Refund of Unutilised ITC on Business Closure: Sikkim High Court’s Landmark Ruling

Introduction

What happens to unutilised GST Input Tax Credit (ITC) when a business shuts down? Until now, the law was silent, and authorities often rejected refund claims. The Sikkim High Court, in a landmark ruling (SICPA India Pvt. Ltd. & Anr. v. Union of India & Ors., 10 June 2025), has clarified that taxpayers are entitled to a refund of such ITC.

This judgment could be a game-changer for businesses that discontinue operations and still hold unutilised ITC balances.

Case Snapshot

Background

SICPA India closed its manufacturing operations in Sikkim in 2019–20 and sold all assets. After making the required ITC reversals on capital goods, the company still had an unutilised ITC balance of ₹4.37 crore in its Electronic Credit Ledger.

The company applied for a refund under Section 49(6) read with Section 54 of the CGST Act, 2017. However, the tax department rejected the claim, arguing that Section 54(3) only permits refund of ITC in cases of zero-rated supplies and inverted duty structures.

SICPA challenged this decision before the High Court.

Court’s Key Findings

1.No Express Prohibition in Law
Section 54(3) lists two scenarios where refund is permitted but does not prohibit refunds on business closure. Statutory silence cannot be treated as a bar.

2.Retention of Tax Without Authority Is Unlawful
The Court emphasized that no tax or credit can be retained by the government without clear legal authority.

3.Support from Past Precedent
The Court referred to the Karnataka High Court ruling in Slovak India Trading Co. Pvt. Ltd., which allowed refund of CENVAT credit upon business closure.

4.Refund Directed
The Court set aside the earlier rejection and ordered refund of ₹4.37 crore to SICPA India.

Implications for Businesses

• Relief for Closing Entities: Companies winding up operations can now rely on this judgment to claim refunds of unutilised ITC.
• Procedural Clarity: Refund applications should be filed in Form RFD-01, preferably under the “Any Other” category with supporting documentation.
• Documentation Required:
  • Proof of business closure or cancellation of GST registration
  • Details of ITC reversal on capital goods
  • Ledger statements showing balance ITC

Practical Considerations

• The ruling applies in Sikkim jurisdiction but has persuasive value across India.
• Businesses in other states may still face departmental resistance, especially since the Supreme Court in VKC Footsteps earlier restricted refund claims.
• Taxpayers should maintain detailed records and be prepared to litigate if necessary.

Conclusion

The Sikkim High Court’s ruling in SICPA India Pvt. Ltd. is a significant step towards ensuring fairness in GST law. It prevents the government from retaining unutilised ITC when a business ceases to operate.

For businesses considering closure, this decision provides much-needed clarity and financial relief. However, taxpayers should proceed carefully, keeping in mind the possibility of further appeals and varying interpretations across jurisdictions.

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