• Kandivali West Mumbai 400067, India
  • 022 39167251
  • support@email.com
April 10, 2021

ITC paid on goods supplied as a part of CSR activities can be availed by taxpayer

by Mahesh Mara in GST

ITC paid on goods supplied as a part of CSR activities can be availed by taxpayer

Fact of the case:

M/s Dwarikesh Sugar Industries Limited, P.O.- Medpurasultan, Najibabad, Nagina Road, Bundki, Bijnor, Uttar Pradesh- 246 762 (here in after called the applicant) is a registered assessee under GST having GSTIN: 09AABCD8192N1ZO.

The applicant is a company incorporated under the Companies Act, 2013 and engaged in the business of manufacture and sale of sugar and allied products. In order to comply with the Corporate Social Responsibility (CSR) in terms of Section 135 of the Companies Act, the applicant undertakes following activities:

  • Construction of school building, additional rooms, laboratories, etc.;
  • Free supply of furniture / fittings such as tables, chairs etc., to be used in the school;
  • Free supply of electrical goods for use in school; and
  • Other expenses such as provision of goods / services to Registered Charitable Trusts / NGO’s

In order to undertake the above-mentioned CSR activities, the applicant procures various goods and services on which GST is charged by the supplier.

Issue raised with the Authority:

The following questions have been posted by the applicant, in his application dated 24.09.2019 (application completed in all aspect received by the Authority on 25.10.2019), before the Authority:–

i. Whether expenses incurred by the Company in order to comply with requirements of Corporate Social Responsibility (CSR) under the Companies Act, 2013 (CSR Expenses’) qualify as being incurred in the course of business and eligible for input tax credit (ITC’) in terms of the Section 16 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017′)?

ii. Whether ITC in relation to CSR activities which have been obligated under a law are restricted under Section 17 (5) of CGST Act, 2017? If yes,

a. Whether free supply of goods as a part of CSR activities is restricted under Section 17 (5) (h) of CGST Act, 2017?

b. Whether goods and services used for construction of school building which is not capitalized in the books of accounts is restricted under Section 17 (5) (c) / 17 (5) (d) of CGST Act, 2017?

The applicant further submitted that :-

i. “In the course of business” includes all activities which are incidental / ancillary to the business which are incurred during the course of business. Any activity which needs to be incurred as a part of some process in a business is to be treated as “in the course of business”. A Company is compulsorily required to undertake CSR activities in order to run its business. As a result, they become an essential part of the business process as a whole and thus are treated to be incurred “in the course of business”.

ii. Considering the wide definition of the term ‘business’, there is no requirement to establish a direct one to one linkage in order to avail ITC. Even incidental / ancillary activities are treated as ‘in the course of business’ and procurements made for undertaking such activities are eligible for ITC.

iii. CSR activities undertaken by them to comply with the requirements of Companies Act, 2013 are incurred in the course of business. Since these activities are incurred in the course of business, they are eligible for ITC in terms of the provisions of CGST Act, 2017.

iv. CSR expenses are incurred for the purpose of business / in the course of business however its actual benefits are reaped by the intended recipients and not by the Company (for its own personal use). Since the benefits are rendered to the society and not the Company, restrictions under Section 17 (5) does not apply.

v. CSR expenses incurred by the applicant have been mandated under the Companies Act, 2013. It is the applicant’s obligation to incur such expenses in order to be in compliant with the law. Since, CSR expenses are not incurred voluntarily, it is hereby submitted that these expenses do not qualify as ‘gifts’ and therefore its credit is not restricted under Section 17(5).

vi. Since CSR credit is not restricted under Section 17 (5) of CGST Act, 2017, the same is eligible for ITC.

5). The application for advance ruling was forwarded to the Jurisdictional GST Officer to offer his comments/views/verification report in the matter, which was received in this office vide letter C. No. V(30)Div-Bij/Misc/60/18-19/10 dated 02.01.2020, wherein it has been reported that on the basis of restrictive provisions under Section 17(5)(c d), ITC in respect of inward supplies of goods 86 Services for construction of school building, furniture and electrical fittings for school building, is not available to the applicant irrespective of activities being carried out for corporate social responsibilities.

6) The applicant was granted a personal hearing on 21.01.2020. Shri Manoj Agarwal, Chief Manager (Taxation) and Sh. K. Sivarajan, Chartered Accountant, Authorized representatives of the applicant, appeared for hearing on the given date.

Observation and Finding of the authority:

Question 1:- Whether expenses incurred by the Company in order to comply with requirements of Corporate Social Responsibility (CSR) under the Companies Act, 2013 (`CSR Expenses’) qualify as being incurred in the course of business and eligible for input tax credit (`ITC’) in terms of the Section 16 of the Central Goods and Services Tax Act, 2017 (`CGST Act, 2017′)?

Answer:- Yes, Applicant is compulsorily required to undertake CSR activities in order to run its business and accordingly, it becomes an essential part of his business process as a whole. Therefore the said CSR activities are to be treated as incurred “in the course of business”.

Question 2:- Whether free supply of goods as a part of CSR activities is restricted under Section 17 (5) (h) of CGST Act, 2017?

Answer:- No, Distinction needs to be drawn between goods given as ‘gift’ and those provided or supplied as a part of CSR activities. While the former is voluntary the later one is obligatory and regular in nature. CSR expenses incurred by the applicant have been mandated under the Companies Act, 2013. It is the applicant’s obligation to incur such expenses in order to comply with the law. As CSR expenses are not incurred voluntarily, accordingly, we are of the opinion that CSR expense do not qualify as ‘gifts’ and therefore its credit must not be restricted under Section 17(5) of the CGST Act, 2017.

Question 3:- Whether goods and services used for construction of school building which is not capitalized in the books of accounts is restricted under Section 17 (5) (c) / 17 (5) (d) of CGST Act, 2017?

Answer:- ITC is not available to the extent of capitalisation.

17) This ruling is valid subject to the provisions under Section 103(2) until and unless declared void under Section 104(1) of the CGST Act, 2017.

Read the full Advance Ruling from below Link

ITC-eligible-on-free-supply-of-goods-as-a-part-of-CSR-activities

Enter your email address:

Subscribe to faceless complainces