GST Input Tax Credit on Capital Raising Expenses: Haryana Ruling
The Appellate Authority ruled that GST credit on capital raising costs is only allowed for funds used to repay business debt.
- Ruling
- HAAAR/2023-24/05 Date: 22.05.2026
- Dated
- 22 May 2026
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The company asked if they could claim GST credit on QIP service fees.
- The authority split the credit based on how the raised funds were used.
- Credit is allowed for costs linked to repaying existing business loans.
- Credit is denied for costs linked to investing in a subsidiary company.
In short
The company asked the Appellate Authority for Advance Ruling if they could claim input tax credit on the GST paid for professional services used to raise capital through a Qualified Institutional Placement. The authority had to decide if these services were used in the course or furtherance of the company's business.
What has changed
How it worked before
Businesses often assumed that all professional fees incurred to raise capital were business expenses eligible for full input tax credit.
What has changed
The authority decided that input tax credit must be split. You can claim credit for the portion of fees used to pay off business debt, but you cannot claim credit for the portion used to fund investments in other companies, as that is not considered part of your core business operations.
Who this affects
Manufacturing or trading businesses that raise capital through share issues and use those funds for both debt repayment and inter-corporate investments.
An example
Imagine a textile company raises money to pay off a bank loan and to buy shares in a sister company. They pay a large fee to an investment bank for this service. Based on this ruling, they can claim GST credit on the portion of the fee related to the bank loan repayment, but they must reverse or avoid claiming credit on the portion related to the share purchase.
What you should do
Review your capital raising expenses to see if they can be linked to debt repayment. Remember that this ruling only applies to the company that asked; it is not a law that automatically applies to your business, and your local tax officer may take a different view.
If you do nothing
If you claim full credit and your tax officer disagrees, they may issue a demand notice for the unpaid tax plus interest and penalties. Assuming this ruling protects you is risky because tax officers are not legally bound by rulings issued to other companies. You could face a lengthy and expensive legal dispute to defend your position.
The terms explained
- Input tax credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its own sales.
- Qualified Institutional Placement
- A way for a listed company to raise capital by selling shares to qualified institutional buyers like banks or mutual funds.
- Course or furtherance of business
- A legal test used to determine if an expense is directly related to the core activities of your business.
The ruling in detail
Appellate Authority for Advance Ruling
M/s RHI Magnesita India Limited
HAAAR/2023-24/05 Date: 22.05.2026 · Haryana
Questions before the authority
- Whether the Applicant is entitled to avail credit on the services received for undertaking Qualified Institutional Placement (QIP) from HSBC Securities and Capital Markets (India) Pvt. Limited.
Facts
The appellant, a manufacturer of refractory products, raised capital through a Qualified Institutional Placement (QIP) process. They engaged HSBC Securities and Capital Markets (India) Pvt. Ltd. to manage the issuance and incurred various professional service costs. The funds raised were utilized for two purposes: repayment or pre-payment of existing borrowings and investment in the equity shares of their wholly-owned subsidiary, Dalmia OCL Limited (DOCL).
Ruling
| Question | What the authority ruled |
|---|---|
| ITC on services for QIP | Admissible in part Admissible for funds used for debt repayment; inadmissible for funds used for investment in a subsidiary. |
The Appellate Authority held that the input tax credit (ITC) is admissible only to the extent that the services are attributable to the portion of funds utilized for the repayment or pre-payment of borrowings. Conversely, the authority ruled that ITC is not admissible for the portion of services attributable to the investment in the subsidiary, as that activity is not in the course or furtherance of the appellant's business.
Reasoning
The authority relied on Section 16(1) of the CGST Act, which restricts ITC to goods or services used in the course or furtherance of business. It reasoned that debt repayment improves the financial health of the appellant and is thus incidental to its business operations. However, it concluded that investment in a subsidiary is a distinct activity that does not have a direct nexus with the appellant's own taxable business, thereby failing the **course or furtherance of business** test for that specific portion.
Provisions relied on
- Section 16(1) of the CGST Act, 2017
- Section 2(17) of the CGST Act, 2017
- Section 97 of the CGST Act, 2017
- Section 100 of the CGST Act, 2017
For the practitioner
This ruling provides a **bifurcated approach** to ITC eligibility for capital raising expenses. It helps practitioners argue for ITC on professional fees when funds are used for debt management, but warns that such credit will be denied for the portion of expenses linked to inter-corporate investments. It emphasizes the necessity of establishing a direct nexus between the input service and the taxpayer's own business operations.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2026-06/rhi_magnesita_india_limited.pdf
Legibility of the scan, as read: high.
Prepared 11-10-2026.
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