GST input tax credit on share buyback expenses denied, and common credits linked to securities transactions must be reversed.

Expenditure incurred for share buyback was held not eligible for input tax credit under GST because shares are securities, securities transactions are neither goods nor services, and section 17 treats transactions in securities as part of exempt supply. The authority therefore rejected the argument that a general business nexus under section 16 overrides the statutory restriction. It also held that input tax credit attributable to common inputs and input services used for buyback-related expenditure must be apportioned and reversed under the GST mechanism, since the deeming inclusion of securities transactions in exempt supply applies to those common credits. The denial of credit and reversal requirement were both upheld.

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Issues: (i) Whether expenditure incurred for buyback of shares is eligible for input tax credit under the GST regime. (ii) Whether input tax credit attributable to common inputs and input services used in relation to share buyback is liable to be reversed.

Issue (i): Whether expenditure incurred for buyback of shares is eligible for input tax credit under the GST regime.

Analysis: Shares are securities and therefore neither goods nor services. A buyback transaction in shares is thus not a supply under GST. Though section 16(1) of the Central Goods and Services Tax Act, 2017 allows credit on goods or services used in the course or furtherance of business, that entitlement remains subject to the restrictions under section 17. The inclusion of transactions in securities within the value of exempt supply and the statutory scheme of section 17 show that costs connected with securities transactions are outside the intended ambit of input tax credit. The fact that the expenditure may support business objectives does not override the specific exclusion arising from the nature of the transaction.

Conclusion: The expenditure incurred for buyback of shares is not eligible for input tax credit, against the appellant and in favour of Revenue.

Issue (ii): Whether input tax credit attributable to common inputs and input services used in relation to share buyback is liable to be reversed.

Analysis: Section 17(3) of the Central Goods and Services Tax Act, 2017 expressly includes transactions in securities within the value of exempt supply. The Rules also prescribe valuation of securities for this purpose. In consequence, credit attributable to common inputs and input services used for buyback-related expenditure cannot be retained and must be apportioned and reversed in accordance with the statutory mechanism. The appellant's contention that no reversal is required is inconsistent with the deeming inclusion under section 17(3).

Conclusion: Input tax credit attributable to common inputs and input services used in relation to share buyback is liable to be reversed, against the appellant and in favour of Revenue.

Final Conclusion: The appellate authority upheld the denial of input tax credit on share buyback-related expenditure and affirmed the reversal requirement for common credits connected with that transaction.

Ratio Decidendi: Where a transaction in securities is statutorily treated as part of exempt supply, input tax credit on expenses directly connected with that transaction is not available and common credit attributable to such expenses must be reversed, regardless of any broader business purpose.

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