‘CGST Act Does Not Permit Tax Retention Without Legal Authority’: Sikkim HC Allows Refund of Rs. 4.37 crores Unutilized ITC on Closure of Business [Read Order]

The Sikkim High Court allowed a refund of Rs. 4.37 crores of unutilised ITC on business closure, noting that there is no prohibition under the CGST Act, 2016.

The petitioner is engaged in the business of manufacturing security inks and solutions with GST registration in the State of Sikkim.

In this case, the petitioner, SICPA India Private Limited, approached the Sikkim High Court against the order passed by the Assistant Commissioner, Central Goods and Services Tax (CGST). The latter rejected the petitioners' refund application, claiming unutilised Input Tax Credit (ITC) lying in the Electronic Credit Ledger amounting to Rs. 4.37 crores.

It was to be noted that although the petitioners approached the appellate authority, the latter upheld the impugned order by noting that by going throughSection 54(3) and Section 29 of the Central Goods and Services Tax Act, 2017, the current regulations do not provide for a refund of unutilised ITC in case of discontinuation or closure of business.

The petitioner’s counsel argued that Section 49(6) of the CGST Act allows for refunds of balances in the Electronic Cash Ledger and Electronic Credit Ledger after tax payment, following the return procedure outlined in Section 54 of the CGST Act. Section 54(3) of the CGST Act allows registered companies to claim refunds of unutilised ITC at the end of a 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.

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The question before the court for determination was 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 whether every registered company has a right to a refund of ITC in case of discontinuance of business.

The bench observed that “in the instant matter, there is no express prohibition in Section 49(6) read with Sections 54 and 54(3) of the CGST Act for claiming a refund of ITC on closure of unit.”

The High Court noted that although Section 54(3) of the CGST Act deals only with two circumstances where refunds can be made, the statute also does not provide for retention of tax without the authority of law.

The court held that the Petitioners were entitled to the refund of unutilized ITC Justice Meenakshi Madan Rai allowed the writ petition.

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