The applicant had argued that since the buyback is in the course or furtherance of the business activity, the ITC on expenses incurred towards the buyback process should be considered as an eligible expenditure for the purpose of ITC

Securities are neither goods nor services, so no input tax credit (ITC) is permissible on expenditure for buyback of shares, Gujarat’s Authority for Advance Ruling (AAR) said in the matter of Gujarat Narmada Valley Fertilizers & Chemicals Limited.

“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,” a two members bench of AAR said in a recent ruling. The applicant had argued that since the buyback is in the course or furtherance of the business activity, the ITC on expenses incurred towards the buyback process should be considered as an eligible expenditure for the purpose of ITC.

Also, since buyback of the shares qualifies to be business expenditure, the company believed they are entitled to claim ITC on GST paid on expenses related to buyback of shares. It further stated that buyback of shares improves company’s financial standing, creates value for shareholders, contributes prestige and promotes the company’s image, reduces equity capital, leads to improved shareholders return; that it is a simple way to pay off investors and reduce the overall cost of capital. Thus, “buyback extends beyond just acquiring shares,” the company said.

After going through all the arguments and facts presented, the bench reproduced section 16(1) of CGST Act 2017 which 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, based on readings of various other sections, it is clear that the activity undertaken, i.e. 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,” it said. Further, 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 and 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, we do not intend 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,” the bench concluded and disposed the application.

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Published on April 11, 2025