Refund should not be credited to Electronic Credit Ledger of a non-operational business
A crucial clarification from CBIC has settled a recurring GST issue—refund should not be credited to the electronic credit ledger of a taxpayer whose business is no longer operational. This decision has significant compliance and financial implications for taxpayers, especially those who have ceased operations or cancelled their GST registration.
What the CBIC Clarified
In Circular No. 248/05/2025-GST dated 30.04.2025, the CBIC addressed a specific scenario:
If a refund claim is sanctioned in favour of a taxpayer whose registration has been cancelled and is not active, then refund should not be re-credited to their Electronic Credit Ledger (ECL).
Instead, the refund should lapse—meaning the taxpayer loses that credit.
Legal Basis for the Clarification
This clarification refers to Rule 86(4B) of the CGST Rules, which allows re-credit of ITC in certain refund cases. However, Rule 86(4B) applies only if:
- The registration is active
- The business is operational
Once GST registration is cancelled and not restored, the option of re-crediting to the ECL is not legally valid.
Case Law Reference
In similar spirit, High Courts have previously upheld that “a non-existent entity cannot claim or enjoy tax benefits.” This CBIC clarification reinforces that principle in the context of GST refunds.
Practical Insight: What Should Taxpayers Do?
- ✅ If you intend to restart business, revoke your cancellation before applying for refund
- ❌ If registration is cancelled and not restored, refund re-credit to ECL won’t be allowed
- 🧾 For businesses under litigation or closure, maintain documented proof of refund ineligibility to avoid future disputes
Expert View
According to CA Nitin Agarwal (GST Consultant):
“This move by CBIC ensures that the refund system is not misused by inactive entities. Businesses should keep their registration status aligned with refund timelines to avoid ITC lapses.”
Comparison Table: Refund Credit Eligibility
| Condition | Refund to Credit Ledger? |
|---|---|
| Registration active | ✅ Yes |
| Registration cancelled, not restored | ❌ No |
| Registration cancelled, then revived | ✅ Yes |
| Business voluntarily shut, no activity | ❌ No |
| Refund filed post cancellation | ❌ No |
Summary
CBIC clarifies that refunds cannot be credited to the electronic credit ledger if a taxpayer’s GST registration is cancelled and not restored. Rule 86(4B) only applies to active taxpayers.
FAQs
Can a taxpayer claim refund if their GST registration is cancelled?
Only if the registration is restored. Otherwise, the refund to credit ledger will not be allowed.
What happens to the refund amount if re-credit is not allowed?
It lapses—meaning the amount cannot be claimed or utilised.
Can I apply for refund after revoking GST cancellation?
Yes, provided the refund claim is within the permissible time limit.
Final Takeaway
If your GST registration is cancelled, ensure to revoke it before applying for refund to avoid permanent loss of ITC. For support with revocation or refund application, contact Efiletax today and get expert help at every step.