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Input tax credit (ITC) on expenditure made to meet corporate social responsibility (CSR) is still attracting contradictory rulings from Authority for Advance Ruling (AAR). Latest one is from Telangana AAR which has favoured ITC on CSR related purchases.
“The expenditure made towards corporate responsibility under Section 135 of the Companies Act, 2013, is an expenditure made in the furtherance of the business. Hence, the tax paid on purchases made to meet the obligations under corporate social responsibility will be eligible for input tax credit under CGST and SGST Acts,” Telangana AAR said while disposing an application by Hyderabad based Bambino Pasta Food Industries.
Section 135
A company with net worth of ₹500 crore or turnover of ₹1,000 crore or a net profit of ₹5 crore or more in the immediately preceding financial year will spend at least 2 per cent of the average net profits made during the three immediately preceding financial year on CSR. A company not doing so will attract penalty under Section 135 which may go upto a maximum of ₹1 crore.
As a part of CSR, the applicant donated oxygen plant to AIIMS hospital Bibinagar, Yadadri Bhongir district for the benefit of patients and for that purposes, purchased PSA oxygen plant and incurred expenditure for spare parts. This expenditure was part of the CSR norms. The company moved to AAR for ruling on whether ITC is available on CSR expenditure.
After going through all the facts and arguments, AAR said the running of the business of a company will be substantially impaired if they do not incur expenditure to meet CSR obligation. Accordingly, such expenditure is made in the furtherance of the business. Hence, tax paid on purchases made to meet the CSR obligation will be eligible for ITC under GST.
Specific restriction
Harpreet Singh, Partner (Indirect taxes) at KPMG in India said pursuant to the specific restriction on availing credit under Section 17(5) (h) of the CGST Act and the fact that both under CSR rules and Income tax Act, CSR activities are considered as non-business expenses, availment of input GST credit on CSR spends has been contentious. “This is true, even though some recent rulings under GST and under erstwhile service tax have given an affirmative answer on availability of credit and thus, tend to give hope to taxpayers on its availment,” he said.
Earlier, in the case of Dwarikesh Sugar Industries , the Uttar Pradesh AAR has ruled that ITC shall be available on expenses incurred to comply with the requirements of CSR. However, Kerala AAR , in the matter of Polycab Wires Ltd held that ITC shall not be available on free distribution of electrical items like switches, fans, cables, etc., to flood affected people under CSR.
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