Refund of ITC on Business Closure (July 2025)

The Sikkim High Court that held in SICPA India Pvt. Ltd. v. Union of India case that, although Section 54(3) of the CGST Act, 2017 does not expressly address this matter, a registered taxpayer is entitled to a refund of any unused Input Tax Credit (ITC) that is still in the electronic credit ledger after the business has been closed. This is a big decision that can affect future GST refund requests.

Case Highlights :

The Sikkim High Court ruled that a GST-registered business can claim a refund of unutilized Input Tax Credit (ITC) even after closing operations, despite no explicit provision under Section 54(3) of the CGST Act.

Case Background:

The petitioner, one of the businesses, SICPA India Pvt. Ltd., produces security inks in a plant in Sikkim that is registered under the GST. In January 2019, the company decided to close, and by March 2020, it had sold off its production assets.  Even though the ITC was reversed as required by the GST law, a total of ₹4.37 crore remained unused in the computerized credit ledger throughout this transition.

Section 49(6) of the CGST Act, which allows for the reimbursement of the residual balance in the electronic credit ledger, was used by the petitioner to request a refund. 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.

Petitioner of the case: The business, SICPA India Pvt. Ltd., is a legitimate GST-registered security ink manufacturer with headquarters in Sikkim.

Business Closure: After the activities that concluded in January 2019, the assets were sold by March 2020.

Their electronic credit ledger still had a balance of about ₹4.37 crore even after some ITC was reversed as needed.

Refund Application:

• The company filed a refund under Section 49(6) of the CGST Act.
• Both the Assistant Commissioner and the Appellate Authority rejected the claim, citing that Section 54(3) only allows refunds for two situations: zero-rated supplies and inverted duty structure, not business closure.

High Court Judgment:

• The Sikkim High Court overturned the rejection, relying on two main legal principles:
• No express prohibition in Sections 49(6) and 54(3) against ITC refunds post-business closure.
• The principle that tax cannot be retained without the authority of law (“Vested rights” cannot be negated without a clear statutory denial).

Precedent Cited: The High Court referenced Slovak India Trading Co. (pre-GST), where the Karnataka High Court allowed a refund of unutilized credit upon business closure due to no explicit prohibition.

Check the Judgments 
Link - https://hcs.gov.in/hcs/hg_orders/201100000542023_13.pdf

Legal Discussions: Several lawyer analyses and GST blogs underscore the court’s purposive interpretation-highlighting that retaining ITC without clear legal grounds conflicts with constitutional tax principles.