Section 54 CGST Act Does Not Envisage Refund Of Unutilized Input Tax Credit For Closure Of Business: Sikkim High Court

The Sikkim High Court held that Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act) does not envisage refund of unutilized Input Tax Credit (ITC) for closure of business.

The Court held thus in a Writ Appeal filed by the Union of India, desiring the interpretation of Sections 49(6) and 54(3) of the CGST Act by the Bench.

A Division Bench comprising Chief Justice Biswanath Somadder and Justice Bhaskar Raj Pradhan observed, “In the impugned judgment, it was opined that the CGST Act does not provide for retention of tax without the authority of law. It is not the case of SICPA that the accumulated ITC is outside the provisions of ‘Chapter X’. This means that the accumulation of ITC is through a legal statutory process. The refund envisaged by the Parliament on account of accumulated ITC is only in accordance with the provisions of section 54. Section 54, however, does not envisage refund of unutilised ITC for closure of business. Thus, the rejection of the refund application is also within the parameters of section 54 and therefore, lawful.”

The Bench said that perceived hardship or inequality cannot permit interpreting taxing statute beyond well-settled parameters laid down by the Supreme Court.

Deputy Solicitor General of India (DSGI) Sangita Pradhan appeared for the Appellants while Advocate Ankit Kanodia appeared for the Respondents.

Factual Background

The Respondent company (SICPA) insisted that the unutilized ITC is required to be refunded by the Appellant under Section 49(6) of the CGST Act. SCIPA succeeded before the Writ Court and therefore, the Union of India-Appellant preferred the Appeal. The Appellant was aggrieved by the opinion of the Single Judge allowing the Writ Petition of SICPA reversing two concurrent findings of the Assistant Commissioner, CGST and Central Excise and that of Additional Commissioner of CGST and Central Excise as the Appellate Authority. The Assistant Commissioner had rejected the refund application of SICPA under Section 49(6) of CGST Act claiming unutilized ITC lying in electronic credit ledger amounting to Rs. 4,37,61,402/- upon discontinuance of business.

The Appellate Authority had upheld the said Order rejecting the refund. The DSGI for the Appellants submitted that the CGST Act and the relevant provisions for refund of ITC have already been examined and decided by the Apex Court in the case of Union of India v. VKC Footsteps (India) (P) Ltd. (2022) and the Appeal may be disposed of as the interpretation rendered therein is binding. On the other hand, the counsel for the Respondents contended that in a Writ Appeal, the scope of interference is very limited and narrow, relying upon the Judgment of the Supreme Court in the case of Airports Authority of India v. Pradip Kumar Banerjee (2025).

Court’s Observations

The High Court in the above context of the case, 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. 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.”

The Court was of the view that the opinion that there is no express prohibition in Section 49(6) read with Sections 54 and 54(3) of the CGST Act for claiming a refund on closure of unit is not correct. It added 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 remarked.

The Court said that it could not have been held that the Appellants were retaining tax without the authority of law. It further noted that although, SICPA pleaded in the Writ Petition that at the time of sale of assets/inventory/machines they had reversed the ITC as per applicable provisions under GST law, they did not specifically plead that it was done under Section 29 of the CGST Act.

“The appellant denied this assertion of SICPA for want of knowledge. SICPA did not provide any details or proof of reversal of ITC in the writ petition. It was contended by the appellant that the accumulated credit must be reversed under section 29(5) of the CGST Act and no refund can be granted under section 49(6) and section 54, read with the relevant rules”, it observed.

Conclusion

The Court agreed with the Appellant’s submission 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.

“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 maintainable 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”, it also said.

The Court, therefore, concluded that there has been no violation of any Constitutional or statutory right of SICPA for which a writ could lie.

Accordingly, the High Court allowed the Writ Appeal and set aside the impugned Judgment.

Cause Title- Union of India & Ors. v. SICPA India Private Limited & Anr. (Case Number: W.A. No. 02 of 2025)

Appearance:

Appellants: DSGI Sangita Pradhan, Advocates Natasha Pradhan, and Sittal Balmiki.

Respondents: Advocates Ankit Kanodia and Passang Tshering Bhutia.

Click here to read/download the Judgment