News & Insights

CSR spends can earn GST input tax credit

Published: April 9, 2021
Author: Manali bhanushali

The UP bench of the Authority of Advance Ruling (AAR) has ruled that corporate social responsibility (CSR) expenses are incurred by a company in the course of business and are eligible for input tax credit under goods and services tax (GST) regulations. It pointed out that CSR expenditure is incurred in order to comply with the requirements of the Companies Act, 2013.

This ruling, which distinguishes between goods given voluntarily as ‘gifts’ and those that are part of CSR activities, provides much relief to companies engaged in litigation on the issue of input tax credit, or ITC. The ruling will strengthen the case of companies providing free goods as part of their CSR activities. While advance rulings do not set a judicial precedent, they do have a persuasive effect in the course of assessments.

The UP bench of the AAR gave the ruling in the case of Dwarikesh Sugar Industries, which is engaged in the manufacture and sale of sugar and allied products. In order to comply with its CSR obligations, the company undertook the construction of school buildings, additional rooms, and labs. It also supplied for free various goods such as furniture and electrical equipment for use in the schools. In other words, for carrying out its CSR activities, it purchased goods on which GST was levied.

The moot question was whether input tax credit would be available against its final GST liability, for the GST paid by it, in procuring such goods. The AAR answered in the affirmative, but with a caveat. It pointed out that input tax credit of goods and services used for construction of the school building would not be available to the extent these have been capitalised.

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