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of <h1>Input tax credit denied for CSR activities under Companies Act despite COVID delay condonation</h1> <h3>In Re: M/s. Adama India Private Limited</h3> In Re: M/s. Adama India Private Limited - TMI Issues Involved:1. Eligibility of Input Tax Credit (ITC) on inputs and input services procured for Corporate Social Responsibility (CSR) activities.2. Interpretation of 'in the course and furtherance of business' under Section 16 of the CGST Act, 2017.3. Application of Section 17(5) of the CGST Act, 2017 regarding blocked credits.4. Condonation of delay in filing the appeal.Summary:1. Eligibility of ITC on CSR Activities:The appellant, M/s Adama India Private Limited, sought advance ruling on whether inputs and input services procured for mandatory CSR activities qualify as being in the course and furtherance of business, and thus eligible for ITC under Section 16 of the CGST Act, 2017. The Gujarat Authority for Advance Ruling (GAAR) denied the eligibility of ITC, stating that CSR activities are excluded from the normal course of business as per the Companies (CSR Policy) Rules, 2014, and thus not eligible for ITC under Section 16(1) of the CGST Act.2. Interpretation of 'in the course and furtherance of business':The appellant argued that GAAR erroneously equated the expressions 'normal course of business' and 'course and furtherance of business.' They contended that CSR activities, although not part of the normal business operations, are in furtherance of business as they contribute to goodwill and are mandated by law. The appellant cited various judgments to support their claim that CSR expenses are connected with the business and should be eligible for ITC.3. Application of Section 17(5) of the CGST Act:The appellate authority noted that ITC on inward supplies is available only if outward supplies are taxable. Since CSR activities are provided free of cost and not with the motive to earn profit, they cannot be treated as in the course or furtherance of business. It was also noted that expenses on CSR activities are not considered business expenditure under Section 37 of the Income Tax Act, 1961, and thus ITC cannot be claimed on such expenditure. The authority referred to the 48th GST Council Meeting, which recommended that ITC on CSR expenditure should not be allowed and should be included in the list of blocked credits under Section 17(5) of the CGST Act.4. Condonation of Delay:The appeal was filed after the prescribed time limit of 30 days. The appellant requested condonation of the delay due to the ill health of their staff and operational constraints during the Covid-19 pandemic. The appellate authority found sufficient cause to condone the delay and proceeded to decide the appeal on merits.Conclusion:The appellate authority upheld the ruling of GAAR, rejecting the appeal filed by M/s Adama India Private Limited. It was concluded that ITC on inputs and input services used for CSR activities is not allowable under the CGST Act, 2017.
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