Page 44 - GSTL_11th June 2020_Vol 37_Part 2

J52 GST LAW TIMES [ Vol. 37
The involuntary CSR expenditure is not a gift, it is mandatory obligation
of the company and shall not be covered by virtue of Section 17(5)(h) of the
CGST Act, 2017. Thus, Section 17(5)(g)(h) does not have impact on company to
avail Input Tax Credit on CSR expenses.
Judicial pronouncement in pre-GST period
The issue of eligibility of Cenvat credit on expenditure incurred on cor-
porate social responsibility was decided by the Hon’ble CESTAT in the case of
Essel Propack Limited v. Commissioner of CGST reported in 2018 (362) E.L.T. 833
(Tri. - Mumbai). In this decision, it has been held that without CSR compliance,
companies cannot conduct business in economically, socially and environmental-
ly sustainable way. In the other hand non-compliance of CSR activities attract
penal action under the Companies Act, 2013. Thus, expenditure on CSR activities
have deep nexus with business and should be considered as business expenses.
The Hon’ble Bombay High Court (Nagpur Bench), in its Order dated
11-10-2010 in the Central Excise Appeal No. 22 of 2008 in the case of Commissioner
of Central Excise, Nagpur v. M/s. Manikgarh Cement reported in 2010 (20) S.T.R. 456
(Bom.). Paras 8 and 9 of the said order are quoted below.
“8. In our opinion, establishing a residential colony for the employees and
rendering taxable services in that residential colony may be a welfare activity
undertaken while carrying on the business and such expenditure may be al-
lowable under the Income-tax Act. However, to qualify as an input service,
the activity must have nexus with the business of the assessee. The expression
‘relating to business’ in Rule 2(l) of CENVAT Credit Rules, 2004 refers to ac-
tivities which are integrally related to the business activity of the assessee and
not welfare activities undertaken by the assessee.
9. Applying the ratio laid down by the Hon’ble Apex Court in the case of
Maruti Suzuki Limited v. Commissioner of Central Excise, Delhi (supra), we hold
that unless the nexus is established between the services rendered and the
business carried on by the assessee, the benefit of CENVAT credit is not al-
lowable. In the present case, in our opinion, rendering taxable services at the
residential colony established by the assessee for the benefit of the employees,
is not an activity integrally connected with the business of the assessee and
therefore, the tribunal was not justified in holding that the services such as
repairs, maintenance and civil construction rendered at the residential colony
constitutes ‘input service’ so as to claim credit of service tax paid on such ser-
vices under Rule 2(l) of the CENVAT Credit Rules, 2004.”
Advance Ruling
In Re : Polycab Wires Private Limited reported in 2019 (24) G.S.T.L. 103
(A.A.R. - GST) vide Order No. KEP/30/2019, dated 2-3-2019.
Brief facts : The applicant is a dealer in electrical goods, cables of all
kinds including winding wires, pipes, etc. They had supplied electrical
items to Kerala State Electricity Board through their distributors spread
across the State in connection with reinstating connectivity in the flood
ridden areas as part of the “mission reconnect”. The materials were sup-
plied free of cost as a CSR activity. In order to ascertain the impact of
GST on such goods supplied on free of cost, the applicant required ad-
vance ruling on the following :

GST LAW TIMES  11th June 2020  44