MUMBAI: Corporate social responsibility expenditure is incurred by a company in order to comply with the requirements of the Companies Act, 2013. Thus, such expenses are incurred in the course of business and are eligible for input tax credit under Goods and Services Tax (GST) regulations, according to a GST ruling given by the Authority of Advance Ruling (UP Bench).
This ruling, which distinguishes between goods given voluntarily as ‘gifts’ and those that are part of CSR activities, provides much relief to companies engaged in litigation on the issue of input tax credit (ITC).
The ruling will strengthen the case of companies providing free goods as part of their CSR activities. While advance rulings do not set a judicial precedent, they do have a persuasive effect in the course of assessments.
The Uttar Pradesh AAR bench gave this ruling, in the case of Dwarikesh Sugar Industries, engaged in the manufacture and sale of sugar and allied products.
In order to comply with its CSR obligations, the company undertook the construction of school buildings, additional rooms, labs. It supplied for free various goods such as furniture and electrical equipment for use in the schools.
In other words, for carrying out its CSR activities it purchased goods on which GST was levied.
The moot question was whether input tax credit would be available against its final GST liability, for the GST paid by it, in procuring such goods.
The AAR answered in the affirmative, but with a caveat. It pointed out that Input tax credit of goods and services used for construction of the school building would not be available to the extent these have been capitalised.