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2025 (4) TMI 227 - AAR - GSTEligibility to avail ITC of tax paid on common inputs input services used in relation to the subscription and redemption of mutual funds - HELD THAT - The averment that redemption of mutual fund and sale of security a term used in the explanation for computing the value of exempted supply is not same fails. The 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 the units by the unit fund holder in this case the applicant. Since this was the primary contention on which the applicant was basing his next averment that redemption not being akin to sale the taxing statute lacks machinery provision to arrive at the value of exempt supply also lacks merit and fails. The plethora of case laws relied upon by the applicant to substantiate this averment would also not help the applicant case in view of the foregoing. The case laws relied upon by the applicant therefore is not being discussed. Conclusion - The applicant is not eligible to avail ITC of tax paid on inputs input services used in relation to the subscription and redemption of mutual funds and also required to reverse the ITC on common inputs and input services used in relation to the subscription and redemption of mutual funds as per Section 17 (2).
1. ISSUES PRESENTED and CONSIDERED
The core legal question considered in this judgment is whether the applicant, engaged in the subscription and redemption of mutual funds, is eligible to avail Input Tax Credit (ITC) on tax paid for common inputs and input services used in these activities under the Central Goods and Services Tax Act, 2017 (CGST Act). The specific issue revolves around the interpretation of exempt supplies and the applicability of ITC reversal under Section 17(2) of the CGST Act. 2. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The relevant legal provisions include Sections 16 and 17 of the CGST Act, 2017, which govern the eligibility and conditions for availing ITC, and the apportionment of credit and blocked credits, respectively. Section 17(2) specifically addresses the reversal of ITC for inputs and services used for both taxable and exempt supplies. Additionally, Section 17(3) includes transactions in securities in the value of exempt supplies. The definitions of "goods" and "services" under Section 2(52) and 2(102) exclude money and securities, which is central to the applicant's argument. Court's Interpretation and Reasoning The Court interpreted the provisions of the CGST Act, particularly focusing on the definitions of "goods" and "services," which explicitly exclude securities. The Court examined whether the redemption of mutual fund units constitutes an exempt supply under the Act. It concluded that since securities are neither goods nor services, transactions involving securities, including mutual fund redemptions, do not qualify as exempt supplies. Key Evidence and Findings The applicant argued that mutual fund redemptions should not be considered exempt supplies as they involve transactions in securities, which are outside the scope of goods and services. The applicant also contended that there is no machinery provision to determine the value of exempt supply in the case of mutual fund redemptions, thereby challenging the applicability of ITC reversal. Application of Law to Facts The Court applied the definitions and provisions of the CGST Act to the applicant's activities. It found that the applicant's subscription and redemption of mutual funds, being transactions in securities, are not supplies of goods or services and thus do not fall under the definition of exempt supplies. Consequently, the applicant's activities do not entitle them to avail ITC on common inputs and services used for these transactions. Treatment of Competing Arguments The Court considered the applicant's reliance on various case laws to support their argument that mutual fund redemptions should not be treated as exempt supplies. However, it rejected these arguments, emphasizing that the redemption of mutual funds is akin to the sale of securities, which is included in the value of exempt supplies under Section 17(3) of the CGST Act. Conclusions The Court concluded that the applicant is not eligible to avail ITC on common inputs and input services used in relation to the subscription and redemption of mutual funds. It also held that the applicant is required to reverse the ITC on these inputs and services as per Section 17(2) of the CGST Act. 3. SIGNIFICANT HOLDINGS The Court held that the applicant's activities involving mutual fund subscriptions and redemptions are transactions in securities and do not constitute exempt supplies of goods or services. Therefore, the applicant is not entitled to avail ITC on common inputs and services used in these activities. The Court emphasized the importance of adhering to the statutory definitions and provisions in determining the eligibility for ITC. Core Principles Established The judgment reinforces the principle that transactions in securities, including mutual fund redemptions, are not supplies of goods or services under the CGST Act. It highlights the necessity of reversing ITC for common inputs and services used in activities that involve exempt supplies, as prescribed by the Act. Final Determinations on Each Issue The final determination is that the applicant is not eligible to avail ITC on tax paid for common inputs and input services related to the subscription and redemption of mutual funds. The applicant must reverse the ITC on these inputs and services in accordance with Section 17(2) of the CGST Act.
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