GST ITC on CSR Expenses

Corporate sector is supposed to follow various laws applicable on them. It includes corporate laws as well as taxation laws. GST Act and Companies Act, 2013 both laws are applicable on companies. In this article we will discuss the topic of GST on CSR Expenses, where we need to understand the impact of the provisions of both laws when read together. Now, CSR stands for Corporate Social Responsibility which as per Companies Act, 2013 is mandatory for specified companies. Our scope of discussion will be if GST is available on CSR expenses or not. Let us start-

Table of Contents

Meaning of Corporate Social Responsibility

As per Section 135 of the Companies Act, 2013 every company that satisfies following condition-

  • Net worth of Rs.500 crores or more, OR
  • Turnover of Rs. 1000 crores or more, OR
  • Net Profit of Rs.5 crores or more during previous financial year

Should spend at least two percent of the average net profits of the company made during three immediately preceding financial years

Concept of Input Tax Credit under GST

We can see that obligation of CSR expenses is on big companies. So, it is obvious that these companies will be liable to GST as well. Now, we will understand the concept of ITC under GST.

It may be noted that there is no particular provision for GST ITC on CSR Expenses. However, we can see the definition of Input Tax Credit as per GST Act

  • The main criteria to avail input tax credit is that such goods and services should be used in course of furtherance of business.
  • The other condition that needs to be checked is of Blocked Credit. Section 17(5) of the CGST Act contains provision of blocked credit. In following cases it is not allowed to claim Input Tax Credit-
  • Works Contract Service when supplied for construction of immovable property(not plant & machinery) except:
    Where it is an input service for further supply of Works Contracts; 

    • The term“construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
    • Further the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes— (I) land, building or any other civil structures;
  • Goods or services or both received by a taxable person for construction of an immovable     property. The input cannot be claimed to the extent the cost is capitalized
  • Goods that are lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

We can see that GST is allowed for activities carried out for furtherance of business or where the ITC is not specifically blocked.

Is ITC available on CSR Expenses- On basis of Advance Rulings?

On the basis of above we can say that if CSR expenses are considered as carried out in course of furtherance of business than CSR expenses will be available on same. Also there are two rulings by Authority of Advance Ruling in this regard which are in complete conflict of each other-

  • M/s Dwarikesh Sugar Industries Limited: In this case Uttar Pradesh AAR gave a ruling that CSR is a mandatory obligation on a company. So the expenses incurred by any company in this regard can be considered as incurred in course of furtherance of business. It is mandatory for company to fulfil this obligation to continue its business. AAR also stated that as it is a mandatory obligation and it cannot be considered as gift. So, ITC cannot be said to be blocked.
  • M/s Adama India: In this case Gujarat Bench of AAR said that company cannot claim Input Tax Credit on CSR expenses. The contention of ruling was that CSR activities are not in normal course of business. It also stated that ruling by the Uttar Pradesh bench is not a binding on it.

    As per rule the ruling by AAR is binding only on the applicant and concerned GST officials. However, still GST authorities can take these rulings as a reference while deciding certain cases as they are available in public domain.

Analysis- GST ITC on CSR Expenses

From above discussion we can see that there are varied takes that if GST on CSR expenses should be claimed or not. On plain reading of the provisions we can make following inferences-

  • The CSR expenses are made as an obligation to fulfil the requirements of Company Law. So, to that effect these expenses can be said as incurred in course of furtherance of business
  • Now, there may be cases where companies decide to spend more than obligatory amount as CSR expenses. So, may be that will not be considered as incurred in course of furtherance of business.
  • We can say that if expenses are mandatory then input can be claimed. If the expenses are voluntary than input cannot be claimed

Now, if we take a different point of view, even the voluntary CSR expenses allows the company to earn goodwill and promote its name. So, it should also be taken as incurred in furtherance of business.

Conclusion

To sum up we can say that, GST ITC on CSR Expenses is not an area that is specifically clarified in law. This is a matter subject to varied point of view of various experts. However, if we see as a businessman, they are doing something for the society. Whether as a legal obligation or voluntarily, then they should not be deprived of claiming GST ITC on these CSR expenses.

CategoryGST

CA Vimal Kumar Sharma has expertise is in the field of Accounting, Budgeting, Management Reporting, Statutory Reporting, Regulatory Compliance, Working Capital Management, Taxation, Statutory and Tax Audit and posses experience of almost 5 years.

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