Refund should not be credited to the Electronic Credit Ledger of a taxpayer whose business is no longer operational

Last updated: 22 May 2025

Quick Summary

The Calcutta High Court has ruled that GST refunds should not be credited to the Electronic Credit Ledger (ECrL) of a taxpayer whose business operations have ceased and GST registration cancelled. The court found it illogical to credit a refund to an ECrL that the taxpayer cannot utilise. The Assessing Officer was instructed to reconsider the refund order, ensuring it is paid to the taxpayer's bank account after a hearing.

Court :
Calcutta High Court

Brief :
The Hon'ble Calcutta High Court in Edelweiss Rural & Corporate Services Limited & Anr. v. The Deputy Commissioner of Revenue, Taltala Charge, WBGST& Ors. [WPA 3033 of 2025 dated May 5, 2025] instructed the Assessing Officer to reconsider the Refund Sanction Order to the extent that it directed the refund to be credited to the Assessee's Electronic Credit Ledger instead of their Bank Account. The direction was given by the Court on the ground that the Assessee had already ceased its business operations and had its GST registration cancelled, and thus, would not be in a position to utilize the refund credited to its Electronic Credit Ledger.

Citation :
WPA 3033 of 2025 dated May 5, 2025

The Hon'ble Calcutta High Court in Edelweiss Rural & Corporate Services Limited & Anr. v. The Deputy Commissioner of Revenue, Taltala Charge, WBGST& Ors. [WPA 3033 of 2025 dated May 5, 2025] instructed the Assessing Officer to reconsider the Refund Sanction Order to the extent that it directed the refund to be credited to the Assessee's Electronic Credit Ledger instead of their Bank Account. The direction was given by the Court on the ground that the Assessee had already ceased its business operations and had its GST registration cancelled, and thus, would not be in a position to utilize the refund credited to its Electronic Credit Ledger.

Facts:

M/s. Edelweiss Rural & Corporate Services("the Petitioners") filed an appeal against the refund/rejection order. The Appeal was allowed by the Appellate Authority, pursuant to which, the Petitioners filed a Refund Application in Form GST RFD-01 before the Deputy Commissioner of Revenue ("the Respondent") and a Refund Sanction Order was issued by the Respondents. While the Order in FORM GST RFD-06 directed the refund to be paid to the Petitioner'sBank Account, the Detailed Order ("the Impugned Order")contradictorily stated that the refund would be credited to the Petitioner's ElectronicCredit Ledger("ECrL").

Aggrieved by the Impugned Order, the Petitioner filed the Present Petition.

Issue:

Whether a refund should be credited to the Electronic Credit Ledger of a taxpayer whose business is no longer operational?

Held:

The Hon'ble Calcutta High Court in WPA 3033 of 2025 held as under:

Observed that, the Respondent had directed the refund to be paid to the Petitioners' Bank Account on the subsequent application made by the Petitioner; however, in the Impugned Order, there is a direction to credit the refund amount to the Petitioner's ECrL, which appears to be self-contradictory.
Noted that, the Impugned Order is passed on the basisthat the Petitioner has closed down itsbusiness operation and its registrationhas already beencancelled and that there is no tax due andpayable by the Petitioner.
Held that, the Respondent ought to reconsider the Impugned Order and take a decision within six weeks after providing an opportunity of hearing to the Petitioner.

Our Comments:

Section 54 of the Central Goods & Services Tax Act, 2017 ("the CGST Act")governs"The Refund of Tax". Section 54(1) of the CGST Act mentions that any person claiming a refund of tax, interest, penalty, or any other amount may apply to the proper officer within two years from the relevant date. Registered persons can also claim a refund of the balance available in their ECrLin accordance with Section 49(6) of the CGST Act.

Section 54(3) of the CGST Act states that,a registered person can claim a refund of unutilisedInput Tax Credit ("ITC") at the end of any tax periodin cases of zero-rated supplies made without payment of tax or in cases where the ITC has accumulated due to an inverted duty structure.

As per Section 54(5)of the CGST Act, if on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund referred to in Section 57 of the CGST Act. As per Section 54(8) of the CGST Act, the Refund shall be paid directly to the Applicant instead of being credited to the Consumer Welfare Fund in cases such as, export of goods or services, unutilised ITC, excess tax paid, or where the incidence of tax has not been passed on to any other person.

Further, Section 54(7) of the CGST Act provides that upon receiving a refund application, the proper officer shall issue the refund within sixty days from the date of receipt of the complete application.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED

FAQ :

The case concerned whether a GST refund should be credited to the Electronic Credit Ledger (ECrL) of a taxpayer whose business operations had ceased and GST registration was cancelled.

The High Court instructed the Assessing Officer to reconsider the refund order, directing that the refund should be credited to the taxpayer's bank account, not their ECrL, as the business was no longer operational.

If a business has ceased operations and its GST registration is cancelled, it cannot utilise the credit in its Electronic Credit Ledger, making it impractical to credit a refund there.

The ECrL is an electronic account where registered persons can keep track of their input tax credit (ITC) that can be used to offset their tax liabilities.

The Assessing Officer was ordered to reconsider the Impugned Order within six weeks, providing the taxpayer with an opportunity to be heard, and to ensure the refund is paid appropriately.