In Advance Ruling (Appeal) No. GUJ/GAAAR/APPEAL/2023/04 -AAAR- AAAR (Gujarat) rules CSR expenses not part of business activities, hence not eligible for ITC
Members Samir Vakil (SGST) & B.V. Siva Naga Kumari (CGST) [26-09-2023]

Read Order: In Re: M/s. Adama India Private Limited

Chahat Varma

New Delhi, October 9, 2023: The Gujarat bench of the Appellate Authorities for Advance Ruling has denied Input Tax Credit (ITC) on Corporate Social Responsibility (CSR) activities.

Briefly the facts of the case were that M/s Adama India Private Limited (applicant), a supplier of insecticides, fungicides, and herbicides, had sought an advance ruling regarding the eligibility of ITC for inputs and input services procured for their CSR activities. They contended that their CSR expenses were in compliance with the Companies Act, 2013, and that they intended to claim ITC on the GST charged by their vendors for these inputs. The question revolved around whether these inputs and services could be considered as part of their business activities under Section 16 of the Central Goods and Services Act, 2017 (CGST Act).

The Gujarat Authority for Advance Ruling had issued a ruling, stating that CSR activities, in accordance with the Companies (CSR Policy) Rules, 2014, are considered as activities excluded from the normal course of business of the applicant. Consequently, they were deemed ineligible for ITC under Section 16(1) of the CGST Act.

The two-member bench of Samir Vakil (SGST) andB.V. Siva Naga Kumari (CGST) noted that CSR activities involve the company providing outputs or output services free of cost. These activities are undertaken not with the motive of earning a profit but to fulfil commitments towards society and the environment. Consequently, the expenses incurred in CSR activities cannot be considered as part of or in furtherance of the business. According to Section 2(108) of the CGST Act, a 'taxable supply' is a supply of goods or services or both that is subject to taxation under the Act. Since the appellant's supplies under CSR activities are not subject to GST, and in light of the provisions of Section 17(2) of the CGST Act, input credit cannot be claimed for CSR activities.

The bench also observed that Section 37 of the Income Tax Act, 1961, specifies that any expenses incurred by an assessee on corporate social responsibility activities as defined in Section 135 of the Companies Act, 2013, shall not be treated as an expense incurred for the purposes of the company or profession. This implies that such expenses are not considered business expenditures. Therefore, in cases where expenses do not qualify as business expenditures, ITC cannot be claimed on those expenses.

The bench also cited the agenda of the 48th GST Council Meeting dated 17.12.2022, which noted that the Law Committee, during its meeting held on 5.12.2022, expressed the opinion that ITC should not be allowed in relation to CSR expenditure incurred by companies under Section 135 of the Companies Act, 2013.

In light of the above findings, the bench dismissed the appeal filed by the appellant against the advance ruling of the Gujarat Authority for Advance Ruling.