2025 (4) TMI 229 - AAR - GST

Listed entity cannot claim ITC on share buyback expenditure as securities excluded from goods and services definitions under sections 16 and 17

AAR Gujarat ruled that a listed entity cannot claim ITC on expenditure incurred for buyback of its shares. The authority held that under sections 16 and ... Eligibility for Input Tax Credit (ITC) - expenditure incurred by the applicant, a listed entity, for the buyback of its shares in the course of furtherance of business - HELD THAT:- In terms of sections 16 & 17 of the CGST Act, 2017, every registered person is entitled to take ITC on any supply of goods or services or both used or intended to be used in the course or furtherance of business subject to the prescribed conditions and restrictions. Where the goods or services or both are used by the said registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax, as is attributable to the purposes of his business. The availment is subject to the ITC blocked u/s 17, ibid. The applicant has erred in assuming that they are eligible for ITC. This is more so since section 16 (1) of CGST Act 2017, states that every registered person shall be entitled to take credit of ITC charged on any supply of goods or services or both used or intended to be used in the course or furtherance of business. Now a conjoint reading of the definitions as provided in section 2 (52), 2 (101) and (102), ibid, states that the activity undertaken, ie. buy back of shares by the applicant is neither a supply of goods nor supply of services. Therefore, in terms of section 16 (1), we find that the applicant is not eligible for availing ITC on the expenditure incurred for the buyback of its shares, it neither being goods nor services, a primary condition for availment of ITC. The applicant is therefore out of the ambit of section 16, ibid and is therefore not eligible to avail ITC on the expenditure incurred for buyback of its shares. The thrust of the applicant’s argument is that the expenses incurred towards the buyback of shares is in the course or furtherance of the business activity & therefore, should be considered as eligible expenditure for the purpose of ITC. This averment needs to be examined only if the expenditure incurred is towards goods or services. The term ‘securities’ is excluded from both goods and services. The primary requirement for availment of ITC, not having been met, it is not intended to go into the averment as to whether the same is in the course or furtherance of business activity or otherwise, since it would only be an academic exercise. Conclusion - The applicant is not eligible to avail the ITC involved in the expenditure incurred for buyback of its share and also required to reverse the ITC on common inputs and input services used in relation to the expenditure incurred for buyback of share. ISSUES PRESENTED AND CONSIDEREDThe primary issue considered in this judgment is whether the applicant, a listed company, is eligible to claim Input Tax Credit (ITC) on the expenditure incurred for the buyback of its shares under the Goods and Services Tax (GST) regime. The question revolves around whether such expenditure can be considered as being in the course or furtherance of business, thereby qualifying for ITC under the relevant provisions of the Central Goods and Services Tax Act, 2017 (CGST Act).ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe relevant legal framework includes sections 16 and 17 of the CGST Act, 2017. Section 16 provides that every registered person is entitled to take credit of input tax charged on any supply of goods or services used in the course or furtherance of business. Section 17 outlines the apportionment of credit and blocked credits, stating that credit is restricted to the extent it is attributable to business purposes. The definitions of 'goods,' 'services,' and 'securities' under sections 2(52), 2(101), and 2(102) of the CGST Act are also pertinent, as they determine the eligibility of activities for ITC.Court's Interpretation and ReasoningThe Court examined whether the buyback of shares constitutes a supply of goods or services. It concluded that the buyback does not fall under the definition of goods or services, as securities are explicitly excluded from both categories. Consequently, the buyback of shares does not meet the primary condition for claiming ITC under section 16(1) of the CGST Act, which requires that the expenditure be related to goods or services.Key Evidence and FindingsThe applicant argued that the buyback of shares is a business activity undertaken in the course or furtherance of business, aiming to improve financial standing and shareholder value. However, the Court found that this argument is irrelevant because the buyback does not involve the supply of goods or services, which is a prerequisite for ITC eligibility.Application of Law to FactsThe Court applied the definitions of goods, services, and securities to the facts of the case and determined that the buyback of shares is neither a supply of goods nor services. Therefore, the expenditure incurred does not qualify for ITC under section 16(1) of the CGST Act. The applicant's reliance on the notion of furtherance of business was deemed unnecessary to explore further, as the primary condition of involving goods or services was not met.Treatment of Competing ArgumentsThe applicant's argument that the buyback is in the course of business and should qualify for ITC was dismissed as it did not satisfy the fundamental requirement of involving goods or services. The Court did not delve into whether the buyback was in furtherance of business, as it would be merely academic given the lack of qualification under section 16(1).ConclusionsThe Court concluded that the applicant is not eligible for ITC on the expenditure incurred for the buyback of shares, as the activity does not involve goods or services. The applicant must also reverse any ITC on common inputs and input services related to the buyback.SIGNIFICANT HOLDINGSThe Court held that the applicant is not entitled to avail ITC on the expenditure incurred for the buyback of shares, as it does not involve the supply of goods or services, a primary condition under section 16(1) of the CGST Act. The ruling emphasized that securities are excluded from the definitions of goods and services, thereby disqualifying the buyback from ITC eligibility.Core Principles EstablishedThe judgment reinforces the principle that ITC can only be claimed on expenditures involving the supply of goods or services. Activities related to securities, such as share buybacks, do not meet this criterion and are thus ineligible for ITC.Final Determinations on Each IssueThe final determination is that the applicant is not eligible for ITC on the buyback of shares and must reverse ITC on related common inputs and input services. The ruling clarifies that the buyback of shares, being a transaction in securities, falls outside the ambit of goods and services under the CGST Act.