The Gujarat Appellate Authority for Advance Ruling (AAAR) held that shares are securities under Section 2(h)(i) of the Securities Contracts (Regulation) Act, 1956, which do not classify as goods or services under the CGST Act, resultantly excluding transactions in securities from GST levy. The AAAR held so after noting that Section 16(1) of the CGST Act allows ITC only on goods or services used in the course or furtherance of business, which excludes securities transactions.
The AAAR clarified that, while the buyback is a corporate activity in the course of business, the expenditure incurred thereon relates to a transaction outside GST. Accordingly, the Input Tax Credit (ITC) on expenses like professional fees, legal expenses, consultancy charges relating to buyback of shares, although made in the course of furtherance of business, should not be allowed.
The Division Bench comprising Sunil Kumar Mall (Member, CGST) and Rajeev Topno (Member, SGST) therefore, essentially laid that no Input Tax Credit (ITC) is admissible on expenses incurred for the buyback of shares, as shares being ‘securities’ do not qualify as goods or services under the GST law, and hence the transaction falls outside the ambit of GST.
The Bench further noted that Section 17(2) disallows ITC on goods and services used for exempt supplies, and transactions in securities are declared exempt under Section 17(3) of the Act. Accordingly, the Bench upheld the requirement to reverse ITC attributable to common inputs and input services used in relation to buyback expenses, and affirmed AAR’s ruling disallowing ITC on buyback expenses.
Briefly, in this case, the Appellant, a State Public Sector Undertaking, engaged in fertilizers and chemicals, undertook a share buyback program as part of its business restructuring. When the Revenue Authorities contested the eligibility of the ITC claimed by the Petitioner on expenses related to the share buyback, the Appellant argued that expenses incurred on the share buyback, including professional, legal, and consultancy fees, contributed to the furtherance of its business and thus qualified for ITC under Section 16 of the CGST Act. The Authority for Advance Ruling (AAR), however, disallowed the ITC on buyback expenses.
Appearances:
CAs Rutvij Modi and Jenee Bhavsar, for the Applicant/ Taxpayer
