AAR rules: ITC eligible on CSR expenditure spent by company

The Applicant had sought the advance ruling to ascertain whether ITC is admissible on the expenditure spent for the CSR activities. During the rise of COVID– 19 pandemics, as there was scarcity of oxygen in the country, the Applicant had donated oxygen plants to the hospital for the benefit of patients. 

The AAR observed that as per the statutory provisions of the Companies Act, companies are required to incur expenditure towards their CSR activities. Accordingly, it was held that the expenditure made in pursuant to the corporate responsibility u/s 135 of the Companies Act is an expenditure made in the furtherance of the business. Consequently, the ITC of tax paid on purchases made to meet the obligations under CSR is admissible under the CGST Act.

Bambino Pasta Food Industries Private Limited [2022-VIL-293-AAR]

GLS Comments:

Admissibility of ITC on CSR expenditure has always been a contentious issue. In RE: Essel Propack Limited [2018 (362) E.L.T. 833 (Tri. - Mumbai)], the Mumbai CESTAT had observed that sustainability of company dependent on CSR without which companies cannot operate smoothly for long period as they are dependent on various stakeholders. Accordingly, the CENVAT credit thereon had been allowed. Under the GST regime, the Kerala AAR in RE: Polycab Wires Private Limited [2019 (24) G.S.T.L. 103 (A.A.R. - GST)], had held that distribution of necessaries to calamity affected people under CSR expenses shall be treated as is if they are given on free basis and without collecting any money. Hence, for these transactions, it was held that ITC shall not be available as per section 17(5)(h).

However, there have been certain favourable ruling under the GST regime as well. In RE: Dwarikesh Sugar Industries Limited [2021 (53) G.S.T.L. 482 (A.A.R. - GST - U.P.)], the UP AAR had held that a company is mandatorily required to undertake CSR activities and thus, forms a core part of its business process. Hence, the CSR activities are to be treated as incurred in the course of business and therefore, the ITC would be admissible.

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.