Credit on CSR activity involving goods and services

[Asked by Guest]

Hi all

I feel this is of interest to all of you

There are divergent opinion on Credit on goods used in CSR activity and also services used in CSR activity. As service is not covered under Sec 17(5).

Also in Service tax there is one favorable judgment on the issue but in the service tax the specific exclusion like section 17(5) in GST was not there.

Pl clarify whether credit can be taken on CSR activity on goods as well services.

[Rajagopalan Ranganathan]

Sir,

For the period prior to GST and under service tax regiem, CESTAT has held that input services used for CSR Activities are eligible for Cenvat credit [Essel Propack v CCGST (2018 (362) ELT 833 (CESTST)] = 2018 (9) TMI 247 - CESTAT MUMBAI. Imy opinion the principles enunciated in the said decision is applicable to GST also. The decision is reproduced below: -

[KASTURI SETHI]

Dear Querist,

Also go through this decision :-

2019 (24) G.S.T.L. 103 (A.A.R. - GST) = 2019 (4) TMI 111 - AUTHORITY FOR ADVANCE RULINGS, KERALA IN RE : POLYCAB WIRES PRIVATE LIMITED

 

[KASTURI SETHI]

Dear Querist,

You may find contradictory decisions of AARs on the issue. W.e.f 1.4.14, CSR activities were made obligatory for the companies depending upon the turnover of a company. See Section 135 and Schedule VII of the Company Act, 2013. This Act was further amended in 2019. If the activities of a company are covered in the Schedule VII and fulfill all the conditions laid down in the Company Act, 2013, ITC is admissible on CSR.

Dear Sir's,

Appreciate your feed back and reply.

I agree that this is an obligatory as per Companies Act, but the amendment in CST Act section 17(5) (b) for allowing credit is for expenses between employer and employees and not in general.

A also agree that it benefits business-indirectly but the section 17(5) start with Notwithstanding anything contained in sub-section (1) of section 16 and section 17(5) (h) restrict the credit of goods disposed of by way of free gift or free samples ( even samples are for business purpose and part of cost of goods produced and the expenses are allowed under Income tax) and on samples credit is not allowed.

CSR expenses are not allowed under IT Act also therefore i want to reconfirm when expenses are not allowed as pert of cost of goods whether credit can be allowed.

Also section 17(5) (h) coveres only goods and not services, whether different view can be taken for services and goods.

Awaiting your guidance n confirmation.

Regards

[KASTURI SETHI]

Dear Sir,

It is with reference to further query.

Section 17(5)(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and

CSR expenses are out of all the terms/phrases of Section 17 (5)(h). How CSR expenses are correlated to 'goods lost', 'stolen' 'destroyed', written off' and 'gift'. CSR activities are voluntarily free. Gift is something else. See the legal definition of 'gift' CSR expenses can be incurred for goods or services or both. CSR expenses are not restricted to goods only as you opined.

[KASTURI SETHI]

In continuation of my reply, I further add that Income Tax is direct tax and GST is indirect tax and both are not to be compared. In Income Tax Act, 'such expenses' have been specifically excluded but the same has not been specifically excluded from the phrase of, "in the course or furtherance of business." The scope of the phrase, "in the course or furtherance of business" is very wide enough to include CSR expenses in its fold.

[DR.MARIAPPAN GOVINDARAJAN]

In my view ITC is not eligible for CSR activities.

[KASTURI SETHI]

Whenever there is a difference of opinion on any issue and risk is taken, SCN is most likely to be issued by the department. Then matter will travel to Courts Such issue can travel up to Supreme Court.

[Somit Goyal]

Hello everyone!

One more thing needs to be addressed is that if we are of the view that ITC is available on CSR expenses, what would be the implication of Entry No. 1 in Schedule I of the CGST Act, 2017 which is as follows:

"Permanent transfer or disposal of business assets where input tax credit has been availed on such assets."

[YAGAY and SUN]

GST is payable on the supply of goods and/or services.

1. As per Section 17(5)(h), you will be required to reverse the credit taken on the goods if the same are disposed of by way of gift.
2. In case any assets/goods are given on account of a statutory obligation, the contribution in kind will not constitute as “gift” for invoking the provision of Section 17(5)(h) and SRF will not be required to reverse credit in such cases.

[Somit Goyal]

So do we conclude the following wrt goods given away for CSR Activity:

1. ITC is not required to be reversed wrt CSR Activity; and

2. GST is payable on such transaction (permanent transfer of goods) in view of Schedule I of the CGST Act, 2017.

AI Summary

Input Tax Credit on CSR expenditures faces uncertainty due to statutory exclusions and conflicting rulings.
Whether input tax credit is claimable on goods and services used for corporate social responsibility activities is disputed under GST because Section 17(5) disallows credit where goods are disposed by way of gift, while services are not explicitly excluded. Conflicting AARs and prior service tax precedents add divergence. Practical effects include possible reversal of credit for gifted goods and GST consequences under Schedule I for permanent transfers, though contributions made pursuant to statutory obligations may not be treated as gifts for reversal purposes.