CSR expenses ineligible for input tax credit under Section 16(1) as activities fall outside business course

The AAR, UP ruled that GST paid on services/expenses for CSR obligations does not qualify for input tax credit under Section 16(1) of CGST Act, 2017. The authority determined that CSR activities are specifically excluded from normal business course per Companies (CSR Policy) Rules, 2014, creating a strict regulatory framework independent of regular business operations. CSR activities require separate registration, cannot be held in company's name, and surplus cannot be included in business profit. Since Section 16(1) allows ITC only for supplies used in course or furtherance of business, CSR-related expenses are ineligible for credit.

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Issues Involved:
1. Admissibility of Input Tax Credit (ITC) on expenses incurred towards discharging Corporate Social Responsibility (CSR) obligations.

Issue-wise Detailed Analysis:

1. Admissibility of Input Tax Credit (ITC) on CSR Expenses:

Applicant's Submission:
- The applicant, a registered GST entity, sought an advance ruling on whether it is entitled to avail ITC for GST paid on various services/expenses incurred towards discharging its CSR obligations.
- The applicant argued that expenses incurred for CSR activities qualify as being in the course or furtherance of business and thus eligible for ITC under Section 16 of the CGST Act.
- The applicant emphasized that CSR activities are mandatory under Section 135 of the Companies Act, 2013, and failure to comply would result in serious penal consequences, thus affecting the smooth functioning of its business.
- The applicant cited previous rulings and case laws, including the Hon'ble CESTAT in Essel Propack Ltd. and the Hon'ble High Court of Karnataka in Millipore India (P) Ltd., to support their claim that CSR activities are integral to business operations and should be eligible for ITC.

Jurisdictional GST Officer's View:
- The Jurisdictional GST Officer opined that CSR expenses, being an obligation under the Companies Act, cannot be considered as furtherance of business and are not eligible for ITC.

Authority for Advance Ruling (AAR) Analysis:
- The AAR examined the provisions of Section 16(1) of the CGST Act, which allows ITC on supplies used in the course or furtherance of business.
- The AAR referred to the Companies (CSR Policy) Rules, 2014, which state that CSR activities should exclude activities undertaken in the normal course of business.
- The AAR noted that the new CSR Rules and Section 135 of the Companies Act create a strict regulatory framework, making CSR activities independent of normal business activities and requiring separate registration and records.
- The AAR concluded that CSR activities, as per the Companies (CSR Policy) Rules, 2014, are excluded from the normal course of business and thus do not qualify for ITC under Section 16(1) of the CGST Act.

Ruling:
- The AAR ruled that CSR activities, as per the Companies (CSR Policy) Rules, 2014, are excluded from the normal course of business of the applicant and therefore are not eligible for ITC as per Section 16(1) of the CGST Act.
- The ruling is valid within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh, and subject to the provisions under Section 103(2) of the CGST Act, 2017, until and unless declared void under Section 104(1) of the Act.

Conclusion:
- The AAR held that expenses incurred towards discharging CSR obligations do not qualify for ITC under the CGST Act as they are not considered to be in the course or furtherance of business.

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