In re Zydus Lifesciences Ltd (GST AAAR Gujarat)
The Appellate Authority for Advance Ruling (AAAR), Gujarat, recently delivered its decision in In re Zydus Lifesciences Ltd., upholding the ruling of the Gujarat Authority for Advance Ruling (GAAR) on the issue of input tax credit (ITC) availability in respect of common inputs and input services used for subscription and redemption of mutual fund units.
Zydus Lifesciences Ltd., a pharmaceutical manufacturer, utilized surplus funds for investment in mutual fund schemes. The company redeemed such investments whenever liquidity was required. While it received ITC on inputs and input services used for taxable supplies, it was reversing ITC proportionately on the ground that mutual fund investments constituted exempt supplies. However, Zydus later argued that such reversal was not required since securities were excluded from the definitions of “goods” and “services” under the Central Goods and Services Tax Act, 2017 (CGST Act). The company approached GAAR to clarify whether ITC reversal was necessary for common inputs and input services linked to mutual fund transactions.
GAAR, in its ruling (GUJ/GAAR/R/2025/09 dated March 25, 2025), held that while ITC could be availed on such common inputs and input services, section 17(2) of the CGST Act mandated proportionate reversal where exempt supplies were involved. Further, section 17(3) explicitly included “transactions in securities” within the value of exempt supplies. GAAR treated redemption of mutual fund units as equivalent to “sale” of securities, thereby requiring reversal of ITC.
