Can refund be claimed on closing balance of ITC at time of cancellation of registration

[Mallikarjuna Gupta]

Can the taxpayer claim refund of ITC in the credit ledger balance where the input tax credit is more than than the amount required to be reversed? If yes, how to claim?

Example trader purchased goods for ₹ 10,00,000 paying ITC @18% and he couldn't sell the same with value addition but sold for only ₹ 9,00,000 and discharged tax liability n filed returns. He also had some service inputs of ₹ 10,000. Now the dealer wants to surrender registration, in this case can he get the refund of ₹ 18,000 ( on goods sold for loss) plus ITC on Services of ₹ 10,000. If yes, how can he claim ?

[Anand Singh]

No, ITC will not be available from the date of GST cancellation. Not only that surplus credit on the date of cancellation would also be reversed.

[KASTURI SETHI]

Sh. Mallikarjuna Gupta Ji,

Sir, I am very much impressed with your profile. So I fail to understand the reason behind this question. I am cocksure you know very well that such refund claim is out of three fields (Inverted Duty Structure, Zero Rated Supply, excess payment of tax paid ) for which refund is admissible. And ITC availed is to be used in the course of business or furtherance of business. Hypothetically, if the closing balance in Electronic Credit Ledger is refunded because of cancellation of registration or closure of business, how the basic condition laid down in Section 16 (1) of CGST Act will be fulfilled ?

To cap it all, I agree with the views of Sh.Anand Singh.

Have you any novel idea to explore the possibility of such refund claim ? What is brewing in your mind ? Pl. enrich me with your creative thought.

Further, I remember very well when I was posted in Central Excise Range, one party got refund of balance of Cenvat Credit lying unutilized in their RG23 A Part-II on account of closure of the factory. That party got such refund at CESTAT stage.

[YAGAY andSUN]

In the case of Union of India v. Slovak Trading Co. Pvt. Ltd. reported at - 2006 (7) TMI 9 - KARNATAKA HIGH COURT wherein the issue was whether cash refund can be ordered even if there was no specific coverage in Rule 5 of the CENVAT Credit Rules, 2002. It was held that –

- Rule 5 of the CENVAT Credit Rules, 2002 does not expressly prohibit the refund of the unutilised credit where there is no manufacture in the light of the closure of the factory.

- Moreover, since the assessee had opted out of the Modvat scheme the refund of unutilised credit has to be made.

- This case was maintained in the Supreme Court as well.

Under GST Law, the assessees have challenged/sought Advance Rulings on issues pertaining to carry forward of credit but they have not met with success in all such cases. Although, the cases under the erstwhile law and present law are on a different footing, the fact remains that the registered person should be entitled to the refund of the balance input tax credit in cash on cancellation of registration.

AI Summary

Exploring Refund Eligibility for Input Tax Credit Post-GST Cancellation: Is It Possible? A taxpayer inquired about claiming a refund on the closing balance of Input Tax Credit (ITC) upon cancellation of GST registration. The example given involved a trader who sold goods at a loss and had additional service inputs, questioning if a refund could be claimed. One respondent stated that ITC is not available post-cancellation, and any surplus credit must be reversed. Another respondent highlighted that refunds are typically limited to specific scenarios and questioned the feasibility of such a refund under current laws. A third response referenced a past court case where a refund was granted, suggesting potential entitlement under certain conditions.