TaxTMI 
TaxTMI 
2023 (6) TMI 1181
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....g in course or furtherance of business in terms of Section 16(1) of the CGST Act, 2017 r/w UPGST Act, 2017?. 3. As per declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending nor decided in any proceedings under any of the provisions of the Act, against the applicant. 3.1 Shriram Pistons and Rings Limited (hereinafter referred to as 'Applicant') is engaged in manufacture and supply of automobile parts (two wheelers and four wheelers) viz. Engine Parts such as Pistons, Piston rings, Engine Valves etc. and related products from its manufacturing unit (factory) located at A-4 to A-7, B-8/1 & 2, B 9 & 10, Industrial Area III, Meerut Road, Ghaziabad- 201 003 (U.P.). 3.2 The Applicant is a company incorporated under the Companies Act, 1956 and is engaged in developing, manufacturing and marketing of its finished products. The Applicant with GSTIN 09AAACS0229G1ZN is registered with the Goods and Services Tax Department in the state of Uttar Pradesh and falls within the jurisdiction of Central Goods and Services Tax Commissionerate, Ghaziabad. 3.3 With an initiative to provide financial assistance to improve the lives of under-ser....
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....rporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company. (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years [or where the company has not complete the period of three financial years since its incorporate, during such immediately preceding financial years], in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of Section 134, specify the reasons for not spen....
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.... prescribed limit and that it meets with the other criteria laid down in the aforesaid provision, a legal obligation is on the Applicant to incur expenses on the activities of Corporate Social Responsibility as per Section 135 (1) of the Companies Act and also constitute a CSR Committee. 3.6 The CSR Committee, in accordance with Section 135 (3) (a) of the Companies Act (reproduced above), formulates/frames a Corporate Social Responsibility Policy ('CSR Policy'), indicating the activities like the ones mentioned in Schedule VII of the Companies Act, 2013 which the Applicant may undertake for discharging its CSR obligations. The Policy also postulates/ budgets out the expenses to be incurred by the Applicant on the activities/areas and monitors its progress thereof, from time to time, in terms of Section 135 (3) (b) and (c) of the Companies Act. Upon approval from the Board of Directors to the recommendations mentioned in the CSR Policy placed by CSR Committee, the same is uploaded on the Applicant's website in compliance to Section 135(4)(b) of the Companies Act. 3.7 The Applicant, in compliance to the statutory requirement of Companies Act and that it could carry out its busi....
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....ed by Applicant for discharging its statutory CSR obligation under the Companies Act. 4. The applicant has submitted their interpretation of law as under- 4.1 Applicant's interpretation that the expenses incurred by it in order to comply with the statutory requirement of CSR under the Companies Act, qualify as being incurred in the course of business and thus eligible for ITC under Section 16 of the CGST Act. The submissions in support of the aforesaid interpretation have been enunciated in the ensuing paragraphs: 4.2 GST charged on the supplies received by the Applicant for discharging its CSR obligations is in the course or furtherance of his business and thus eligible for Input Tax Credit under Section 16(1) of the CGST Act. 4.3 The present issue raised by the Applicant is whether the expenses incurred by it on receipt of various supplies for complying with CSR activities under Companies Act, is in furtherance of business and eligible for ITC in terms of Section 16(1) of the CGST Act. 4.4 According to Section 16(1) of the CGST Act, a registered person shall be entitled to take credit of input tax paid on any supply of goods or services or both that are used or int....
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....f 'business' is an inclusive one and is wide enough to cover within its scope a broad range of activities. An inclusive definition expands the meaning of the words. The implication of the use of the term 'inclusive' has been explained by the Hon'ble Supreme Court in CIT vs. Taj Mahal Hotel - [1971] 82 ITR 44 as follows: "The word 'includes' is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. When it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import, but also those things which the interpretation clause declares that they shall include" [Emphasis Supplied] 4.8 Further, the Hon'ble Supreme Court in Mazagon dock Ltd vs CIT and Excess Profit, 1958 (5) TMI 2- SUPREME COURT had an occasion to examine the scope of word "business" and held as follows: "14. The word "business" is, as has often been said, one of the wide import and in fiscal statutes, it must be construed in a broad rather than a restricted sense 15. "The word 'business' connotes", it was observed by this court i....
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....hever is less. Further, every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account or two lakh rupees, whichever is less. 4.12 As the turnover of the Applicant is more than rupees one thousand crores as well as the net profit is more than rupees five crores, during the preceding financial year, it is therefore mandatory for the Applicant to incur expenses attributable to CSR activities in compliance with the Companies Act and any default/ non-compliance would entail serious penal consequences upon the Applicant and also lead to disruption as well as hindrances in the smooth functioning of its business. 4.13 Accordingly, for complying with the statutory requirement of CSR obligation, the Applicant is incurring expenses for educational services, wherein they are providing funds for running of a school for the underprivileged. They are also incurring expenses on running of dispensary and supply of medicine to patients who may not be able to afford the necessary medical care. Expenses are also being inc....
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....Act, 2017? (b) Whether goods and services used for construction of school building which is not capitalized in the books of account is restricted under Section 17 (5)(c)/17(5)(d) of CGST Act, 2017? 10. As per Section 135 (1) of Companies Act, 2013, "Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director." And as per sub-section (5) of the Section 135 of the Companies Act, 2013, "The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Polic....
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....porate social responsibility is also relevant. It is to discharge a statutory obligation, when the employer spends money to maintain their factory premises in an eco-friendly, manner, certainly, the tax paid on such services would form part of the costs of the final products, Tribunal was right in holding that the service tax paid in all these cases would fall within the input services and the assessee is entitled to the benefit thereof." In view of this, we observe that the applicant is compulsorily required to undertake CSR activities in order to run its business and accordingly, it becomes an essential part of his business process as a whole. Therefore the said CSR activities are to be treated as incurred "in the course of business". 13. As regard to the question whether free supply of goods as a part of CSR activities is restricted under Section 17(5)(h) of CGST Act, 2017, we observe that the applicant supplies of furniture/fittings such as tables, chairs etc. and electrical goods to be used in the school under the CSR activity, free of cost. In this regard, we observe that Section 17 of the CGST Act, 2017 talks about apportionment of credit and blocked credit....
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....e in course or in furtherance of business in terms of Section 16, to ensure business continuity, ITC on the CSR expenses incurred by the Applicant as part of their CSR obligation is admissible 5. As per declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending nor decided in any proceedings under any of the provisions of the Act, against the applicant. 6. The application for advance ruling was forwarded to the Jurisdictional GST Officer to offer their comments/views/verification report on the matter and reminder dated 27.10.2022 was sent. The Deputy Commissioner, CGST & Central Excise Division-III, Ghaziabad vide his letter C. No. 20-CGST/R-11/D-III/Misc/131/2021/965 dated 11.11.2022 offered desired comments/view/verification report on the question raised in the Advance Ruling Application is as under:- As it is clear that these are merely compliance of Corporate social responsibility under Companies Act, 2013 being an obligation under a law it can't be considered as furtherance of business and the same is not eligible for input tax credit. No such proceeding on the question raised in application is pending or decided in t....
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....ility (CSR) means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these rules, but shall not include the following, namely: (i) activities undertaken in pursuance of normal course of business of the company: Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COV1D-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that- (a) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act. (b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board's Report sports (ii) any activity undertaken by the company outside India except for training of Indian personnel representing any State or Union territory at national level or India at international level; ....
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.... and cannot be held in the name of the company itself. For existing capital assets compliance within 180 days is required. Thus the corporation cannot directly own this capital asset that was made or purchased with CSR funding. It is also prescribed that the surplus generated by CSR activities will not be included in a company's business profit and will be transferred to the Unspent CSR Account or reinvested in the same project. The company should transfer any unspent CSR funds to any funds listed in Schedule VII of the Act until a fund is specified in Schedule VII in accordance with sections 135(5) and 135 (6) of the Act. 13. Section 16(1) of the CGST Act, stipulates that a registered person is entitled to take credit of input tax charged on any supply of goods or services or both, which are used or intended to be used in the course or furtherance of his business. Thereby, we hold that the Section 16 (1) of the CGST Act bars CSR activities from input/input service. 14. In pursuance to Companies CSR Rules framed by the Central Government and in pursuance to wordings of Section 16(1) CGST Act, we disagree with both the applicant's and revenue's stand for admissibility of ITC o....