Sikkim High Court Allows ITC Refund on Business Closure – A Landmark Ruling

In a significant judgment that could shape future refund claims under GST, the Sikkim High Court, in the case of SICPA India Pvt. Ltd. v. Union of India [2025 SCC OnLine Sikk 61], held that a registered taxpayer is entitled to claim refund of unutilized Input Tax Credit (ITC) lying in the electronic credit ledger even after the closure of business, despite such a situation not being explicitly provided under Section 54(3) of the CGST Act, 2017.

Case Background

The petitioner, SICPA India Pvt. Ltd., was engaged in the manufacturing of security inks and had a GST-registered unit in Sikkim. In January 2019, the company decided to close its operations and sold off its manufacturing assets by March 2020. While the ITC was reversed as required under GST law during this transition, a balance of ₹4.37 crore remained unutilized in the electronic credit ledger.

The petitioner applied for a refund under Section 49(6) of the CGST Act, which provides for refund of the remaining balance in the electronic credit ledger. However, the Assistant Commissioner (February 2022) and subsequently the Appellate Authority (March 2023) rejected the claim, reasoning that closure or discontinuation of business is not a ground permitted under Section 54(3) for ITC refund.

Legal Issue Before the Court

Whether the refund of unutilized ITC under Section 49(6) is restricted only to the scenarios listed under Section 54(3) (exports and inverted duty structure), or can such refund also be claimed upon permanent closure of business?

Court’s Observations and Ruling

Justice Meenakshi Madan Rai, in a Single Bench judgment, analyzed the interplay of Sections 49(6) and 54(3) of the CGST Act and made the following key observations:

• Section 49(6) allows refund of any balance lying in the electronic credit ledger.

• Section 54(3) does lay down specific situations for refund but does not impose an express bar on refund in other cases, including business closure.

• Retention of tax without authority of law is against Article 265 of the Constitution of India.

• Relying on the decision in Union of India v. Slovak India Trading Co. Pvt. Ltd. (2006), the Court emphasized that no refund can be denied without express legislative prohibition.

Accordingly, the impugned orders of the Assistant Commissioner and Appellate Authority were set aside, and the refund of ₹4.37 crore was ordered to be granted to the petitioner.

Implications of the Ruling

• This decision could potentially pave the way for businesses closing operations to claim refunds of their unutilized ITC.

• It may prompt the GST Council or CBIC to issue clarifying circulars or amend the CGST Act to explicitly define the scope of refund under Section 49(6).

• The ruling reinforces the constitutional safeguard against unauthorized collection and retention of tax.

Key Takeaways for Tax Professionals

• Refund under Section 49(6) may now be viewed independent of the limitations under Section 54(3), unless expressly barred.

• Businesses discontinuing operations should maintain full compliance with ITC reversals and preserve documentation to support refund claims.

• Professionals advising on business closure should consider this ruling in their exit planning and tax strategy.