ITC on CSR activities under GST

Definitions for ITC on Corporate Social Responsibility: Goods implies each sort of versatile property other than cash and capital but includes sensible claim, growing harvests, grass and things connected to or forming part of the land which are allowed to be cut off before supply or under a contract of supply. Services implies something besides products, money and capitals but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, cash or category, to another form, cash or category for which a different thought is charged.

Business includes – [Sec 2(17(b)]

 a) Any trade, commerce, manufacture, profession, vocation, adventure, wager or any other related activity, whether or not it is for a financial benefit;

 b) Any activity or transaction in connection with or random or extra to (a) above;

c) Any activity or transaction in the nature of (a) above, whether or not there is volume, constancy, time or stability of such transaction;

d) Supply or investment of goods including capital assets and services in connection with origin or stoppage of business;

e) Endowment by a club, association, society, or any such body (for a membership or some other thought) of the facilities or benefits to its members, as the case may be;

 f) Acceptance, for a attention, of persons to any campus; and

 g) Services supplied by a person as the holder of an office which has been accepted by him in the course or boosting of his trade, profession or vocation;

 h) Exercises of a race club containing by technique or a license to book maker or activities of a licensed book maker in such club;

 i) Any activity or transaction undertaken by the central government, a state government or any local authority in which they are attached as public authorities;

Input means any goods other than capital goods used or planned to be used by a supplier in the course or boosting of business.  

Capital goods define as goods, the assessment of which is generated in the books of account of the person claiming the ITC and which are used or planned to be utilized in the course or boosting of business. Analysis in relation to the supply of goods or services or both includes any payment made or to be made, whether in money or something else, or for the motive of, the supply of goods or services or both, whether by the recipient or by some other person however will exclude any allowance given by the central government, a state government.

Some important Facts- Section 135(5) of the Companies Act, 2013 states about CSR expenditure in every fiscal year, to the amount of minimum 2% of the average net-profits of the company made during 3 instantly before financial years, in achievement of CSR policy.

The said rules mandate company to perform and report the same in their Board reports. CSR activities under GST would be available under GST Act, 2017.

If we announced ineligibility ITC on CSR exercises based on section 17(5) (h) at that point "CSR costs cannot be said to be goods lost, stolen, destroyed, written off or goods disposed off through free samples.

Further CSR expenses are not expenses in the nature of gifts” because in common parlance “Gift” is something which cannot be enforced on any one. However, CSR activity is enforced via the Companies act.  

Cenvat credit on CSR under earlier regime

On account of Essel Propack v. Commissioner [2018-TIOL-3257-CESTAT-Mumbai], CESTAT saw that CSR isn't in the idea of good cause as it has an immediate bearing on the assembling activity of the company which is mainly dependent on smooth supply of raw materials. Further, it augments the credit rating of the company and its standing in the corporate world.

The Tribunal thus held that such expenses are incurred to win the confidence of the stakeholders and shareholders. CSR has been made a compulsion for the private sector which is already obligatory for the public sector undertakings and the same will be treated as input service in respect of activities relating to business, production and sustainability of the company itself would be at stake. Hence, Cenvat credit was allowed to the appellant.

If we know the difference between GST and pre GST taxes then we will note the fact that GST has a much wider scope of ITC. Therefore, cenvat credit on CSR will be acceptable after initiating GST as in the past.

CSR in GST regime

In the case of Polycab Wires Pvt Ltd reported at 2019-VIL100-AAR, electrical goods were distributed for helping the people affected by flood in Kerala against discharge of its CSR obligations.

The Kerala AAR held that the candidate conveyed electrical items on a free premise without collecting any money and for these transactions input tax credit would not be available as per Section17(5)(h) of the SGST Act and CGST Act. Therefore, it can be seen that the provisions of Section 17(5) (h) of the CGST Act are called to deny ITC of goods allotted free of cost for meeting CSR duties.

Distributing any goods or providing any services that are in free of cost would not be considered in the definition of “consideration” under GST. Consideration may or may not be monetary as per Section 2(31) of CGST Act.

ITC would not be available for the goods that is been lost, stolen, destroyed, written off or disposed of by way of gift or free sample as per the provisions of Section 17(5) (h) of the CGST Act. It is to be seen that the said sub-section simply places ITC limitations on free allotment of goods and doesn't limit ITC on provision of services for free. 

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