Held by the Hon’ble High Court of Sikkim
In the matter of
SICPA India Private Limited Vs Union of India
(WP(C) No. 54 of 2023)
The Petitioner is engaged in the business of manufacturing security inks and solutions. The Petitioner discontinued its business operation during FY 2019-20. The Petitioner sold all the machinery and Manufacturing facilities and made a corresponding reversal of ITC as per the GST provisions. After the closure of business, the petitioner had accumulated a balance in the electronic credit ledger of INR 4.38 Crores. Accordingly, the petitioner filed a refund application for such an amount under Section 49(6) of the Act. The Assistant Commissioner rejected such a refund application. The petitioner filed an appeal before the Appellate Authority. However, the Appellate Authority upheld the order of the Assistant Commissioner and held that, as per a combined reading of Section 54(3) read with Section 29 of the Act, the current regulations do not provide for a refund of unutilized ITC in case of discontinuation or closure of business. Accordingly, the petitioner filed an appeal before the Hon’ble High Court.
1. Brief Facts of the Case:
- M/s SICPA India Private Limited (“The Petitioner”) is engaged in the business of manufacturing security inks and solutions. The Petitioner has GST registration in the state of Sikkim.
- The petitioner has been in operation since the pre-GST regime. However, in January 2019, the petitioner discontinued its business operations and sold all the machinery and manufacturing facilities from April 2019 to March 2020.
- At the time of the sale of assets, the Petitioners appropriately reversed the ITC as per applicable provisions.
- After the closure of business, the Petitioners had an accumulated balance in the Electronic Credit Ledger of INR 4.38 Crores.
- Therefore, the petitioner filed a refund of such unutilized ITC balance, in terms of Section 49(6) of the CGST Act, 2017.
- However, the Respondent rejected the refund application vide order dated 08.02.2022.
- The Petitioner filed the appeal before the Additional Commissioner of CGST and Central Excise, Appeals.
- The Appellate Authority upheld the order of the Assistant Commissioner on the basis that from a combined reading of Sections 54(3) and 29 of the Act, it is evident that the current regulations do not provide for a refund of unutilized ITC in case of discontinuation or closure of business.
- Section 54(3) is restricted to circumstances under which the unutilized ITC is allowed for refund, and discontinuation/closure of business is not one of them.
- Accordingly, the prayers put forth are to quash, delete, and set aside the Order rejecting the refund of unutilized ITC on the closure of its business. Also, provide that the provision in Section 54(3) of the Act is not applicable in respect of the refund of unutilized balance of ITC under Section 49(6) of the CGST Act.
2. Question before the Hon’ble High Court of Sikkim
The Question before the Hon’ble High Court is whether the refund of ITC under Section 49(6) of the CGST Act is limited only to companies carved out under Section 54(3) of the CGST Act or does every registered company have a right to a refund of ITC in case of discontinuance of business?
3. Relevant Legal Extract
Relevant provisions of the Act are reiterated below for ready reference:
a. Section 49(6) of the Act:
“49. Payment of tax, interest, penalty, and other amounts.—
……………………………………………….............
(6) The balance in the electronic cash ledger or electronic credit ledger after payment of tax, interest, penalty, fee, or any other amount payable under this Act or the rules made thereunder may be refunded under the provisions of section 54.
…………………………………………………………………………………””
b. Section 54(3) of the Act:
Hon’ble High Court placed reliance on the judgment of Hon’ble Supreme Court in the matter of The Union of India vs. Slovak India Trading Company Private Limited ( MANU/KA/ 0709/2006) wherein the company applied for a refund for unutilized input credit which was available at the time of closure of the unit. The CESTAT allowed the refund, stating that it cannot be rejected on the closure of the company. The High Court agreed and opined that there is no express prohibition in Rule 5 of the CENVAT Credit Rules, 2002. Similarly, in the given case, there is no express prohibition in Section 49(6) read with Section 54 and 54(3) of the CGST Act, for claiming a refund of ITC on closure of a unit. Although Section 54(3) of the CGST Act deals only with two circumstances where refunds can be made, the statute also does not provide for retention of tax without the authority of law. Consequently, the Petitioners are entitled to the refund of unutilized ITC claimed by them.
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(3) Subject to the provisions of sub-section (10), a registered person may claim a refund of any unutilized input tax credit at the end of any tax period:
Provided that no refund of unutilized input tax credit shall be allowed in cases other than—
(i) zero-rated supplies made without payment of tax;
(ii) where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies (other than nil-rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:
Provided further that no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:
Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.”
4. Contention of the Petitioner
The Petitioner contended that:
- Section 49(6) of the Act provides for a refund of the balance in the Electronic Cash Ledger and the Electronic Credit Ledger after payment of tax under the provisions of Section 54 of the Act.
- Section 54(3) of the CGST Act is the exception carved out in the provision, which requires that a registered company may claim refund of unutilized ITC at the end of any tax period, provided that, no refund of unutilized ITC shall be allowed except as provided in Section 54(3)(i) and (ii) of the CGST Act.
- However, such an exemption cannot take away the vested right of ITC accrued to the Petitioners and refund thereof under Section 49(6) of the CGST Act.
- The Appellate Authority has failed to discuss why the provisions of Section 49(6) are not applicable in the Petitioners' case.
5. Contention of the Respondent
The Respondent Contended that:
- Closure of business is not recognized under the statute as an eligible ground for refund, and Section 49(6) of the CGST Act does not independently provide for refund but is dependent on the conditions stipulated under Section 54 of the CGST Act.
- Further, Section 29(5) of the CGST Act provides for the reversal of ITC upon cancellation of registration, but not a refund.
- Also, the petitioner has an effective alternative statutory remedy under Section 112 of the CGST Act, which has not been exhausted by the petitioner.
- Consequently, the Petition deserves a dismissal.
6. Findings and Analysis by the Hon’ble High Court
Hon’ble High Court held that:
a. Non-exhaustion of statutory remedy:
- The argument pertaining to non-exhaustion of statutory remedy is taken up.
- In the Matter of the State of U.P. and Others vs. M/s. Indian Hume Pipe Co. Ltd., the Supreme Court observed that there is no rule of law that the High Court should not entertain a Writ Petition where an alternative remedy is available to a party.
- It is always a matter of discretion with the Court, and if the discretion has been exercised by the High Court not unreasonably or perversely, it is the settled practice of the Supreme Court not to interfere with the exercise of discretion by the High Court.
- The exercise of plenary powers by this Court, as well as the exercise of discretion, in no manner is limited.
b. Analysis of the matter under discussion:
- Section 49 of the CGST lays down the method of payment of tax, interest, penalty, and other amounts.
- Section 49(6) of the Act provides that a refund of the balance after payment of tax, interest, penalty, fee, etc., will be made under the provisions of Section 54 of the Act.
- The Appellate forum was of the view that Section 54(3) of the CGST Act applied only to the two circumstances mentioned in the said Section and would not extend to the refund of unutilized input tax on account of closure of the business.
- The Union of India vs. Slovak India Trading Company Private Limited ( MANU/KA/0709/2006)
- On this facet, reference is made to the decision in Slovak India Trading Company Private Limited, where the High Court of Karnataka, at Bangalore, considered Rule 5 of CENVAT Credit Rules, which deals with Refund of CENVAT Credit.
- In such a case, the company had applied for a refund for unutilized input credit, which was available at the time of closure of the unit.
- The CESTAT allowed the refund, stating inter alia that it cannot be rejected on closure of the company. The High Court agreed and opined that there is no express prohibition in Rule 5 of the CENVAT Credit Rules, 2002.
- Similarly, in the given case, there is no express prohibition in Section 49(6) read with Section 54 and 54(3) of the CGST Act, for claiming a refund of ITC on closure of the unit.
- Although Section 54(3) of the CGST Act deals only with two circumstances where refunds can be made, the statute also does not provide for retention of tax without the authority of law.
- Consequently, the Petitioners are entitled to the refund of unutilized ITC claimed by them.
7. Final order
Hon’ble High Court of Sikkim held that the Petitioners are entitled to the refund of unutilized ITC claimed by them. The impugned Order dated 22-03-2023 of the Appellate Authority is set aside.
