EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
Select your location
Local sites
HC holds petitioner entitled to refund of unutilized ITC on closure of business
This Tax Alert summarizes the recent ruling of the single judge bench of the Sikkim High Court (HC)[1] on refund of unutilized input tax credit (ITC) on closure of business, under Goods and Services Tax (GST).
Petitioner, a manufacturer, discontinued its business in the State of Sikkim and filed for refund of balance unutilized ITC. The refund claim was rejected by the Adjudicating Authority as well as the Appellate Authority. Aggrieved, petitioner filed a writ petition before the HC.
The key observations of the HC are:
- Karnataka HC in case of Slovak India Trading Company Private Limited [2] allowed refund of CENVAT credit on discontinuance of business in absence of express prohibition on refund of such credit under CENVAT Credit Rules, 2004.
- Similarly, there is no express prohibition in Section 49(6) read with Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act) for claiming a refund of ITC on closure of unit.
- Although, Section 54(3) of the CGST Act deals only with two circumstances where refunds can be made, however, the statute also does not provide for retention of tax without the authority of law.
Basis above, HC set aside the order passed by the Appellate Authority and held that petitioners are entitled to the refund of unutilized ITC claimed on closure of business.
Comments:
- This is the first HC ruling under GST on the subject matter and is likely to benefit taxpayers intending to surrender GST registration and seek refund of unutilized ITC.
- The Order of the single judge is likely to be challenged by the department before the divisional bench of the HC.
- Under the erstwhile regime, there have been divergent rulings of the HCs and CESTATs on this issue.
- SC dismissed the Revenue's appeal against the Karnataka HC's decision in case of Slovak India on the ground that the Tribunal's ruling, which favored the assessee, was based on several other Tribunal decisions that the Revenue had not challenged. [2008 (223) ELT A170 (SC)].
[1] TS-513-HCSIK-2025-GST
[2] MANU/KA/0709/2006