The balance of unutilized input tax credit remaining in an electronic ledger upon the permanent closure of a business is refundable, as the law does not expressly prohibit such claims, and the state cannot retain taxpayer funds without the authority of law, despite the absence of an explicit statutory provision.

JUDGMENT

MEENAKSHI MADAN RAI, J.

1. The Assistant Commissioner, Central Goods and Services Tax (CGST) and Central Excise, Gangtok Division, Gangtok, Sikkim, vide Order dated 08-02-2022, rejected the refund application filed by the Petitioners, claiming unutilized Input Tax Credit (ITC), lying in Electronic Credit Ledger amounting to Rs. 4,37,61,402/- (Rupees four crores, thirty seven lakhs, sixty one thousand, four hundred and two) only, upon discontinuance of business:

(i) The Petitioners were before the Additional Commissioner of CGST and Central Excise, Siliguri Appeals Commissionerate, assailing the same.

2. The Appellate Authority, vide Order dated 22-03-2023, upheld the Order dated 08-02-2022, of the Assistant Commissioner (supra). It was reasoned that on a combined reading of Sections 54(3) and 29 of the Central Goods and Services Tax Act, 2017 (hereinafter, the “CGST Act”), it is evident that the current regulations do not provide for refund of unutilized ITC in case of discontinuation or closure of business. That, it is evidently clear from the provisions mandated in Section 54(3) of the CGST Act which is restricted to circumstances under which the unutilized ITC is allowed for refund, discontinuation/closure is not one of them.

3. In the instant Petition, the prayers put forth inter alia are to quash, delete and set aside the impugned Order dated 22- 03-2023, passed by the Respondent No.3 rejecting the claim for refund of unutilized ITC, on closure of its business. Further, to order that, proviso to Section 54(3) of the CGST Act is not applicable in respect of refund of unutilized balance of ITC under Section 49(6) of the CGST Act.

4. The Petitioners case summarized is that, it was engaged in the business of manufacturing security inks and solutions with GST registration in the State of Sikkim. The manufacturing units of the Petitioners were in full operation in the pre-GST regime. The Petitioners in January, 2019, decided to discontinue its operation in the State of Sikkim, pursuant to which the Petitioners sold all the machineries and manufacturing facilities from April, 2019 to March, 2020. At the time of sale of assets the Petitioners had appropriately reversed the ITC as per the applicable provisions under the GST law. The Petitioners had accumulated balance of ITC amounting to Rs. 4,37,61,402/- (Rupees four crores, thirty seven lakhs, sixty one thousand, four hundred and two) only, on account of the closure of its business and accordingly claimed refund of such unutilized ITC balance, in terms of Section 49(6) of the CGST Act, which entails that the balance in Electronic Credit Ledger after payment of tax, penalty, fee or in every amount payable may be refunded in accordance with the provisions of Section 54 of the CGST Act, which was refused as reflected supra and has given rise to this Petition:

(i) Learned Counsel for the Petitioners submitted that Section 49(6) of the CGST Act provides for refund of the balance in Electronic Cash Ledger and Electronic Credit Ledger after payment of tax in accordance with the provisions of Section 54 of the CGST Act which lays down the procedure for refund. 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. It is contended that the said 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 as to why the provisions of Section 49(6) is not applicable in the Petitioners case. To buttre