Yes, the Hon’ble Sikkim High Court in SICPA India Private Limited and Another v. Union of India and Others [2025 TAXONATION 1436 (SIKKIM)] held that there is no express prohibition in Section 49(6) read with Section 54 of the CGST Act against allowing refund of unutilized ITC upon closure of business, and disallowing the same would amount to unjust retention of tax without authority of law. The Hon’ble Court allowed refund of ?4.37 crore ITC accumulated on account of business discontinuance. The petitioners had discontinued their security ink manufacturing operations in Sikkim during 2019–20 and claimed refund of unutilized ITC lying in their Electronic Credit Ledger under Section 49(6) read with Section 54. The department rejected the claim, stating that refund on closure of business is not an eligible category under Section 54(3), which permits refund only in cases of (i) zero-rated supplies without payment of tax, and (ii) inverted duty structure. The Appellate Authority also upheld this view. The petitioners contended that while Section 54(3) carves out specific refund scenarios, Section 49(6) read with the main provision of Section 54 allows refund of any balance remaining after payment of dues, and such right cannot be denied merely because closure is not listed in the proviso to Section 54(3). They relied on the Karnataka High Court’s decision in Slovak India Trading Co. Pvt. Ltd. MANU/KA/0709/2006, which permitted refund of CENVAT credit upon business closure. The High Court held that there exists no express bar under Section 49(6) or Section 54 against such refund, and the statute does not permit retention of tax amounts without express legal authority. It further held that Section 49(6) acts as an enabling provision, and the limitations under the proviso to Section 54(3) should not be interpreted to curtail legitimate refunds due under Section 49(6). Rejecting the department’s objection on alternate remedy, the Court invoked Article 226 to prevent undue hardship and held that the petitioners were entitled to refund of the unutilized ITC. Accordingly, the Court set aside the appellate order dated 22.03.2023 and allowed the writ petition, directing the department to process the refund.
Author’s Comments
A closer look at the statutory scheme of the CGST Act raises concerns about this decision’s long-term sustainability.
Section 49(6) does provide that the balance in the electronic credit ledger may be refunded in accordance with Section 54. But this phrase—“in accordance with Section 54”—is critical. Section 54(3) begins with a negative phrase: “No refund of unutilised input tax credit shall be allowed except…”, and then restricts refund to two specific scenarios: (i) zero-rated supplies made without payment of tax, and (ii) accumulation due to an inverted duty structure. Closure of business is not one of them. Further, Section 54(9) reinforces this limitation by mandating that no refund shall be granted otherwise than under sub-section (8), and Section 54(8)(b) again ties refund of unutilised ITC back to the conditions under sub-section (3). So, reading the statute holistically, refund of unutilised ITC on account of business closure—however fair it may seem—does not appear to be legally permitted under the current framework.
The Hon’ble Court’s interpretation that Section 54(3) is not a prohibitory clause but only a specific enabler (i.e., "permissive" rather than "restrictive") may not withstand scrutiny, especially in light of the Supreme Court’s ruling in VKC Footsteps India Pvt. Ltd. [2021 TAXONATION 05 (SUPREME COURT)], where a strict construction of refund provisions was upheld. Importantly, the High Court has also not addressed Sections 18(4) and 29(5) read with Rule 44, which require reversal and lapse of ITC upon cancellation of registration. That statutory scheme was designed to prevent refund in such closure situations. Therefore, refund of unutilised ITC on business closure, however justified in fairness—remains legally tenuous.
GST Case Law SICPA India Private Limited and Another v. Union of India and Others
Citation-2025 TAXONATION 1436 (SIKKIM)
Author- CA Ritesh Arora
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