Refund of unutilized Input Tax Credit (ITC) permissible on closure of business: Sikkim High Court
July 09, 2025
The Hon’ble High Court of Sikkim in a landmark judgement allows refund of unutilised ITC (input tax credit) on discontinuing business operations. The Judgement is a result of the dispute between SICPA India (P.) Ltd vs. Union of India
SICPA India, a registered taxpayer, decided to cease its business operations in January 2019 and reversed the ITC related to capital goods. Upon closure of operation, the appellant filed for refund of unutilized credit ledger balance amounting to INR 4,37,42,562/- on the grounds of section 49(6) read with section 54 of the CGST Act, 2017. The GST refund was duly rejected by the respondent stating that section 54(3) only deals with refund of unutilized ITC arising on account of zero-rated exports or inverted duty structure.
The Appellant contended that plain reading of section 49(6) allows a registered taxpayer for refund of credit ledger balance after payment of tax, interest, penalty and other amounts also Section 54(3), while it provides for refund in cases of zero-rated supplies and inverted duty structure, does not contain a non-obstante clause nor a prohibition against granting refunds in other scenarios. SCIPA further argued that the rejection of refund by the authorities is unsustainable and based on a narrow interpretation of section 54(3) of CGST Act, 2017.
To comprehend this matter, the reliance was placed on the decision in Slovak India Trading Company Private Limited, where the High court of Karnataka upheld the tribunal’s decision of allowing refund of unutilized CENVAT credit at the time of closure of unit on the ground that there is no express prohibition in Rule 5 of the CENVAT Credit Rules, 2002.
Similarly, in the instant matter there is no express prohibition in Section 49(6) read with Section 54 of the CGST Act, for claiming ITC refund in GST on closure of unit and the Court observed that business closure is a valid and genuine ground, and disallowing refund of accumulated credit in such a scenario would amount to confiscation of property without authority of law. This judgement answers the question: can ITC be refunded when a business shuts down and confirms that such a refund is legally justified.
