Input Tax Credit Upon Business Closure: Analysis Of Legal Maxims And Provisions Under The Cgst Act, 2017
- IJLLR Journal
- May 15
- 2 min read
Karuna T & G. Uma Maheshwari, School of Law, VISTAS University.
ABSTRACT
The Goods and Services Tax regime, introduced in India on 1 July 2017, was intended to consolidate the country's fragmented indirect tax architecture into a single, destination-based system predicated upon a seamless chain of Input Tax Credit. The mechanism of Input Tax Credit operates by crediting the tax paid on inward supplies to a registered person's electronic ledger, from which it may be applied against the output tax liability arising on outward supplies. In principle, this arrangement eliminates the cascading effect of tax upon tax that characterised the pre-2017 order. In practice, however, the regime contains a structural lacuna of considerable equitable and constitutional consequence: upon voluntary cancellation of GST registration on account of genuine business closure, any unutilised Input Tax Credit remaining in the electronic credit ledger after the mandatory reversal is permanently extinguished, with no statutory mechanism for refund, transfer, or other form of recovery.
This article examines the framework of established legal maxims and constitutional doctrine in relation to the aforementioned issue. It contends that the current statutory position, produced by the combined operation of Section 29(5) of the Central Goods and Services Tax Act, 2017 and Section 54(3) thereof, violates several foundational principles of law, including the prohibition on unjust enrichment (nemo debet esse locupletior cum alterius jactura), the protection of vested rights (nemo dat quod non habet), the requirement that a recognised right be accompanied by an enforceable remedy (ubi jus ibi remedium), the prohibition on State-caused prejudice to a blameless party (actus curiae neminem gravabit), the principle that legal impossibility excuses performance (nemo tenetur ad impossibile), the rule of strict construction of taxing statutes (contra proferentem), and the foundational principle of fiscal neutrality. The article further submits that the framework raises substantial constitutional questions under Articles 14 and 265 of the Constitution of India. The Sikkim High Court's divided judgment in SICPA India Private Limited v. Union of India is examined as the principal judicial occasion on which these questions have been brought into focus. The article concludes with principled proposals for corrective legislative amendment, informed by comparative practice in Australia, Singapore, and the European Union.
Keywords: Input Tax Credit, GST, Business Closure, Unjust Enrichment, Section 54(3), Legal Maxims, Article 14, Article 265, Fiscal Neutrality, CGST Act 2017.
