TMI Blog2023 (6) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... CSR Policy and projects approved by The Board of Directors are implemented by a CSR Committee which is made public on the website. As per Rule 4 on and after April 1, 2021 Companies can undertake CSR activities only through implementing agencies which are registered with MCA. These implementing agencies will have to file e-form CSR-1 with MCA portal and will receive unique CSR registration number. Rule 7(4) says that the CSR fund may be spent by a company for creation or acquisition of a capital asset which shall be held in the name of only section 8 company or registered public trust or registered society having CSR registration number 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 specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-served and unprivileged sections of the society, the Ministry of Corporate Affairs of the Government of India, vide an amendment in 2013 in the Companies Act 1956, introduced Corporate Social Responsibility Policy (hereinafter referred, as CSR ) in Section 135 of the Companies Act. The said Policy provides the guidelines to be followed by corporations/companies for conducting Corporate Social Responsibility by contributing to improve sanitation, water facility, healthcare, education, etc. 3.4 In view of Section 135 of the Companies Act, 2013 (hereinafter referred to as the Companies Act ), a Company having net worth of five hundred crore or more, or turnover of more than one thousand crore or more or a net profit of rupees five crore or more during the immediate preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 spending the amount and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII within a period of six months of the expiry of the financial year]. Provided that also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed] [ Explanation For the purpose of this section net profit shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of Section 198] (6) Any amount remaining unspent under sub-section (5), pursuant to any ongoing proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies 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 business operation without any hindrance, incurs expenses on various activities in relation to CSR obligations as any contravention thereof would entail serious penal consequences on the Applicant as well as on the officer of the Company in default in terms of sub-clause (7) of Section 135 of the Companies Act. 3.8 CSR focuses on the idea that a business has social obligation above and beyond making a profit. It requires a management to be accountable to the full range of stakeholders. It is a continuing commitment of business to behave ethically and contribute to the sustainable economic development by working with all stakeholders to improve their lives in the ways that are good for business and the society at large. It is a way of integrating the economic, social and environmental imperatives of business activities which promotes the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 intended to be used in the course or furtherance of business. The relevant portion of Section 16, is reproduced below, for ready reference: - Eligibility and conditions for taking input tax credit. 16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. 4.5 It is submitted that any activity which is quite essential for the purpose of running a business or which has been performed with the sole object of furthering the trade or business interest of the assessee is an activity performed in the course or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 in Narain Swadeshi Weaving Mills Vs Commissioner of Excess Profits Tax, 1955 1 SCR 952 = 1954 (10) TMI 11 - SUPREME COURT some real, substantial and systematic or organised course of activity or conduct with a set purpose. The term business therefore, particularly in fiscal statutes is of wide import. 4.9 As per clause (b) of sub-Section 17, the term business includes an activity or transaction in connection with or incidental or ancillary to the primary business activity. The courts have interpreted business by giving it a wide interpretation under fiscal statutes. Further, by an inclusive definition, the term business under the CGST Act, is further expanded, so a wide interpretation to the term is to be applied in the present case. Therefore, in the present case, any activity performed by the Applicant in connection with or incidental or ancillary to the manufacture of its finished pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incurred to achieve one of the goals of Swacch Bharat Abhiyaan for providing hygiene and sanitation by making proper toilet facilities available for all and its maintenance/repair thereof etc. 4.14 Therefore, the expenses attributable to CSR activities are being undertaken by the Applicant in order to ensure smooth functioning and maintain continuity in its manufacturing business, otherwise it would be saddled with serious penal consequences due to contravention of Section 135 of the Companies Act. 4.15 In Re: Dwarikesh Sugar Industries Ltd., 2021 (53) GSTL 482 (A.A.R - GST - U.P), the Hon ble Authority for Advance Ruling, Uttar Pradesh dealt with the same issue as raised by the Applicant in the present application regarding the admissibility of ITC on the expenses incurred by the Company to comply with CSR obligation is in the course or furtherance of business and eligible for ITC under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Policy . Further sub-section (7) of the Section 135 of the Companies Act, 2013, specifies that If a company contravenes the provisions of sub-section (5) or sub-section (6), the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both . Accordingly we observe that any Company, who meets the criteria for CSR, is mandatorily required to incur in CSR activities to be in compliant with the Companies Act, 2013 and non-compliance of these provisions may lead to business disruptions. 11. Now coming to the question whether CSR activity is to be considered used or intended to be used i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urniture/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 credits. Further, as per Section 17(5)(h) of the CGST Act, 2017, input tax credit shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. The aforesaid section restricted credit of the goods which were written off or disposed of by way of gift or free samples. Now the moot question before us is to decide whether the furniture/fittings such as tables, chairs etc. and electrical goods supplied by the applicant are to be treated as gift or not. The term Gift has not been defined under the CGST Act, 2017, however in common parlance gift is provided to someone occasionally, without consideration and which is voluntary in nature. Further, the applicant has also relied upon the Judgment of Hon ble Supreme Court of India, in the case of Ku. Sonia Bhatia v. State of UP, wherein Hon ble Court has cited the definition of gift from Corpus Juris Secundum, Volume 38 in the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies 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 this office as on date. 7. The applicant was granted a personal hearing on 15.11.2022 which was attended by Shri Sanjay Kumar And Shri Atul Gupta, the authorized representative of the applicant during which they reiterated the submissions made in the application of advance ruling. DISCUSSION AND FINDING 8. At the outset, we would like to make it clear that the provisions of both the CGST Act and the UPGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the UPGST Act. Further for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / UPGST Act would be mentioned as being under the CGST Act . 9. We have gone through the Form GST ARA-01 filed by the applicant and observed that the applicant has ticked following issues on which advance r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport 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; (iii) contribution of any amount directly or indirectly to any political party under section 182 of the Act. (iv) activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019) (v) activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services (vi) activities carried out for fulfilment of any other statutory obligations under any law in force in India ; 12.1 We find that as per Rule 4(1) above (for the period prior to 23-1-2021), the CSR activities undertaken by the company shall exclude activities pursuance of applicant s normal course of business. Companies must ensure that none of these activities is included in their CSR policy as they have specifically been excluded from the definition of CSR. It has been clarified that any costs incurred as a result of these actions are not eligible for CSR credit. 12.2 The new CSR Rules alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance 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 on CSR activities. In fact, we note that the applicant submitted that CSR activities being undertaken by the applicant can become eligible for ITC if only it is established that such activities are in the course and furtherance of business. As per law, Section 16(1) CGST Act bars CSR activities from ITC. We therefore find no merit to discuss the item wise CSR activities of the applicant. 15. The applicant cited case laws: (1) CESTAT order in the case of Essel Propack Vs. Commissioner of CGST, Bhiwandi and (2) Hon ble Karnataka High Court s decision in the matter of C.Ex, Bangalore vs. Millipore India Pvt.Ltd. Both these orders pertain to the pre-GST era when demands on wrong availment of Cenvat credit were issued based on the violations of the Cenvat Credit Rules, 2004 and are not pertaining to GST scheme of law. Further, other case laws cited by the applicant are not identical in this issue and pertains to Income-tax related issues. As regards the reliance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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