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2020 ] INPUT TAX CREDIT ON CSR EXPENSES — AN ANALYSIS J51

INPUT TAX CREDIT ON CSR EXPENSES —
AN ANALYSIS
By
Ramesh Chandra Jena, B.A. (Hons.), M.A. (Eco.),
D.M.M., LL.B.
ADVOCATE & TAX CONSULTANT

CSR stands for Corporate Social Responsibility
and CSR activities have to be performed by the big com-
panies under Section 135 of Companies Act, 2013. Thus,
CSR activities are a statutory obligation of the corporates in which they take ini-
tiatives towards Social, Environmental, Educational and Economic development
of the society as well as people of the weaker section of the society.
Section 135 of the Companies Act, 2013 provides that every company
having net worth of ` 500 crores or more, or turnover of ` 1000 crores or more or
a net profit of ` 5 crores or more during a financial year shall constitute a CSR
Committee of the Board consisting of three or more directors. The Board of every
company shall ensure that the company spends, in every financial year, at least
2% of the average net profits of the company made during the three immediately
preceding financial years, in pursuance of its Corporate Social Responsibility Pol-
icy. CSR activity being a legal requirement its non-compliance attracts penal
action.
Thus, CSR activities are welfare measures on which companies incur ex-
penses for creating social goods but does not have direct nexus with the business
of the company. The tax paid goods and services are so procured in relation to
CSR activities cannot be used in the course or furtherance of business of the
company. The moot question arises whether GST payment while incurring ex-
penses towards CSR activities are entitled to Input Tax Credit?
Statutory provision of eligibility of ITC
Section 16(1) of the CGST Act, 2017 prescribes that every registered per-
son shall be 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 further-
ance of his business and the said amount shall be credited to the electronic credit
ledger provided certain conditions/restrictions thereon are fulfilled.
Blocked credit of ITC
There are provisions on blocking the availment of Input Tax Credit by a
registered person under Section 17 of the CGST Act, 2017 and sub-section (5)(g)
and sub-section (5)(h) that are relevant for discussion.
Section 17(5)(g) restricts ITC in case of goods or services or both are used
for personal consumption. As expenditure on CSR activities relates to public at
large, it cannot come under restriction of Section 17(5)(g) of the CGST Act, which
restricts Input Tax Credit on goods and services used for personal consumption.
Further, the restriction under sub-section (5)(h) of Section 17 of the CGST
Act, 2017, that Input Tax Credit shall not be allowed in case of goods lost, stolen,
destroyed, written off or disposed of by way of gift or free samples.
GST LAW TIMES  11th June 2020  43