The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi bench has upheld the order disallowing credit towards the service tax paid on services used for activities related to its corporate social responsibility ( CSR ) by holding that the same would not qualify the definition of “input service”.
The appellant, M/s. Power Finance Corporation Ltd, is a non-banking finance corporation engaged in financing projects and has been paying service tax on banking and other financial services rendered by it. It also avails the benefit of Cenvat Credit on various inputs and input services that it used in rendering these services.
The appellant has taken Cenvat Credit on the service tax paid on services used for activities related to its corporate social responsibility. A show-cause notice dated 12.04.2016 was issued to the appellant seeking to deny this Cenvat Credit on the ground that it does not qualify as an input service for its output services, viz; “banking and other financial services.”
A bench of Mr. P.V. Subba Rao, Member (Technical) and Ms. Rachna Gupta, Member (Judicial) has held that “undisputedly, corporate social responsibility is an obligation of the appellant under the Companies Act but it has no nexus to the services provided. The service provided is a part of the business. Service tax is paid on such services and credit on the input services is allowed.”
“A plain reading of the relevant portion of Rule 2(l) of CCR, 2004 shows that not any service used by the provider of output services in running its business qualifies as “input service” but only such services which are used by such provider for providing an output service qualify as input service. A provider of output service may utilise several services in its business and may pay service tax on them. If the legislative intent was to allow a provider of output service to avail Cenvat Credit on all such services, the rule would have read as “any service used by the provider of output services”. However, it does not read so,” the Tribunal said.
Concluding the order, the Tribunal held that “Clearly, the corporate social responsibility was not included in the inclusion part of the definition. Viewing from this angle also the corporate social responsibility expenses cannot be called as an input service for providing the output services. The fact that the corporate social responsibility is a legal responsibility does not make it an output service. Several case laws were cited by the appellant. However, most of these do not deal with CSR.”
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