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INPUT TAX CREDIT ON EXPENDITURE UNDER CORPORATE SOCIAL RESPONSIBILITY SCHEME

Corporate Laws / Banking / SEBI - By: - Mr. M. GOVINDARAJAN - Dated:- 13-9-2018 Last Replied Date:- 15-9-2018 - Introduction In all over the world the theme corporate social responsibility ( CSR for short) is prevailing among the corporate sector. It is a voluntary one. Even in the earlier periods in India it was made as voluntary only. After the enactment of Companies Act, 2013 this scheme has been made as mandatorily. India is the first country to make the CSR as mandatory. Definition Rule 2(1 .....

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icy will cover subjects enumerated in Schedule VII of the Act. Companies to pursue CSR Section 135 of the Companies Act, 2013 ( Act for short) provides the procedure for implementation of this scheme by the companies whose- net worth is ₹ 500 crore or more; or turnover is ₹ 1000 crore or more; or net profit is ₹ 5 crore or more during any financial year. Quantum of amount spent to CSR The Board of every such company shall ensure that the company spends, in every financial year, .....

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at may be included by companies in their corporate social responsibility policies. The said list is as follows- eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water; promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and t .....

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ining quality of soil, air and water 4[including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga; protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts; measures for the benefit of armed forces veterans, war widows and their dependents; training to promote rural sports, n .....

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rea development. Income tax provisions The amount spent by companies towards CSR cannot be treated as business expenditure. The Finance Act, 2014 provides that any expenditure incurred by an assessee on the activities relating to corporate social responsibility shall not be deemed to be expenditure for the purposes of business or profession. No specific tax exemptions have been extended to CSR per se. Even Rule 6(2) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 states tha .....

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responsibility with reference to decided case law. This is the grey area still prevailing in the business sector which has not yet been resolved. Input tax credit The expression input tax is defined under section 2(62) of Central Goods and Services Tax Act, 2017( CGST Act for short), in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes- the integrated goods and serv .....

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7 of the Union Territory Goods and Services Tax Act, (reverse charge) but does not include the tax paid under the composition levy. The expression input tax credit is defined under section 2(63) of the CGST Act as the credit of input tax. Availing of input tax credit The input tax credit includes the tax paid on input as well as input services. The term input is defined under section 2(59) of the CGST Act as any goods other than capital goods used or intended to be used by a supplier in the cour .....

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come Tax Act is not allowing the expenditure of CSR as a business expenditure, one interpretation may be that the expenditure incurred on CSR activities may not be in furtherance of business and only an obligation to be complied with mandatorily under the Act. Case law On 30.08.2018 the Mumbai CESTAT held that the input service credit in respect of expenditure on CSR can be availed by the company which discharges CSR obligations. In ESSEL PROPACK LTD. V. COMMISSIONER OF CGST, BHIWANDI - 2018 (9) .....

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. The Adjudicating Authority held that the same was inadmissible and imposed interest and penalty. The Commissioner (Appeals) upheld that order of the Adjudicating Authority. Against the order of Commissioner (Appeals), the appellant filed appeal before the Tribunal. He contended that- the said expenditure was incurred by the company which was covered under the activities relating to business as provided under the definition of input services given in Rule 2(l) of the Cenvat Credit Rules 2004 th .....

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e welfare activities and not related to business/ production related activities; the service of imparting training have been provided by the trust M/s. Shree Kalamadevi Charitable Trust to the students of the weaker section of society and not by the appellant company itself and therefore there was no service provided by the Trust against which CENVAT credit is claimed by the appellant; Section 135 of the Companies Act effective from 01.04.2014 on mandatory CSR activities to be discharged by the .....

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ncrease its credit rating as found from the handbook of CSR activities discussed above. The answer is in the affirmative since to win the confidence of the stake holders and shareholders including the people affected by the supply of raw material from their locality say natural resources like mines and minerals etc. the hazardous emission that may result in production activities. The Tribunal allowed the appeal. Analysis The decision of CESTAT, Mumbai has been welcomed by many. This may widen th .....

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