GST-ITC on expenses in connection with Initial Public Offer (IPO)

[VENKATASUBRAMANIAN VENKATACHALAM]

Is Input Tax Credit under GST on expenses in connection with IPO allowed? Department has been issuing notices denying ITC calling it as exp in connection with trading on shares.

Do we have any case law either under GST or previous regim?

[KASTURI SETHI]

Dear Querist,

Can you post relevant portion (major) of the Notice issued here ? It is necessary for correct reply.

[Amit Agrawal]

Raising of capital (through IPO) is part of any business, in terms of clause (b) of Section 2(17). And expenses incurred in connection with IPO are in the course or furtherance of the business and thereby, tax-payer can take ITC there-against u/s 16(1) IMHO.

Issuance of own shares a Co. through IPO cannot be called as 'trading in securities'.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Dear Querist,

You have not replied to my request. I want relevant portion of SCN.

[Amit Agrawal]

In continuation of my last post, attention is invited to relevant portion of Section 17(3) which reads as follows:

"The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building ..............."

Relevant portion of 'Explanation' given under Rule 45 of the CGST Rules, 2017 reads as follows:

"Explanation.- For the purposes of this Chapter,-

(1) ......................

(2) for determining the value of an exempt supply as referred to in sub-section (3) of section 17-

(a) .......................

(b) the value of security shall be taken as one per cent. of the sale value of such security."

IMHO, issuance of own shares by a Co. while raising capital through IPO cannot be called as 'selling securities'.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Shilpi Jain]

Credit should be eligible. It is an expense incurred to raise capital

AI Summary

Input Tax Credit on IPO expenses may be available where share issuance is a business activity, not trading in securities.
Whether ITC under GST is claimable for IPO-related expenses is disputed where authorities characterise such expenses as trading in securities. Contributors assert that raising capital via issuance of a company's own shares is part of the course of business and is not trading in securities, so expenses to raise capital should qualify for ITC; they note the separate exempt-supply treatment and prescribed valuation approach for securities that must be considered when assessing entitlement.