The Authority for Advance Ruling, Gujarat in the case of M/s. Gujarat Narmada Valley Fertilizers & Chemicals Limited vide Order No. GUJ/GAAR/R/2025/11 (In Application No. Advance Ruling/SGST&CGST/2024/AR/22) dated 25.03.2025, has ruled that ITC is not admissible on the expenditure incurred for buyback of shares. The applicant must reverse ITC on common inputs/input services used in connection with buyback expenses.
Facts of the Case: In this case, the Applicant is engaged in manufacturing fertilizers and chemicals and is a public limited company listed on the stock exchange. The company initiated a share buyback program as part of a capital restructuring exercise under a Government of Gujarat resolution. The applicant seeks clarification on whether expenses incurred in relation to the buyback of shares qualify for Input Tax Credit (ITC) under GST law.
The Applicant submitted that Buyback of shares is in the Course or Furtherance of Business as buyback program serves business purposes, such as Strengthening financial standing, Enhancing shareholder value, Reducing capital costs, Improving market perception. Also, under Section 16(1) of CGST Act, 2017, ITC is allowed on goods/services used in the “course or furtherance of business.” Further, the applicant argues that the buyback aligns with the definition of “business” under Section 2(17) of CGST Act, which includes incidental or ancillary activities to the primary business operations. The various expenses, such as Professional fees, legal fees, advisory fees, advertisement costs, and other charges related to the buyback are directly linked to the company’s business objectives. Since these expenses are used for financial structuring, they should qualify as input services under Section 2(60) of CGST Act.
The Applicant further presented their interpretation of Section 17(3) of the CGST Act, 2017 and submitted that buyback is not a sale or purchase transaction, as shares repurchased are canceled.
The Applicant referred the judgment in case of Coca-Cola India (P.) Ltd. (2009) [22] STT 130 (BOM)], arguing that expenses incurred for business enhancement should be eligible for ITC.
Issue: Whether the expenditure incurred for the buyback of shares qualifies for Input Tax Credit (ITC) under the GST regime
AAR Ruling: The AAR stated that in accordance with section 2(52) and Section 2(102) i.e. definition of ‘goods’ and ‘services’ respectively, securities are neither goods nor services. Since GST applies only to goods and services, transactions involving securities are outside the purview of GST. Buyback of shares is a transaction in securities and is not subject to GST, making ITC inapplicable.
Further, the AAR in accordance with the the provisions of Section 17(3), states that transactions in securities are exempt supplies. Rule 42 and 43 require reversal of ITC for input services used for both taxable and exempt supplies. Since buyback expenses are directly related to securities, they fall under the exempt category and ITC is not permissible.
In respect to the contention of applicant that buyback should be treated the same as issuance of fresh shares was rejected. The AAR stated that even if issuance of shares is considered a business activity, securities transactions remain outside GST, and ITC is not available for either issuance or buyback.
The AAR ruled that transactions in securities, including share buybacks, fall outside the GST framework. Since securities are neither goods nor services, ITC on expenses related to buyback is not available. Moreover, businesses engaging in share buybacks must proportionately reverse ITC on common input services.
