The Applicant had sought the advance ruling to ascertain whether ITC is admissible on the expenditure spent for the CSR activities. The Gujarat AAR [TS-505-AAR(GUJ)-2021-GST] had ruled that CSR activities are not eligible for ITC as they cannot be considered as in course of or furtherance of business. Aggrieved the Applicant filed an appeal before the Gujarat AAAR. The Applicant contended that since CSR is mandate under the Companies Act, it should be considered an activity in the course and furtherance of business, and therefore, ITC should be allowed.
The AAAR observed that CSR activities are excluded from the normal course of business of the company, and therefore, they are not eligible for ITC as per Section 16(1) of the CGST Act. The AAR further observed that CSR activities are not subject to GST, and the Income Tax Act also does not consider CSR expenses as business expenditure. The AAAR emphasized that ITC on inward supplies is only available when outward supplies are taxable. Since CSR activities are conducted free of cost and with the motive of fulfilling commitments to society and the environment, the expenses incurred cannot be considered in the course or furtherance of business. The AAAR also referred to the amendments in Section 17 of the CGST Act, introduced through the Finance Act, 2023, effective from October 1, 2023 which clarified the legislative intent to disallow ITC on goods or services used for CSR activities. Consequently, the AAAR upheld the AAR ruling and rejected the appeal.
M/s. Adama India Private Limited [TS-491-AAAR(GUJ)-2023-GST]
GLS Comments:
Admissibility of ITC on CSR expenditure has always been a contentious issue. It may be noted that before the insertion of Section 17(5)(fa) of the CGST Act, ITC on CSR had been made eligible. Like in the case of 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.
However, the insertion of clause (fa) in Section 17(5) has been made prospectively but yet the Department seems to be treating it in the retrospectively manner. This could be seen as a possible challenge to the industry as the availability prior to October 2023 seems to be under scrutiny. The industry will need to closely monitor how this issue unfolds and whether any legal actions are taken to clarify the retrospective or prospective nature of the provision.
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.
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