Assessee Entitled To Refund Of Unutilized ITC Claimed On Closure Of Business: Sikkim High Court

The Bench of Justice Meenakshi Madan Rai was addressing the issue of 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.

In this case, the assessees/petitioners were engaged in the business of manufacturing security inks and solutions with GST registration in the State of Sikkim.

The assessees in January, 2019, decided to discontinue its operation in the State of Sikkim, pursuant to which the assessees sold all the machineries and manufacturing facilities from April, 2019 to March, 2020. At the time of sale of assets, the assessees had appropriately reversed the ITC as per the applicable provisions under the GST law.

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

The assessees challenged the order passed by the Assistant Commissioner, CGST and Central Excise, Gangtok Division, Gangtok, Sikkim before the appellate authority which upheld the order passed by the Assistant Commissioner.

The assessees submitted that Section 54(3) of the CGST Act is the exception carved out in the provision, which requires that a registered company may claim refund of unutilized ITC at the end of any tax period, provided that, no refund of unutilized ITC shall be allowed except as provided in Section 54(3)(i) and (ii) of the CGST Act. It was submitted that the said exemption cannot take away the vested right of ITC accrued to the Petitioners and refund thereof under Section 49(6) of the CGST Act.

The department submitted that closure of business is not recognized under the statute as an eligible ground for refund and Section 49(6) of the CGST Act does not independently provide for refund but is dependent on the conditions stipulated under Section 54 of the CGST Act. Moreover, Section 29(5) of the CGST Act provides for reversal of ITC upon cancellation of registration but not a refund.

The Appellate forum 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, noted the bench.

The bench observed 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 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, the assessees are entitled to the refund of unutilized ITC claimed by them and it is ordered so.”

In view of the above, the bench allowed the petition.

Case Title: SICPA India Private Limited and Another v. Union of India and Others

Case Number: WP(C) No.54 of 2023

Counsel for Petitioner/ Assessee: Ankit Kanodia and Passang Tshering Bhutia

Counsel for Respondent/ Department: Sangita Pradhan

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