Facts

• The Applicant is a Public Limited Company and initiated the buyback of its shares following a Government Resolution (GR) from the Government of Gujarat, which directed all State Public Sector Undertakings (SPSUs) to undertake capital restructuring, to enhance market capitalization
• The Applicant contended that while buyback process does not directly result in an immediate outward supply, it is an essential step towards optimizing financial health and ultimately increase its ability to make taxable supplies. Further, since the buyback is in the course or furtherance of the business activity, expenses incurred towards the buyback process should be considered as an eligible expenditure for the purpose of ITC
• The Applicant filed an application before the Gujarat Authority of Advance Ruling (‘the GAAR’) under clause (d) of the Section 97(2) of the Central Goods and Service Tax Act (‘the CGST Act’) for admissibility of ITC on expenses related to the buyback including professional fees, advertising costs and other incidental expenses

Issues before the Authority

• Whether the expenditure incurred by the Applicant (a listed entity) for the buyback of its shares in the course of furtherance of business, is eligible for ITC under the GST regime?

Discussion and Ruling

• A conjoint reading of the definitions provided in Section 2(52), 2(101) and (102) of the CGST Act, the activity undertaken by the Applicant, i.e., buy back of shares is neither a supply of goods nor supply of services. Since the buyback of shares does not involve goods or services, it does not meet the primary condition required for availing ITC under Section 16(1)
• The term ‘securities’ is excluded from both goods and services. Since the primary requirement for availment of ITC is not met, there is no point discussing whether the same is in the course or furtherance of business activity or otherwise
• Accordingly, it was clarified that the Applicant is not eligible to avail the ITC pertaining to the expenditure incurred for buyback of its share and is also required to reverse the ITC on common inputs and input services used in relation to the expenditure incurred for the said activity.