In re Zydus Lifesciences Ltd. (GST AAR Gujarat)
The Gujarat Authority for Advance Ruling (AAR) addressed Zydus Lifesciences’ query regarding the eligibility of Input Tax Credit (ITC) on common inputs and input services used for subscribing to and redeeming mutual fund units. Zydus Lifesciences, a pharmaceutical company, argued that mutual fund redemptions should not be considered exempt supplies under GST, as securities are excluded from the definition of goods and services. The company contended that they should therefore be able to claim the ITC on common inputs. However, the AAR ruled against this argument, stating that the redemption of mutual fund units is essentially a sale of securities back to the Asset Management Company (AMC). Consequently, the value of these transactions must be included in the calculation of exempt supplies under Section 17(3) of the CGST Act, 2017.
The AAR further clarified that, in accordance with Section 16 of the CGST Act, ITC can only be claimed for goods and services used in the course or furtherance of business. Since the subscription and redemption of mutual funds are not considered supplies of goods or services under GST, Zydus Lifesciences is not eligible to claim ITC on related inputs and input services. The AAR also rejected the company’s argument that the lack of a specific mechanism to determine the value of exempt supplies in mutual fund redemptions renders the ITC reversal scheme unenforceable. The ruling emphasized that the term “redemption” in the context of mutual funds is generally understood as the sale of units back to the AMC. Therefore, the AAR concluded that Zydus Lifesciences must reverse the ITC on common inputs and input services used in relation to mutual fund transactions, as per Section 17(2) of the CGST Act.
