This Tax Alert summarizes the recent ruling of the single judge bench of the Sikkim High Court (HC) 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)].
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