TaxTMI 
TaxTMI 
2025 (10) TMI 242
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....t, 2017 and the GGST Act, 2017 by M/s. Zydus Lifesciences Ltd., (for short - 'appellant') against the Advance Ruling No. GUJ/GAAR/R/2025/09, dated 25.3.2025. 3. Briefly, the appellant, who is engaged in the manufacture, supply and distribution of pharmaceutical products, utilizes the excess funds/cash lying idle by subscribing to various mutual funds schemes. Subsequently, they redeem it when there is a requirement of liquidity. 4. The appellant receives ITC in respect of inputs/input services, which are used for taxable supplies as well as towards activity of investment and redemption of mutual fund units and the present practice is that they are reversing the proportionate ITC in terms of section 17(2) of the CGST Act, 2017 read with rule 42(2) of the CGST Rules, 2017, treating the activity of investment and redemption of mutual fund units as an exempt supply. The appellant, however, felt that they were not required to reverse the proportionate ITC and, on this premise, approached the GAAR [Gujarat Authority for Advance Ruling] seeking a ruling on the below mentioned questions viz "Whether the applicant is eligible to avail ITC of tax paid on common inputs & input ....
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....ts & input services are used for effecting exempt supplies & redemption of mutual fund units does not fall within the scope of exempt supplies & hence section 17(2) is not applicable; c) that though the term 'securities' is excluded from the definition of goods [section 2(52)] and services [section 2(102)], the expression services includes facilitating & arranging transactions in securities; d) that since mutual fund units are neither goods nor services, they are even outside the ambit of exempt supply and non-taxable supply; that therefore there is no requirement to reverse ITC of tax paid on common inputs & input services; e) that redemption of mutual funds is distinct from sale of security; f) that none of the existing rules outline a specific mechanism for determining the value of 'redemption of mutual funds' & subsequently incorporating it into the value of exempt supply; g) that the mechanism for ITC as prescribed would be incapable since there is no sale value in the redemption of mutual fund; h) that where the computation provision with respect to value of exempt supply is unavailable, the provisions pertaining to revers....
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....[2004 (137 (STC) 388 SC; c) B.C. Srinivasa Setty - [1981 (2) TMI-1, SC] d) Pyare Lal Malhotra- [AIR 1976 SC 800] e) Louis Dreyfus India P Ltd - [Punjab AAR, 2020] f) Kaveri Exports - [Telangana AAR, 2019] g) Edelweiss Financial Services Ltd - [Maharashtra AAR, 2019] h) Citi Bank NA - [Delhi High Court, 2020] FINDINGS 10. We have carefully gone through and considered the appeal papers, written submissions filed by the appellant and the department, submissions made at the time of personal hearing, the Advance Ruling given by the GAAR and other materials available on record. 11. The facts having been mentioned supra, we do not wish to repeat it. The primary issue before the authority as far as the present appeal is concerned is whether the ruling of the GAAR holding that the appellant can avail ITC on common inputs and input services used in relation to the subscription and redemption of mutual funds subject to the condition mentioned in Section 17(2) of the CGST Act, 2017 and that the value of exempt supply in terms of section 17(3), ibid, shall include the value of transactions in securities, is correct or otherwise. ....
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....t the averment that there is no requirement to reverse ITC of tax paid on common inputs & input services in relation to transactions in subscription/investment and redemption of mutual funds is not legally tenable owing to the deeming fiction which forms a part of section 17(3), ibid, via an inclusion clause. 17. The next averment of the appellant is that redemption of mutual funds is distinct from sale of security; that none of the existing rules outline a specific mechanism for determining the value of 'redemption of mutual funds' & subsequently incorporating it into the value of exempt supply; that the mechanism for ITC reversal as prescribed is not capable since there is no sale value of mutual fund; that where the computation provision with respect to value of exempt supply is unavailable, the provisions pertaining to reversal of ITC will become ineffective in case of redemption of mutual funds. 18. We find that the GAAR has dealt with this very averment in detail in paragraphs 20 to 22 in their impugned ruling, as under: 20. The term redemption is not defined. The applicant has also not provided anything in this regard except for some dictionary meaning. The resort l....
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....ur redemption application to the fund house or its transfer agency before 3 pm on market trading days. the same day's NAV will be used to calculate the redemption amount. Requests made after 3 pm will receive the next day's NAV for the calculation. Disclaimer: Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319 Source : https://www.bajajfinserv.in/investments/mutual-fund-redemption#:~:text=Mutual%20fund%20redemption%20refers%20to%20the%20process%20where%20an %20investor,returns%20or%20principal%20amount% 20invested. • Association of Mutual Funds in India • Association of Mutual Funds in India (AMFI) is a non-profit industry body of the asset management companies (AMCs) of all Mutual Funds in India that are registered with Securities and Exchange Board of India (SEBI). • AMFI was incorporated on August 22, 1995 under section 25 of the Companies Act. 1956 (corresponding Section 8 of the new Companies Act, 2013), as a non-profit organisation. NET ASSET VALUE (NAV) WH....
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.... substantiated by the order, dated 23.9.2021 of the Hon'ble Karnataka High Court in the case of M/s Robo Silicon Pvt. Ltd [STRP No. 24/2019] wherein it was held as under: 14. 'The common parlance test', 'marketability test', popular meaning test' are all tools for interpretation to arrive at a decision on proper classification of a tariff entry. The test, as to what a common man viewing or dealing with the article will understand it to be, would be relevant. The Hon'ble Apex Court has held that while interpreting the entry for purpose of taxation recourse should not be made to the scientific meaning of the terms or expressions used but to their popular meaning, that is to say, the meaning attached to them by those dealing in them. 22. The averment therefore that redemption of mutual fund and sale of security, term used in the explanation for computing the value of exempted supply is not same, fails. We hold that redemption as is mentioned in the websites quoted and also in general parlance is nothing but sale of units to the AMC. It does not matter by which nomenclature such a transaction is known until broadly it is a sale in other words cessation of ownership of....
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....e. when two or more words which are susceptible of analogous meaning are clubbed together, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general is restricted to a sense analogous to a less general. The philosophy behind it is that the meaning of the doubtful words may be ascertained by reference to the meaning of words associated with it. This doctrine is broader than the doctrine of ejusdem generis. This doctrine was accepted by this Court in catena of cases but its application is to be made to the context and the setting in which the words came to be used or associated in the statute or the statutory rule. We find that the Legislature's intent is clearly manifested in the statute in Section 17(3) which proposes inclusion of the value of transactions in securities [in this case mutual funds] for computing exempt supply u/s 17(2), ibid. Now, accepting the argument of the appellant - (that since 'redemption' of mutual fund is not akin to 'sale' there is no mechanism for reversal of common inputs and input service in case of redemption), would lead to a situation wherein the delegated legislatio....
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.... the averment that mutual funds not being goods or services are neither exempt supply nor non-taxable supply. The findings above are not in contrast with the averment raised & hence not being discussed. 2 Bhayana Builders (P) Ltd. [2018 (2) TMI 1325 SC] 3 Gypsy Pegasus Ltd. [2018 (15) GSTL 305 (SC] 4 M/s. Siegwerk India Pvt. Ltd. [2025 (3) TMI 1066 CESTAT New Delhi] 5 B.C. Srinivasa Setty [1981 (2) TMI-1, SC] The appellant has relied upon these case laws to substantiate their argument that when there is no machinery provision for determining the value of exempt supply, the question of reversal does not arise. Factually, in the present dispute, the statute provides for inclusion of the value of transactions in securities for arriving at the value of exempt supply. The delegated legislation, ie the CGST Rules Chapter V does provide the machinery provision. The appellant's only argument is that redemption is not akin to sale. The same has been dealt with above. Further, accepting the averment, would leave the primary statute seeking reversal for transaction in securities, otiose, which cannot be permitted. 6 Shabhia Abraham [2015 (322) ELT 372 (S....