[Breaking] Setback to SICPA: Sikkim HC’s Division Bench Overturns Single Bench Ruling on Refund of Unutilised ITC for Closed Business
While setting aside the judgment of the single bench the Court ruled that neither the SICPA's statutory nor constitutional rights had been infringed
The Division Bench of the Sikkim High Court has set aside the Single Bench judgment that had directed refund of unutilised Input Tax Credit ( ITC ) under Goods and Services Tax ( GST ) to SICPA India Pvt. Ltd. upon closure of its business observing that section 54(3) is a restriction to the refund on account of closure of the unit as it does not fall on either of its two clauses.
The bench of Chief Justice Biswanath Somadder and Justice Bhaskar Raj Pradhan observed that “With great respect, we cannot agree with the opinion rendered in the impugned judgment as it is contrary to the opinion of the Hon'ble Supreme Court in VKC Footsteps (supra). Admittedly, vc Footsteps (supra) was not brought to the notice of the learned Single Judge.”
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“With the clear language which has been adopted by Parliament while enacting the provisions of section 54(3), the opinion would involve a judicial re-writing of the provision which is impermissible in law. It would require us to add an additional clause in section 54(3) to enable the refund on closure of business beyond clauses (i) and (ii) thereof. This would lead to recognising an entitlement to refund beyond what was contemplated by the Parliament. We are of the view that the opinion 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 on closure of unit is not correct. We are of the view that section 54(3), in fact, is a restriction to the refund on account of closure of unit as it does not fall on either of its two clauses”, added the bench.
SICPA, the respondent in this appeal which was filed by the GST department is engaged in manufacturing security inks, had discontinued its operations in Sikkim from January 2019 following lack of orders from the Reserve Bank of India and subsequently sold its plant and machinery during FY 2019-20.
On closure, it sought refund of accumulated ITC of ₹4.37 crore lying in its electronic credit ledger, filing the claim under Section 49(6) through Form GSTRFD-01 under the category “any other”.
While the Assistant Commissioner and the Appellate Authority had rejected the claim, the Single Judge of the Sikkim High Court relied on the Karnataka High Court’s decision in Slovak India Trading Co. to hold that absence of express prohibition meant that refund of unutilised ITC on closure could not be denied.
The Division Bench, however, held otherwise, relying extensively on the Supreme Court’s decision in Union of India v. VKC Footsteps (India) Pvt. Ltd. It observed that refund of ITC is purely a statutory right and can only be granted in the manner envisaged under Section 54(3) of the CGST Act.
The court said that “As SICPA did not furnish proof of such reversal or any details thereof and the appellant denied this assertion, it may not be proper to adjudicate upon this issue and we refrain from doing so as it would involve fact finding beyond the pleadings before us. However, we are certain that the writ petition was not maintanable as SICPA had not provided sufficient material to establish the facts asserted crucial to the determination as to whether an amount of Rs.4,37,61,402/- was liable to be refunded to them.”
The High Court clarified that the Section 49(6) merely permits refund of balance in the electronic cash or credit ledger but strictly “in accordance with the provisions of Section 54” and not independently. Section 54(3) specifically restricts refunds of unutilised ITC to only two scenarios: (i) zero-rated supplies made without payment of tax, and (ii) accumulation due to inverted duty structure.
It was also stated by the bench that “The impugned opinion deviates from well-settled principles of statutory interpretations of taxing statutes and ventures into the legislative domain reserved for Parliament. Perceived hardship or inequality cannot permit interpreting taxing statute beyond well-settled parameters laid down by the Hon'ble Supreme Court.”
It was also noted by the division bench that SICPA had not provided adequate proof of reversal of credit as mandated under Section 29(5) of the Act upon cancellation of registration, weakening its refund claim further.
While setting aside the judgment of the single bench the Court ruled that neither the SICPA's statutory nor constitutional rights had been infringed. As a result, the Single Judge's order was overturned and the Union of India's appeal was granted.
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