Union Of India And Ors vs Sicpa India Private Limited And Ano on 5 September, 2025

Judgment Summary: Union Of India And Ors vs Sicpa India Private Limited And Ano

1. Outcome
The writ appeal filed by the Union of India was allowed. The judgment of the learned Single Judge, which had directed the refund of unutilized Input Tax Credit (ITC) to SICPA India Private Limited, was set aside. Consequently, SICPA's claim for a cash refund of unutilized ITC upon business closure was denied.

2. Core Issue
The central legal question was whether a registered person is entitled to a cash refund of unutilized Input Tax Credit (ITC) accumulated in their electronic credit ledger upon the discontinuance of their business. Specifically, the court had to interpret the interplay between Section 49(6) and Section 54(3) of the Central Goods and Services Tax (CGST) Act, 2017 to determine if "closure of business" is a valid ground for claiming such a refund.

3. Key Facts
* Respondent's Business: SICPA India Private Limited (SICPA) was engaged in manufacturing security inks in Sikkim.
* Discontinuance of Operations: Due to a lack of orders, SICPA discontinued its operations in Sikkim from January 2019 and subsequently sold its machinery and assets.
* Accumulated ITC: Upon discontinuing its business, SICPA had an accumulated unutilized ITC balance of Rs. 4,37,61,402/- in its electronic credit ledger.
* Refund Claim: SICPA filed a refund application under Section 49(6) of the CGST Act, claiming a cash refund of this unutilized ITC.
* Rejection by Authorities: The refund claim was rejected first by the Assistant Commissioner and subsequently by the Appellate Authority (Additional Commissioner) on the grounds that the claim was not covered under Section 54(3) of the CGST Act.
* Single Judge's Decision: SICPA filed a writ petition, which was allowed by a Single Judge of the High Court who directed the refund, reasoning that the law does not expressly prohibit such a refund and the government cannot retain tax without the authority of law.
* Present Appeal: The Union of India appealed this decision to the Division Bench of the High Court.

4. Arguments
* Appellants' (Union of India) Arguments:
* The issue is definitively settled by the Supreme Court's judgment in Union of India vs. VKC Footsteps, which clarifies the scope of ITC refunds.
* Section 49(6) is not an independent provision for granting refunds. It merely stipulates that any refund from the electronic credit ledger must be processed in accordance with the provisions of Section 54.
* Section 54(3) is a restrictive provision that allows refunds of unutilized ITC in only two specific scenarios: (i) zero-rated supplies and (ii) where credit accumulates due to an inverted duty structure.
* Since closure of business is not one of the two specified grounds, no refund can be granted.
* The correct statutory procedure for dealing with accumulated credit upon business closure is its reversal as per Section 29(5) of the CGST Act, not a cash refund.

• Respondents' (SICPA) Arguments:
  • The refund claim was filed under Section 49(6), which should be considered independently.
  • The Supreme Court's decision in VKC Footsteps is distinguishable as it pertained specifically to the inverted duty structure and refund of 'input services', not a refund claim arising from business closure.
  • The Single Judge's decision was correct, as there is no express prohibition on such a refund, and denying it would amount to the retention of tax without the authority of law.

5. Court’s Reasoning
The Division Bench overturned the Single Judge's decision based on the following reasoning:
* Primacy of VKC Footsteps: The court held that the Supreme Court's judgment in VKC Footsteps authoritatively interprets Sections 49 and 54 of the CGST Act. This precedent, which was not considered by the Single Judge, is binding.
* Interpretation of Statutory Provisions:
* A taxing statute must be interpreted strictly based on what is clearly expressed. Nothing can be implied or assumed.
* Refund is a statutory right, not a constitutional one. The legislature has the authority to define the specific circumstances under which a refund can be claimed.
* Section 49(6) is not a Standalone Provision: The court clarified that Section 49(6) merely provides a gateway for a refund, but the conditions and eligibility for that refund are exclusively governed by Section 54. The phrase "in accordance with the provisions of Section 54" is crucial and restrictive.
* Section 54(3) is Exhaustive: The first proviso to Section 54(3) uses a double-negative format ("no refund...shall be allowed in cases other than"), making it clear that the two mentioned categories (zero-rated supplies and inverted duty structure) are the only situations in which a refund of unutilized ITC is permissible.
* No Judicial Rewriting: Allowing a refund for business closure would amount to judicially adding a third category to Section 54(3), which is impermissible. The court cannot rewrite the law to cover a situation that the legislature has deliberately omitted.
* Rejection of Precedent Relied Upon by Single Judge: The court found the reliance on Slovak India misplaced, as it dealt with the erstwhile Cenvat Credit Rules and its reasoning has been differed from by a larger bench of the Bombay High Court in Gauri Plasticulture.
* No Unlawful Retention of Tax: The court rejected the argument that denying the refund amounts to retaining tax without the authority of law. Since the denial is based on the statutory framework of Section 54 itself, the action is lawful.
* Alternate Statutory Remedy: The court noted the government's argument that Section 29(5) of the CGST Act, which deals with the reversal of ITC upon cancellation of registration, is the intended mechanism for handling such accumulated credit, further indicating that a cash refund was not contemplated by Parliament.

6. Statutory References
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 49(6): Payment of tax; refund from electronic ledgers.
* Section 54(3): Refund of tax, specifically unutilized ITC.
* Section 29(5): Cancellation of registration and reversal of credit.
* Constitution of India:
* Article 226: Power of High Courts to issue writs.

7. Precedents Cited
* Union of India vs. VKC Footsteps (India) (P) Ltd. (2022) 2 SCC 603
* Union of India vs. Slovak India Trading Company Private Limited 2006 SCC OnLine Kar 854
* Gauri Plasticulture P. Ltd. vs. Commissioner of Central Excise (2019) SCC OnLine Bom 996
* Airports Authority of India vs. Pradip Kumar Banerjee (2025) 4 SCC 111
* M/s Sterlite Power Transmission Limited vs. Additional Commissioner, CGST and CX and others (2024) SCC Online Tri 879
* Union of India & Others vs. Ind-Swift Laboratories Limited (2011) 4 SCC 635
* Commissioner of Sales Tax vs. Modi Sugar Mills Ltd. (1961) 12 STC 182(SC)
* Commissioner of Central Excise, Nasik vs. Jain Vanguard Polybutlene Ltd. (2010) SCC OnLine Bom 2168