AAR Ruling: CSR activities are not eligible for an input tax credit (ITC)
Fact and issue of the case
M/s SHRIRAM PISTONS AND RINGS LIMITED, A-4 to A-7, B-8/1 & 2, B 9 & 10, Industrial Area III, Meerut Road, Ghaziabad- 201 003 (U.P.) (here in after referred to as the applicant) is a registered assessee under GST having GSTIN: 09AAACS0229G1 ZN.
The applicant has submitted an application for Advance Ruling dated 14.10.2022 enclosing dully filled Form ARA-01 (the application form for Advance Ruling) along with annexure and attachments. The applicant in his application has sought advance ruling on following question-
Whether the Applicant is entitled to avail Input Tax Credit of the GST paid on various services/ expenses incurred towards discharging its CSR obligation, can be considered as being in course or furtherance of business in terms of Section 76(1) of the CGST Act, 2017 r/w UPGST Act, 207Th
As per declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending nor decided in any proceedings under any of the provisions of the Act, against the applicant.
Shriram Pistons and Rings Limited (hereinafter referred to as ‘Applicant’) is engaged in manufacture and supply of automobile parts (two wheelers and four wheelers) viz. Engine Parts such as Pistons, Piston rings, Engine Valves etc. and related products from its manufacturing unit (factory) located at A-4 to A-7, B-8/1 & 2, B 9 & 10, Industrial Area III, Meerut Road, Ghaziabad- 201 003 (U.P.).
The Applicant is a company incorporated under the Companies Act, 1956 and is engaged in developing, manufacturing and marketing of its finished products. The Applicant with GSTIN 09AAACS0229G1ZN is registered with the Goods and Services Tax Department in the state of Uttar Pradesh and falls within the jurisdiction of Central Goods and Services Tax Commissionerate, Ghaziabad.
With an initiative to provide financial assistance to improve the lives of under-served and unprivileged sections of the society, the Ministry of Corporate Affairs of the Government of India, vide an amendment in 2013 in the Companies Act 1956, introduced ‘Corporate Social Responsibility Policy’ (hereinafter referred, as `CSR’) in Section 135 of the Companies Act. The said Policy provides the guidelines to be followed by corporations/companies for conducting Corporate Social Responsibility by contributing to improve sanitation, water facility, healthcare, education, etc.
In view of Section 135 of the Companies Act, 2013 (hereinafter referred to as the `Companies Act’), a Company having net worth of five hundred crore or more, or turnover of more than one thousand crore or more or a net profit of rupees five crore or more during the immediate preceding financial year, is bound to constitute a Corporate Social Responsibility Committee (`CSR Committee’). The provisions relating to Corporate Social Responsibility (CSR) is enumerated in Section 135 of the Companies Act and the same is reproduced below:
Corporate Social Responsibility.
Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more Directors, out of which at least one director shall be an independent director. Provided that where a company is not required to appoint an independent director under sub-section (4) of Section 149, it shall have in its Corporate Social Responsibility Committee two or more Directors.]
The Corporate Social Responsibility Committee shall –
formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company [in areas or subject, specified in Schedule VII] ;
recommend the amount of expenditure to be incurred on the activities referred to in clause (a);
monitor the Corporate Social Responsibility Policy of the company from time to time.
The Board of every company referred to in sub-section (1) shall, –
after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and
ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years [or where the company has not complete the period of three financial years since its incorporate, during such immediately preceding financial years], in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of Section 134, specify the reasons for not spending the amount [ and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII within a period of six months of the expiry of the, financial year]. Provided that also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed] [Explanation – For the purpose of this section “net profit’ shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of Section 198]
Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the Company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crone rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.
Observation of the court
In view of the above discussions, we, both the members pass the following ruling-
Whether the Applicant is entitled to avail Input Tax Credit of the GST paid on various services/ expenses incurred towards discharging its CSR obligation, can be considered as being in course or furtherance of business in terms of Section 16(1) of the CGST Act, 2017 r/vv UPGST Act, 2017?
Answer: CSR activities, as per Companies (CSR Policy) Rules, 2014 are those activities excluded from normal course of business of the applicant and therefore not eligible for ITC, as per Section 16(1) of the CGST Act.
This ruling is valid only within the jurisdiction of Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017 until and unless declared void under Section 104(1) of the Act.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from hereIn-re-Shriram-Pistons-And-Rings-Limited-GST-AAR-Uttra-Pradesh-2