ITC cannot be claimed for Expenses related to CSR Initiatives: AAAR
ITC – claimed for Expenses – claimed – Expenses – Expenses related to CSR Initiatives – CSR Initiatives – CSR – TAXSCAN
ITC – claimed for Expenses – claimed – Expenses – Expenses related to CSR Initiatives – CSR Initiatives – CSR – TAXSCAN
The Appellate Authority for Advance Ruling (AAAR) Gujarat in a recent decision held the input tax credit (ITC) cannot be claimed for expenses related to Corporate Social Responsibility (CSR) activities mandated by the Companies Act, 2013.
The appellant,Adama India Private Limitedsubmitted that as per Section 135 of the Companies Act, 2013, it has been spending the mandatory amount on Corporate Social Responsibility [‘CSR’] activities in the form of donations to the Government relief funds/ educational societies, civil works or installation of plant and machinery items in schools or hospitals, distribution of food kits etc,; that the vendors who supply goods/services to the appellant for the purpose of undertaking the CSR activities charge GST on their output supplies; that the appellant intends to avail the Input Tax Credit (ITC) of the inputs and input services being procured for the purpose of undertaking the CSR activities.
The appellant sought advance ruling on the following two issues; a. Are the inputs and input services procured for mandatory CSR activities considered “in the course and furtherance of business,” making them eligible for ITC under Section 16 of the Central Goods and Services Act, 2017 (CGST Act)? b. If the answer to the first question is affirmative, do various categories of inputs and input services, such as books and stationery, civil works, plant and machinery, medical equipment, and furniture, qualify for ITC under Section 17(5) of the CGST Act?
Section 16(1) of the CGST Act states that ITC can be claimed for inputs and input services used in the course or furtherance of business. Since CSR activities are mandatory and can impact a company’s reputation and operations, the appellant argued they should qualify as being in the course and furtherance of business.
A Two-Member Bench of the Authority comprising Samir Vakil, Member SGST and BV Siva Naga Kumari, Member CGST observed that “Thus taking into account the definition of taxable supplies and the provisions of Section 17(2) of CGST Act, 2017, input credit cannot be availed on CSR activities. Further as per the provision of Section 37 of the Income Tax Act, 1961, any expenses incurred by an assessee on corporate social responsibility activities as given under Section 135 of the Companies Act, 2013 shall not be considered to be an expense incurred by the assessee for the objectives of the company or profession. Hence when the same does not amount to business expenditure and ITC cannot be claimed on such expenditure.”
To Read the full text of the Order CLICK HERE
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