Gujarat Appellate Authority for Advance Ruling (GST): In an appeal filed by Gujarat Narmada Valley Fertilizers & Chemicals Ltd. (GNFC) against the ruling of the Gujarat Authority for Advance Ruling (GAAR) denying input tax credit (ITC) on expenses incurred for buyback of shares, the Two-Member Bench of Rajeev Topno, Member (SGST)* and Sunil Kumar Mall, Member (CGST)* rejected the appeal, holding that since buyback of shares constitutes a transaction in securities, which is neither a supply of goods nor of services under the Central Goods and Services Tax Act, 2017 (CGST Act), no ITC can be availed on such expenditure and reversal of common input credit is mandatory under Section 17(3) of the CGST Act.
Background
GNFC, a Public Limited Company and State Public Sector Undertaking engaged in the manufacture of fertilizers and chemicals, initiated a share buyback programme in December 2023 pursuant to a Government of Gujarat Resolution dated 24-04-2023. During the course of the buyback, the company incurred various expenses and claimed that it was entitled to avail ITC on such expenditure, contending that the buyback activity was undertaken in the course or furtherance of business, being integral to its financial stability and long-term business objectives. The company contended that such indirect expenses, though not directly resulting in taxable outward supplies, nonetheless qualify as business-related and hence eligible for ITC.
The GAAR, after admitting the application and granting a personal hearing, passed its advance ruling, holding that the applicant was not eligible to avail ITC on the expenditure incurred for buyback of shares and was also required to reverse ITC on common inputs and input services used for the said purpose. Aggrieved by this ruling, GNFC filed an appeal before the Gujarat Appellate Authority for Advance Ruling (Appellate Authority) under Section 100 of the CGST Act and Gujarat Goods and Services Tax Act, 2017 (GGST Act).
Hence, the present appeal.
Issues and Analysis
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Whether the expenditure incurred by the appellant, a listed entity, for the buyback of its own shares in the course or furtherance of business is eligible for ITC under the Goods and Service Tax (GST) regime?
The Appellate Authority observed that shares are “securities” as defined in Section 2(h)(i) of the Securities Contracts (Regulation) Act, 1956, and are therefore neither goods nor services under the CGST Act. Consequently, a transaction in securities does not amount to a supply under Section 7 of the CGST Act and falls outside the scope of GST.
Referring to Section 16(1) of CGST Act, the Appellate Authority noted that ITC is admissible only on goods or services or both that are used or intended to be used in the course or furtherance of business, subject to the restrictions laid down in the CGST Act. It emphasized that Section 17(2) of CGST Act restricts ITC to taxable supplies and disallows credit on goods or services used for effecting exempt supplies.
Since transactions in securities are not supplies under GST, any tax paid on goods or services used for such transactions is not eligible for ITC. Further, Section 17(3) of CGST Act includes transactions in securities in the value of exempt supplies, indicating a clear legislative intent to deny credit for expenses incurred in relation to such activities. The Appellate Authority also noted that the argument that all costs incurred in the furtherance of business are eligible for ITC is irrelevant when the activity itself is a non-taxable transaction.
Accordingly, the Appellate Authority held that the appellant was not entitled to ITC on expenditure incurred for buyback of shares.
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Whether ITC reversal is required on common inputs and input services used in relation to buyback of shares.
The Appellate Authority examined Section 17(3) of the CGST Act along with the Explanation at the end of Chapter V of the CGST Rules, which provides that for determining the value of exempt supply, the value of security shall be taken as one per cent of the sale value of such security.
On a conjoint reading of these provisions, the Appellate Authority held that the appellant’s claim that there was no requirement to reverse ITC on tax paid on common inputs and input services related to the buyback was not legally tenable, as the deeming fiction under Section 17(3) of CGST Act mandates inclusion of transactions in securities in the value of exempt supplies.
Accordingly, the Appellate Authority upheld the ruling of the GAAR and held that the appellant was not eligible to avail ITC involved in the expenditure incurred for buyback of shares and was required to reverse ITC on common inputs and input services used in relation thereto.
Accordingly, the Appellate Authority rejected the present appeal.
[Gujarat Narmada Valley Fertilizers & Chemicals Ltd. v. Commissioner, State Tax, Gujarat, Advance Ruling (Appeal) No. GUJ/GAAAR/APPEAL/2025/17, decided on 22-09-2025]
Advocates who appeared in this case:
For the appellant: CA Rutvij Modi and CA Jenee Bhavsar
For the department: