Business Closure is Not a Ground for ITC Refund: Sikkim High Court Upholds Statutory Limits
Court’s Affirmation of Statutory Limitations
The Sikkim High Court ruled that a refund claim for unutilised Input Tax Credit (ITC) filed due to a business closure is not maintainable. The court set aside an earlier Single Judge’s order that had allowed the refund.
Lack of Independent Refund Provision
The court held that Section 49(6) of the CGST Act is not an independent provision granting refunds. Instead, it must be read with Section 54, which strictly confines the refund of unutilised ITC to only two specified scenarios:
- Zero-rated supplies made without payment of tax.
- Accumulation of credit due to the inverted duty structure (tax rate on inputs higher than on output supplies).
Business Closure Not Included
Since business closure is not one of the two contingencies explicitly enumerated in Section 54, the court concluded that the refund claim on this ground is not legally sustainable. The ruling emphasizes that accumulated credit upon registration cancellation/closure must instead be reversed under Section 29(5) of the CGST Act.