The Sikkim High Court's Division Bench recently ruled on a case involving SICPA India Pvt. Ltd., which had ceased its operations in Sikkim and sought a refund of accumulated input tax credit (ITC) amounting to ₹4.37 crores. Despite SICPA's claim for a refund under Sections 49(6) and 54 of the CGST Act, both the Assistant Commissioner and the Appellate Authority had previously denied this request, stating that business closure is not a recognized ground for such refunds under Section 54(3).
A Single Judge initially ruled in favor of SICPA, allowing the refund on the basis that Section 49(6) permits refund from the electronic cash/credit ledger unless explicitly prohibited. However, the Union of India challenged this decision, leading to the Division Bench's involvement. The Bench clarified that Section 49(6) does not independently authorize refunds but must be read in conjunction with Section 54, which only allows refunds in cases of zero-rated supplies and inverted duty structures. Business closure does not qualify as a valid reason for refund under these provisions.
The Court's decision was supported by precedents set by the Supreme Court and the Bombay High Court, which emphasize the limited circumstances under which ITC refunds are permissible. Additionally, SICPA failed to demonstrate compliance with Section 29(5) concerning the reversal of credit upon registration cancellation. Consequently, the Division Bench overturned the Single Judge's ruling, dismissing SICPA's refund claim.
Order date: 05 Sept 2025
Parties: Union of India & Ors. v. SICPA India Pvt. Ltd. & Anr.
Facts -
- SICPA India Pvt. Ltd., engaged in the manufacture of security inks, discontinued its operations in Sikkim in 2019 due to lack of orders. At the time of closure, it had accumulated input tax credit amounting to ₹4.37 crores.
- The company applied for refund of this ITC under Section 49(6) read with Section 54 of the CGST Act. The claim was rejected by the Assistant Commissioner (08.02.2022) and the Appellate Authority (22.03.2023) on the ground that closure of business is not one of the permissible categories under Section 54(3).
- However, a Single Judge of the High Court (10.06.2025) allowed the refund, holding that since Section 49(6) permitted refund of balance in electronic cash/credit ledger, such refund could not be denied in absence of an express prohibition. The Union of India appealed this order.
Issue -
- Whether a registered person whose business is closed can claim refund of accumulated ITC under Section 49(6) read with Section 54(3) of the CGST Act?
Order -
- The Division Bench clarified that Section 49(6) is not an independent provision granting refund rights but merely enables refund “in accordance with Section 54.”
- It emphasized that Section 54(3) permits refund of unutilised ITC only in two specific circumstances: exports of goods/services without payment of tax, and inverted duty structure cases. Closure of business is not contemplated by the statute as a ground for refund.
- The Court relied on the Supreme Court’s judgment in VKC Footsteps and the Bombay High Court’s Division Bench decision in Gauri Plasticulture to reinforce this interpretation. The reliance placed by the Single Judge on the Karnataka High Court ruling in Slovak India was held to be misplaced, since subsequent binding precedents had clarified the position.
- The Court also noted that SICPA had not shown compliance with Section 29(5) regarding reversal of credit at the time of cancellation of registration. Accordingly, the Division Bench allowed the writ appeal, set aside the Single Judge’s order, and dismissed the refund claim of SICPA.
