‘No GST input tax credit on CSR expense’ – Times of India

‘No GST input tax credit on CSR expense’ - Times of India


MUMBAI: The Gujarat bench of the Authority for Advance Rulings (AAR) recently held that corporate social responsibility (CSR) activities under the Companies (CSR Policy) Rules are excluded from the normal course of business. Its ruling came in a case where the applicant was a private limited company, Adama India. The AAR said Adama India would not be eligible for input tax credit (ITC) under goods and services tax (GST) laws.
If this ruling is followed by GST authorities during assessments, it will be a big blow to India Inc which, in the backdrop of the pandemic, has spent heavily on CSR activities, such as providing medical relief by way of oxygen concentrators & sanitisers, to name a few instances.
This is another classic case of divergent views on the same issue taken by two different benches of the AAR. In its edition of April 8, TOI had covered the ruling given by the Uttar Pradesh (UP) bench in the case of Dwarikesh Sugar Industries. In this case, the AAR bench had held that CSR expenditure is incurred by a company to comply with its legal obligations under the Companies Act. Thus, the GST paid by the company on the products it purchased for its CSR-related expenditure could be set off against its GST liability (this is referred to as ITC).
In the ruling sought from the Gujarat AAR, the applicant-company was a supplier insecticides, fungicides and herbicides. Its CSR expenditure was towards providing notebooks and course material for schools, providing chairs and tables in schools and hospitals, construction of cement benches at public places, installation of oxygen-generating plants at hospitals, providing masks, sanitisers and oxygen concentrators.
It submitted that CSR expenses were mandatory, thus, they were incurred in the course and furtherance of business. Therefore, it should be eligible for ITC. However, the Gujarat AAR bench disagreed with this contention. It went further and pointed out that the ruling given by the UP AAR bench was not binding on it. AAR rulings are binding only on the applicant and the relevant GST officials.


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