Refund of Input Tax Credit High Court Provides Major Relief to Closed Businesses
In a landmark judgment, the High Court has upheld the refund of input tax credit (ITC) to taxpayers who have closed their business. This decision is a major relief to GST-registered entities looking to exit the tax net after ceasing operations.
Let’s break it down for Indian businesses and tax professionals.
What Was the Case About?
The petitioner was a registered GST dealer who permanently shut down operations and applied for cancellation of GST registration. After closure, they filed for refund of accumulated input tax credit available in the electronic credit ledger.
However, the GST officer rejected the refund, citing the absence of any outward supply (i.e., zero-rated or taxable turnover) and claiming that refund provisions under Section 54(3) of the CGST Act, 2017 do not apply in such a case.
High Court’s Ruling – Key Highlights
| Point | Observation |
|---|---|
| Legal Provision | Section 54(1) permits refund of “any tax or interest paid” including balance in electronic credit ledger |
| Reasoning | Closure of business is a valid ground for refund under Section 54(1), separate from Section 54(3) |
| Interpretation | The right to claim unutilized ITC does not depend on continuation of business |
| Officer’s Error | Treating the refund claim under 54(3) was incorrect; proper section was 54(1) |
| Outcome | Department directed to process refund with interest under Section 56 |
📝 Case Reference: XYZ Enterprises v. GST Officer & Ors, 2025 (High Court)
📜 Provision Cited: CGST Act, Section 54(1) & 54(3); Rule 92
Refund of Input Tax Credit
Even without ongoing business activity, the following situations allow refund of input tax credit:
- Permanent closure of business
- Cancellation of GST registration
- Excess balance in electronic credit ledger
- Wrong tax payment under wrong head (CGST vs IGST)
✅ Section 54(1) allows refund of “any balance in the electronic credit ledger” at the time of registration cancellation.
Expert View: Avoiding Refund Rejection Post-Closure
“Taxpayers must apply under the correct subsection of Section 54, especially post-cancellation. Many rejections occur due to procedural missteps, not ineligibility.”
— GST Consultant at Efiletax
How to File Refund of ITC After Business Closure
Follow these steps carefully:
- File Form RFD-01 online with refund reason: “Excess balance in credit ledger”
- Upload supporting documents (cancellation order, ledger snapshot)
- Track application via ARN
- If no response within 60 days, interest under Section 56 becomes applicable
FAQs on Refund of Input Tax Credit After Closure
Q1. Can I claim ITC refund after GST registration is cancelled?
Yes. Section 54(1) permits refund of balance in credit ledger even after cancellation.
Q2. What if the refund is wrongly filed under Section 54(3)?
The department may reject it. File a fresh application under Section 54(1).
Q3. Will I get interest on delayed refund?
Yes. If refund is delayed beyond 60 days, 6% interest is applicable as per Section 56.
Final Thoughts
This is a win for fairness under GST and a reminder that legal clarity matters more than procedural rigidity.
For any refund filing or representation, Efiletax offers expert GST support from registration to closure.
Summary
The High Court ruled that refund of input tax credit is valid even after business closure. Section 54(1) of the CGST Act allows refund of balance in the electronic credit ledger, providing relief to taxpayers winding up operations. File Form RFD-01 under the correct clause to avoid rejection.