INPUT TAX CREDIT UPON BUSINESS CLOSURE: ANALYSIS OF LEGAL MAXIMS AND PROVISIONS UNDER THE CGST ACT, 2017

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.1 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.2
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,3 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 India4 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.