Can ITC be availed on CSR-expenditure incurred by the company

 

Contradictory decisions from the Authority for Advance Ruling continue to be made regarding input tax credit (ITC) on expenditures undertaken to fulfil corporate social responsibility (CSR) (AAR). The most recent one comes from Telangana AAR and favours ITC for CSR-related purchases.

"The corporate responsibility expense incurred pursuant to Section 135 of the 2013 Companies Act is an expense made in furtherance of the business. As a result, under the CGST and SGST Acts, the tax paid on purchases made to fulfil CSR responsibilities will be eligible for input tax credits, according to Telangana AAR, which ruled on a case submitted by Hyderabad-based Bambino Pasta Food Industries.

Section 135

A company with net worth of ₹500 crore or turnover of ₹1,000 crore or a net profit of ₹5 crore or more in the immediately preceding financial year will spend at least 2 per cent of the average net profits made during the three immediately preceding financial year on CSR. A company not doing so will attract penalty under Section 135 which may go upto a maximum of ₹1 crore.

The applicant gave an oxygen plant to the AIIMS hospital in Bibinagar, Yadadri Bhongir district as part of its CSR programme. To that aim, it purchased a PSA oxygen plant and incurred spare parts costs. This expense fell under the CSR guidelines. The corporation requested a decision from AAR regarding the availability of ITC for CSR expenses.

AAR concluded that if a firm does not make the necessary financial investments to fulfil its CSR obligations, the operation of its business will be materially harmed. As a result, such expenses are made to advance the business. Therefore, ITC under GST will be available for taxes paid on purchases purchased to fulfil the CSR responsibility.

Particular Restriction

The Uttar Pradesh AAR previously decided that ITC should be available on costs incurred to meet CSR standards in the case of Dwarikesh Sugar Industries. In the case of Polycab Wires Ltd., the Kerala AAR ruled that ITC was not to be offered for the free distribution of electrical goods like switches, fans, cables, etc. to flood victims as part of CSR.

Source: thehindubusinessline.com