Case Law Details
In re RHI Magnesita India Limited (GST AAAR Haryana)
The appeal arose from an Advance Ruling issued by the Haryana Authority for Advance Ruling (AAR), which had held that input tax credit (ITC) was not available on services procured in connection with a Qualified Institutional Placement (QIP). The appellant challenged this finding before the Haryana Appellate Authority for Advance Ruling (AAAR).
The appellant, a registered taxpayer engaged in the manufacturing and marketing of specialty refractory products, had undertaken a Qualified Institutional Placement (QIP) in accordance with the applicable securities regulations. The QIP mechanism enabled listed companies to issue equity shares or other eligible instruments to qualified institutional buyers.
For executing the QIP, the appellant appointed HSBC Securities and Capital Markets (India) Private Limited as the Book Running Lead Manager. Under the agreement, HSBC was responsible for various services connected with the QIP process. These included providing advisory guidance on the timing, structure, and strategy of the offering; assisting in the preparation of offer documents and related materials; identifying and procuring investors; coordinating with legal and other professional advisors; organizing meetings with institutional investors; supporting applications before stock exchanges and regulatory authorities; preparing reports and information for submission to authorities; and handling placement and post-placement activities.
Apart from HSBC’s services, the appellant also procured ancillary services such as legal and consultancy services from different vendors and paid applicable GST on these services. Input tax credit was availed on the GST paid on these invoices.
The appellant sought an advance ruling on whether it was entitled to avail ITC on services received for undertaking the QIP. The AAR held that ITC was not admissible on the ground that the activity of raising funds through QIP was not undertaken in the course or furtherance of business.
Aggrieved by this conclusion, the appellant filed an appeal. It argued that the impugned order lacked adequate reasoning and failed to consider its submissions and the statutory definition of “business.” The appellant contended that the definition of business under the CGST Act is inclusive and extends to activities incidental or ancillary to the principal business. It maintained that raising capital through a QIP was integrally connected with its business objectives and constituted an activity undertaken in the course or furtherance of business.
During the appellate proceedings, the appellant submitted additional information explaining the utilization of the QIP proceeds. It stated that the proceeds were intended for two purposes: repayment or pre-payment of certain borrowings and investment in its wholly owned subsidiary, Dalmia OCL Limited (DOCL), through a share swap arrangement. It was further submitted that both the appellant and DOCL operated in the refractory business and that the investment was intended to achieve strategic objectives such as operational synergies, market expansion, optimization of manufacturing operations, expansion of product portfolio, enhancement of local manufacturing capabilities, productivity improvements, and addition of manufacturing capacity.
The AAAR examined the provisions relating to eligibility for input tax credit under Section 16 of the CGST Act, which permit credit on goods or services used or intended to be used in the course or furtherance of business, subject to prescribed conditions.
The Authority observed that the QIP proceeds had been deployed for two distinct purposes and that each component had to be examined separately with reference to its nexus with the appellant’s business.
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