ITC on CSR expenses denied

The Applicant had incurred various expenses on CSR activities such as donations to Government organizations, civil works, distribution of stationary, medicine etc. Such expenses are mandatory under the Companies Act. In view of the above facts, the Applicant had sought an advance ruling before the Gujarat AAR to ascertain whether the ITC would be eligible on the said CSR activities.

Referring to Rule 2(d) of the Companies (CSR Policy) Rules, the AAR observed that it excludes activities undertaken in pursuance of normal course of business from the purview of CSR. The AAR further observed that Section 16 of the CGST Act allows ITC only on goods or services which are received in course or furtherance of business. In view of the above observations, the AAR held that expenses incurred on CSR activities cannot be said to be received in normal course of business and accordingly, ITC on such CSR expenses shall not be available.

Adama India Private Limited [Advance Ruling No. GUJ/GAAR/R/44/2021]

Authors’ Notes:

There are various contradictory rulings in respect of ITC eligibility on CSR expenses. Notably, the UP AAR in the case of Dwarikesh Sugar Industries Limited [2020-TIOL-305-AAR-GST] had held that ITC shall be available on expenses incurred to comply with the requirements of CSR under Companies Act. In the instant Ruling, the Gujarat AAR has narrowly interpreted the provisions of CSR Rules. Accordingly, it is likely that the Applicant would prefer an Appeal before the AAAR.

Disclaimer:

The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.