Page 45 - GSTL_11th June 2020_Vol 37_Part 2

2020 ] INPUT TAX CREDIT ON CSR EXPENSES — AN ANALYSIS J53
(i) Determination of GST liability with respect to goods provid-
ed free of cost by the distributors of M/s. Poly Cab Wires
Private Limited to KSEB for reinstating connectivity in flood
ridden areas; and admissibility of input tax credit in relation
to such goods.
(ii) Applicability of Section 17(5) of CGST Act, 2017 on CSR ex-
penses.
Contention of the Applicant
Kerala State Electricity Board has requested from the distributors of the
applicant to supply electrical goods for the restoration of power supply at flood
ridden areas. These materials are supplied by the distributors at free of cost being
CSR Activity for reinstating connectivity in flood ridden areas. In addition to this
supply to Kerala State Electricity Board, the applicant has distributed electrical
items like, switches, fan, cables, etc., to flood affected people under CSR expenses
on free basis without collecting any money.
The distributors raised bills to M/s. Polycab Wires Private Limited, in re-
lation to the materials supplied free of cost to Kerala State Electricity Board. The
distributors issued tax invoices to Kerala State Electricity Board showing sale
value, GST and total amount with 100% discount. However the GST liability was
paid to Government. The applicant pointed out that since, the GST liability is
completely paid on such free supply, they are eligible to avail full claim of input
tax credit on such supplied items. M/s. Polycab Wires Private Limited reim-
bursed the total amount to the distributors and account the same as donation in
kind towards CSR expenses for Kerala Flood Relief, 2018.
Observations of AAR
The transactions put forth in the application and contended at the time of
hearing are analyzed in detail. As per Section 17 of GST Act, ‘where the goods or
services or both are used by the registered person partly for the purpose of any
business and partly for other purposes, the amount of credit shall be restricted to
so much of the input tax as is attributable to the purpose of his business’. As per
Section 17(5)(h) input tax credit shall not be available in respect of goods lost,
stolen, destroyed, written off or disposed by way of gift or free samples. In this
case after availing input tax credit, the applicant disposed goods as free supply
for CSR activities. Hence, the applicant is liable to reverse the input tax credit
already availed. However the petitioner is pointed out that with regard to billing
of free of cost materials, distributors issued tax invoices showing sale value, GST
and total amount with 100% discount and pay the GST liability to Government.
In such scenario, input tax credit can be availed only if, the output tax liability
towards the outward supply was remitted to the Government. The applicant in-
structed its distributors to provide the goods at free of cost to Kerala State Elec-
tricity Board for flood renovation work. The distributors billed the goods to
Kerala State Electricity Board and paid GST to Government. In the invoice so
issued, the distributor had valued the goods for the purpose of tax and value was
shown as discount. As per Rule 27 of GST Rules where the supply of goods or
services is for a consideration not wholly in money, the value of the supply shall
be the open market value of such goods. If the open market value is not availa-
ble, be the sum total of consideration in money and any such further amount in

GST LAW TIMES  11th June 2020  45