise and Taxation Officer-cum-Assessing Authority and Others to hold that mere availability of an alternative remedy does not operate as an absolute bar to the maintainability of a writ petition.

The Court observed that to comprehend the matter regarding the refund claimed, it was essential to consider the relevant provisions. Section 49(6) of the CGST Act provides that the balance in the electronic cash ledger or electronic credit ledger after payment of tax, interest, penalty, fee or any other amount payable may be refunded in accordance with the provisions of Section 54. The Court noted that Section 49 lays down the method of payment of tax, interest, penalty and other amounts, and Section 49(6) deals with how the balance after payment of tax, interest, penalty, fee, etc., is to be dealt with.

The Court held that Section 54(3) of the CGST Act was applicable only to two specific circumstances mentioned in the said Section - zero rated supplies made without payment of tax, and where credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. The Appellate Authority was of the view that Section 54(3) would not extend to refund of unutilized input tax on account of closure of business.

The Court considered the decision in Slovak India Trading Company Private Limited case, where the High Court of Karnataka had dealt with a similar issue under the CENVAT Credit Rules. In that case, the company had applied for refund of unutilized input credit available at the time of closure of unit. The CESTAT allowed the refund stating that it cannot be rejected on closure of the company. The High Court agreed and opined that there was no express prohibition in Rule 5 of the CENVAT Credit Rules, 2002.

The Court held that similarly, in the instant matter there was 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. The Court observed that 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 Court concluded that consequently, it was of the considered view that the Petitioners were entitled to the refund of unutilized ITC claimed by them. The Court set aside the impugned Order dated March 22, 2023, and allowed the writ petition.

RELEVANT SECTIONS

Section 49(6) of the CGST Act, 2017 - "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(1) of the CGST Act, 2017 - "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."

Section 54(3) of the CGST Act, 2017 - "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— (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)"

Section 29(5) of the CGST Act, 2017 - Provides for reversal of ITC upon cancellation of registration but not a refund.

Section 112 of the CGST Act, 2017 - Provides for appeal to the Appellate Tribunal.

Article 226 of the Constitution of India - Power of High Courts to issue certain writs.

Article 227 of the Constitution of India - Power of superintendence over all courts by the High Court.

PARI MATERIA / CASES REFERRED

State of U.P. and Others vs M/s Indian Hume Pipe Co. Ltd. - (1977) 2 SCC 724 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.

M/s Godrej Sara Lee Ltd. vs Excise and Taxation Officer-cum-Assessing Authority and Others - AIR 2023 Supreme Court 781 The Supreme Court observed that the power to issue prerogative writs under Article 226 of the Constitution of India is plenary in nature. While High Courts should normally not entertain a writ petition where an effective and efficacious alternative remedy is available, mere availability of an alternative remedy does not operate as an absolute bar to the maintainability of a writ petition.

Slovak India Trading Company Private Limited vs Union of India - MANU/KA/0709/2006 The High Court of Karnataka held that there is no express prohibition in Rule 5 of the CENVAT Credit Rules, 2002 for refund on closure of company. The Court observed that the Tribunal was fully justified in ordering refund particularly in light of closure of factory and coming out of the Modvat Scheme.

Shabnam Petrofils Pvt. Ltd. vs Union of India - 2019 SCC OnLine Guj 6910 Referenced by the Petitioners to support their claim for refund of unutilized ITC on closure of business.

Eicher Motors Ltd. and Another vs Union of India and Others - (1999) 2 SCC 361 Referenced by the Petitioners to buttress their submissions regarding entitlement to refund.

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