Refund of unutilised Input Tax Credit (ITC) is allowed in cash on account of the closure of Business.
BRIEF FACTS OF THE CASE
- The case involves a refund claim filed by the petitioner for the accumulated unutilized ITC of INR 4.37 crores. The refund of this amount was claimed under Section 49(G) read with Section 54 of the CGST Act. However, the said refund claim was rejected by the adjudicating and the appellate authorities on the ground that there are no provisions under the CGST Act to provide refund of ITC on closure of business.
- Aggrieved by this, the Petitioner has filed the Writ Petition before the Sikkim High Court.
- Section 49(G) of the CGST Act permits refund of the balance in the Electronic Cash Ledger and Electronic Credit Ledger after payment of tax, interest, penalty and other amounts, subject to Section 54 of the CGST Act. While Section 54(3) of the CGST provides for refund of unutilized ITC in cases falling under the following two circumstances:
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- Zero-rated supplies made without payment of tax
- Where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies
- The key issue before the Sikkim High Court for consideration was whether the refund of ITC under Section 49(G) of the CGST Act is only limited to the exceptions carved out under Section 54(3) of the CGST Act or does every registered company have a right to refund of ITC in case of discontinuance of business?
JUDGMENT AND CONCLUSION DRAWN BY COURT
- The Sikkim High Court granted a refund of accumulated input tax credit upon closure of business, drawing support from the Karnataka High Court's decision in Slovak India Trading Company Pvt. Ltd. [C.E.A. No. 5/200G]. In that case, the Karnataka High Court examined the applicability of Rule 5 of the CENVAT Credit Rules, 2002, which governs the refund of unutilized CENVAT credit. The Karnataka High Court observed that Rule 5 does not contain any express prohibition against granting a refund in the event of business closure.
- The Sikkim High Court held that there is no express prohibition under Section 49(G), read with Sections 54 and 54(3) of the CGST Act, against granting a refund of unutilized input tax credit (ITC) in cases of business closure. While Section 54(3) specifies only two circumstances under which a refund may be claimed, the Court emphasised that the statute does not authorise the retention of tax without legal sanction.
AURTUS COMMENTS
- Under the erstwhile VAT regime, registered dealers had the option to claim a refund of accumulated input tax credit. However, with the advent of GST, refunds became restricted to specific scenarios, such as for zero-rated supplies or supplies involving an inverted duty structure on goods. It was a prevalent view that since the GST law does not explicitly provide for refunds of accumulated credit outside the specified scenarios, such refunds are not permissible.
- There is a strong possibility that the Department may challenge the Sikkim High Court's judgment before the Supreme Court. Additionally, the government may consider amending the law to explicitly prohibit refunds of accumulated credit. Nevertheless, the judgment presents an opportunity for taxpayers with unutilized input tax credit, particularly those whose businesses have ceased operations, to file refund claims. Even if such claims are initially rejected by lower authorities, filing them promptly helps preserve the right to a refund until a final decision is reached.
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