Sanchayita Lahkar

The High Court of Sikkim Division Bench of Chief Justice Biswanath Somadder and Justice Bhaskar Raj Pradhan held that refund of unutilised Input Tax Credit (ITC) upon closure of business is not permissible under the Central Goods and Services Tax Act, 2017. The Court set aside the earlier judgment of a Single Judge that had directed refund, observing that Section 49(6) read with Section 54(3) provides for refund only in specific situations and does not include discontinuance of business. The Court clarified that any refund claim must strictly fall within the statutory provisions and cannot be extended by judicial interpretation.

The appeal was filed by the Union of India challenging the Single Judge’s judgment dated 10 June 2025 in favour of SICPA India Private Limited. SICPA, a company incorporated under the Companies Act, 1956, was engaged in manufacturing security inks and solutions. It operated a unit in Sikkim but ceased business operations from January 2019 after orders from its primary customer, the Reserve Bank of India, were discontinued. Between April 2019 and March 2020, SICPA sold its machinery and facilities and claimed to have reversed its ITC in accordance with GST law.

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Following closure, SICPA claimed refund of unutilised ITC of ₹4,37,61,402 lying in its electronic credit ledger by filing an application in Form GST RFD-01 under the category “any other.” The refund was sought under Section 49(6) of the CGST Act, contending that the accumulated ITC should be returned since business operations had been discontinued. The application was not accompanied by the self-declaration prescribed under Section 54(4).

The Assistant Commissioner, CGST, rejected the refund claim on 8 February 2022, holding that closure of business was not a ground for refund under Section 54(3). The Appellate Authority upheld the decision on 22 March 2023, reasoning that accumulated ITC must be reversed under Section 29(5) of the CGST Act and that Section 49(6) is not an independent refund-granting provision but operates in conjunction with Section 54.

SICPA challenged these orders by filing a writ petition. The Single Judge relied on the Karnataka High Court’s decision in Slovak India Trading Company Pvt. Ltd. to hold that there was no express prohibition against refund upon closure of a unit, thereby allowing SICPA’s claim. The Union of India appealed against this decision before the Division Bench, citing the Supreme Court judgment in Union of India v. VKC Footsteps (India) Pvt. Ltd., which clarified that refund provisions under Section 54(3) are limited to specific cases.

The Union argued that SICPA’s claim was legally untenable since closure of business was not covered under Section 54(3), and that refund applications must conform to statutory provisions and relevant circulars. It was submitted that the Single Judge’s reliance on Slovak India was misplaced, as that case pertained to Cenvat Credit Rules and not to the CGST Act.

SICPA, on the other hand, contended that the scope of interference in an appeal was limited and that the Single Judge had rightly concluded that retention of tax without authority of law was impermissible. It distinguished VKC Footsteps on the ground that it dealt with inverted duty structure refunds and not closure of business. It further argued that Circular No. 125/44/2019 did not explicitly bar refund in cases of discontinuance of business.

The Division Bench observed: “Section 49(6) permits the refund of the balance of electronic cash ledger or electronic credit ledger after payment of tax, interest, penalty, fee or any other amount payable under the CGST Act or the Rules made thereunder in accordance with the provisions of Section 54. The language used in sub-section (6) of section 49, i.e., ‘may be refunded’ gives an indication that it may be permissible to be refunded. The words ‘in accordance with the provisions of section 54’, thereafter, is a clear indication that this permissibility to refund must be in accordance with the provisions of section 54 and in no other manner.”

The court further noted: “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, VKC Footsteps (supra) was not brought to the notice of the learned Single Judge. 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.”

The Bench recorded: “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. The impugned opinion deviates from well-settled principles of statutory interpretations of taxing statutes and ventures into the legislative domain reserved for Parliament.”

It stated: “We find considerable force in the submission of the appellant that the accumulated credit must be reversed under section 29(5) and no refund can be granted under section 49(6) and section 54 of the CGST Act and the relevant rules.”

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The Bench concluded that the Single Judge’s reliance on the decision in Slovak India Trading Company Private Limited was not appropriate since that case involved interpretation of Rule 5 of the Cenvat Rules under a different statutory framework, and subsequent judgments had clarified the legal position.

The Division Bench observed: “Refund is a matter of statutory prescription. Parliament is within its legislative authority in determining whether refund should be allowed of unutilised ITC.” It further recorded: “Clauses (i) and (ii) of the first proviso to sub-section (3) of section 54 are the only two situations in which a refund can be granted.”

“Accordingly, the writ appeal is allowed and the impugned judgment set aside.” The judgment further recorded that there was no violation of constitutional or statutory rights of the company and that the rejection of refund by the authorities was lawful. The Bench concluded that the writ petition could not have been maintained in the absence of sufficient material to establish the claim.

Advocates Representing the Parties

For the Appellants: Ms Sangita Pradhan, Deputy Solicitor General of India with Ms Natasha Pradhan and Ms Sittal Balmiki, Advocates

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

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

Case Number: W.A. No. 02 of 2025

Bench: Chief Justice Biswanath Somadder and Justice Bhaskar Raj Pradhan