2021 (9) TMI 1061 - AAR - GST

Input tax credit - spending mandatory amount on 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 - whether CSR activities are in the course of furtherance of business and will therefore be counted as eligible ITC in terms of Sections 16 and 17(5) of the CGST Act, 2017? - HELD THAT - As per Rule 4(1) above (for the period prior to 23-1-2021), the CSR activities undertaken by the company shall exclude activities undertaken in pursuance of it s normal course of business. As per Section 2(d) above (w.e.f. 23-1-2021), Corporate Social Responsibility does not include activities undertaken in pursuance of normal course of business of the company. We find that the CSR activities are not activities undertaken in pursuance of applicant s normal course of business - Section 16(1) of the CGST Act, stipulates that a registered person is entitled to take credit of input tax charged on any supply of goods or services or both, which are used or intended to be used in the course or furtherance of his business. Thus, Section 16(1) of the CGST Act bars CSR activities from input/input service. In pursuance to Companies CSR Rules framed by the Central Government and in pursuance to wordings of Section 16(1) CGST Act, we disagree with both the applicant s and revenue s stand for admissibility of ITC on CSR activities. In fact, it is noted that the applicant submitted that CSR activities being undertaken by the applicant can become eligible for ITC if only it is established that such activities are in the course and furtherance of business. As per law, Section 16(1) CGST Act bars CSR activities from ITC. There are thus no merit to discuss the item wise CSR activities of the applicant. CSR activities, as per Companies (CSR Policy) Rules, 2014 are those activities excluded from normal course of business of the applicant and therefore not eligible for ITC, as per Section 16(1) of the CGST Act.

Summary

Issues Involved:
1. Whether CSR activities qualify as being in the course and furtherance of business for ITC eligibility under Section 16 of the CGST Act, 2017.
2. Whether specific categories of inputs and input services procured for CSR activities are eligible for ITC under Section 17(5) of the CGST Act, 2017.

Issue-Wise Detailed Analysis:

1. CSR Activities and Course of Furtherance of Business:
The applicant, M/s. Adama India Pvt. Ltd., supplies insecticides, fungicides, and herbicides and undertakes CSR activities as mandated by Section 135 of the Companies Act, 2013. The applicant seeks to know if these CSR activities qualify as being in the course and furtherance of business, making the inputs and input services used in CSR activities eligible for ITC under Sections 16 and 17(5) of the CGST Act, 2017.

The applicant argues that CSR activities, though not directly related to earning immediate profits, are essential for maintaining the company's market standing and avoiding coercive processes. They cite judicial precedents, including the Calcutta HC in Birla Cotton Spinning & Weaving vs. Commissioner of Income-tax and the CESTAT in Essel Propack vs. Commissioner of CGST, Bhiwandi, supporting the view that CSR activities are integral to business operations.

However, the judgment refers to the Companies (CSR Policy) Rules, 2014, and the Companies (CSR Policy) Amendment Rules, 2021, which exclude CSR activities from the normal course of business. Section 16(1) of the CGST Act stipulates that ITC is available for goods or services used in the course or furtherance of business. Since CSR activities are excluded from the normal course of business, they do not qualify for ITC under Section 16(1).

2. Eligibility of Specific Categories of Inputs and Input Services for ITC:
The applicant lists various categories of inputs and input services used in CSR activities, including books and stationery, civil works, plant and machinery, medical equipment, and furniture. They argue that these items should not be considered gifts and should be eligible for ITC.

The judgment notes that the applicant's argument hinges on establishing that CSR activities are in the course and furtherance of business. Since Section 16(1) bars CSR activities from ITC, the judgment does not find merit in discussing the item-wise eligibility of inputs and input services for ITC.

Conclusion:
The judgment concludes that CSR activities, as per the Companies (CSR Policy) Rules, 2014, are excluded from the normal course of business and are therefore not eligible for ITC under Section 16(1) of the CGST Act. The cited judicial precedents pertain to the pre-GST era and do not apply to the GST scheme of law. The Advance Ruling Authority of Uttar Pradesh's decision in Dwarikesh Sugar Industries Ltd. is binding only on the applicant who sought it and does not influence this case.

Ruling:
CSR activities, as per the Companies (CSR Policy) Rules, 2014, are excluded from the normal course of business and are therefore not eligible for ITC under Section 16(1) of the CGST Act.