Isabella Mariam

The High Court of Sikkim Single Bench of Justice Meenakshi Madan Rai held that the Central Goods and Services Tax Act, 2017 does not bar refund of unutilized Input Tax Credit (ITC) upon closure of business and directed the refund of such credit. The Court observed that the statutory provisions under Section 49(6) of the CGST Act permit the refund of balances in the electronic credit ledger in accordance with Section 54, and that there is no express prohibition preventing such refund solely on the grounds of business closure. Accordingly, the impugned order rejecting the refund claim was quashed and set aside.

In issuing the directive, the Court stated 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 petition was thus allowed, and the refund was ordered.

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The matter originated with an order dated 08-02-2022 by the Assistant Commissioner, Central Goods and Services Tax (CGST) and Central Excise, Gangtok Division, rejecting the refund application of the Petitioners seeking reimbursement of unutilized Input Tax Credit (ITC) amounting to Rs. 4,37,61,402. The refund was sought due to the discontinuance of the Petitioners' business operations in the State of Sikkim.

The Petitioners had filed the refund claim on the grounds that they had ceased operations and liquidated their assets from April 2019 to March 2020. In compliance with applicable GST law, the Petitioners had reversed the ITC on assets sold and claimed refund for the remaining unutilized balance in the Electronic Credit Ledger. The refund application was rejected by the Assistant Commissioner on the basis that the current statutory provisions do not allow refund of unutilized ITC in case of business closure.

Subsequently, the Petitioners approached the Additional Commissioner of CGST and Central Excise, Siliguri Appeals Commissionerate. However, the appellate authority upheld the original order on 22-03-2023, citing a combined reading of Sections 54(3) and 29 of the CGST Act. The authority concluded that refund provisions under Section 54(3) apply strictly to two circumstances: zero-rated supplies made without payment of tax, and cases where the rate of tax on inputs exceeds that on outputs. Business closure, it held, is not among the eligible grounds.

In the present Writ Petition under Articles 226 and 227 of the Constitution, the Petitioners sought to quash the appellate order dated 22-03-2023 and obtain refund of the unutilized ITC. They argued that Section 49(6) provides for such refund independently and is not constrained by the restrictive grounds listed in Section 54(3). The Petitioners maintained that their accrued ITC constitutes a vested right and cannot be denied merely because business operations were closed.

The Petitioners also cited three judicial precedents in support of their claim: Shabnam Petrofils Pvt. Ltd. vs. Union of India, Union of India vs. Slovak India Trading Company Private Limited, and Eicher Motors Ltd. and Another vs. Union of India and Others.

The Respondents, represented by the Deputy Solicitor General of India, countered the claims, asserting that Section 49(6) is not an independent refund provision but operates subject to the conditions in Section 54. Furthermore, they pointed to Section 29(5), which requires reversal of ITC upon cancellation of registration, not refund. They also raised the issue of maintainability, arguing that the Petitioners had not exhausted the alternative statutory remedy under Section 112 of the CGST Act.

The Court first addressed the issue of maintainability. Referring to State of U.P. and Others vs. M/s. Indian Hume Pipe Co. Ltd., it observed "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."

The Court further cited M/s. Godrej Sara Lee Ltd. vs. Excise and Taxation Officer-cum-Assessing Authority and Others, stating: "The power to issue prerogative writs under Article 226 is plenary in nature...the mere fact that the petitioner...has not pursued the alternative remedy...cannot mechanically be construed as a ground for its dismissal."

Finding no disputed facts requiring resolution, the Court held that it was appropriate to exercise its writ jurisdiction.

Turning to the substantive issue, the Court considered the relevant provisions of the CGST Act. Section 49(6) provides: "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."

The Court recorded that Section 49 outlines the mode of payment and refund of balances in the electronic ledgers, and that Section 49(6) clearly provides for such refund post-payment of liabilities. Section 54(1) states: "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..."

Section 54(3) further provides: "...a registered person may claim refund of any unutilized input tax credit at the end of any tax period...Provided that no refund...shall be allowed in cases other than—(i) zero rated supplies... (ii) where the credit has accumulated on account of rate of tax on inputs being higher..."

The appellate authority interpreted this clause strictly, denying refund outside the two listed scenarios. However, the Court disagreed, stating: "Although, Section 54(3)...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."

In supporting its position, the Court cited Slovak India Trading Company Private Limited, where the Karnataka High Court upheld refund of unutilized credit upon business closure despite the absence of explicit statutory provision. The Court there had held: "There is no express prohibition in Rule 5...The Tribunal has noticed various case laws...The Tribunal...is fully justified in ordering refund particularly in the light of the closure of the factory."

Applying this reasoning, the Sikkim High Court observed: "Similarly, in the instant matter there is no express prohibition in Section 49(6) read with Section 54 and 54(3)...for claiming a refund of ITC on closure of unit."

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The Court issued the following directives: "Consequently, I am of the considered view that the Petitioners are entitled to the refund of unutilized ITC claimed by them and it is ordered so."

Accordingly, the Court declared: "The impugned Order dated 22-03-2023, in Appeal File No.GAPPL/ADC/GSTP/1208/SLG-Appeal, of the Appellate Authority is set aside."

Further, the Court concluded: "Writ Petition is accordingly allowed and disposed of."

Advocates Representing the Parties:

For the Petitioners: Ms. Ankit Kanodia and Mr. Passang Tshering Bhutia, Advocates

For the Respondents: Ms. Sangita Pradhan, Deputy Solicitor General of India

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

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

Bench: Justice Meenakshi Madan Rai

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