Financial institution status under GST accepted for financing and lending activities, enabling the fifty per cent input tax credit option.

An entity carrying on financing and lending as part of its statutory business may qualify as a financial institution for GST input tax credit restriction purposes if it falls within the definition adopted from the RBI Act, 1934. The applicant's mandate included financing, advancing and lending money, and its activities involved term loans, short-term loans and working capital support on terms similar to financial institutions. On that basis, and noting its status as a public financial institution, the Authority held it to be a financial institution and eligible for the fifty per cent input tax credit option under the GST law.

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Issues: Whether an entity engaged in financing and lending activities and declared as a public financial institution can be treated as a financial institution for the purpose of availing fifty per cent input tax credit under section 17(4) of the Central Goods and Services Tax Act, 2017.

Analysis: The Authority noted that the applicant's statutory mandate under the National Dairy Development Board Act, 1987 expressly included financing, advancing and lending money, and borrowing money. It further noted that the applicant was engaged in financing activities such as term loans, short-term loans and working capital assistance, on terms similar to those of financial institutions. The expression "financial institution" was read with section 13(8)(c) of the Integrated Goods and Services Tax Act, 2017, which adopts the meaning in section 45-I(c) of the Reserve Bank of India Act, 1934. On that definition, an institution carrying on financing by way of loans or advances for its business falls within the scope of a financial institution. The Authority also took note of the notification declaring the applicant as a public financial institution.

Conclusion: The applicant was held to be a financial institution for the purpose of section 17(4) of the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017, and therefore eligible for the fifty per cent input tax credit option.

Ratio Decidendi: For GST input tax credit restriction purposes, an entity that carries on financing or lending as part of its business and satisfies the statutory definition adopted from the Reserve Bank of India Act, 1934 is a financial institution.

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