Refund of ITC: Statutory Right or Legislative Concession?

While the Hon’ble High Court of Sikkim in the matter of SICPA INDIA PRIVATE LIMITED AND ANOTHER VERSUS UNION OF INDIA AND OTHERS - 2025 (6) TMI 834 - SIKKIM HIGH COURT  has granted refund of unutilized ITC on this ground that there is no express prohibition in Section 49(6) read with Section 54 and 54(3) of the CGST Act, for claiming a refund of ITC on closure of unit, the Honourable Supreme Court, in the matter of UNION OF INDIA & ORS. VERSUS VKC FOOTSTEPS INDIA PVT LTD. - 2021 (9) TMI 626 - SUPREME COURT, vide para 69 & 70 of its judgment has already held as follows:

69…… Sub-section (3) of Section 54 begins, in its main part, with the stipulation that a registered person may claim refund of any ‘unutilised ITC at the end of any tax period’. Whether we construe the first proviso as an exception or in the nature of a fresh enactment, the clear intent of Parliament was to confine the grant of refund to the two categories spelt out in clauses (i) and (ii) of the first proviso. That clauses (i) and (ii) are the only two situations in which a refund can be granted is evident from the opening words of the first proviso which stipulates that “no refund of unutilised input tax credit shall be allowed in cases other than”. What follows is clauses (i) and (ii). The intent of Parliament is evident by the use of a double - negative format by employing the expression “no refund” as well as the expression “in cases other than”. In other words, a refund is contemplated in the situations provided in clauses (i) and (ii) and no other. To put it differently, the first proviso can be recast, without altering its meaning to read that a refund of unutilised ITC shall be allowed only in the cases governed by clauses (i) and (ii). Clause (i) deals with zero-rated supplies without payment of tax……….

70. We must be cognizant of the fact that no constitutional right is being asserted to claim a refund, as there cannot be. Refund is a matter of a statutory prescription. Parliament was within its legislative authority in determining whether refunds should be allowed of unutilised ITC tracing its origin both to input goods and input services or, as it has legislated, input goods alone. By its clear stipulation that a refund would be admissible only where the unutilised ITC has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies, Parliament has confined the refund in the manner which we have described above. While recognising an entitlement to refund, it is open to the legislature to define the circumstances in which a refund can be claimed. The proviso to Section 54(3) is not a condition of eligibility (as the assessees’ Counsel submitted) but a restriction which must govern the grant of refund under Section 54(3). We therefore, accept the submission which has been urged by Mr N. Venkataraman, Learned ASG.

In light of the above, the Hon’ble Supreme Court has provided a detailed interpretation of Section 54(3) and the intent of the legislative authority, emphasizing that refunds are a matter of legislative prescription and not a right in the absence of statutory provision. This interpretation appears to be at odds with the Sikkim High Court’s view, which permits refunds where no explicit prohibition exists.

It remains to be seen how this apparent judicial divergence will be reconciled, and what the final authoritative position on the matter will be.