Input tax credit not available for GST paid on CSR work expenses: UP AAR

Delhi, June 29, 2023

CSR activities are excluded from the normal course of business, says authority citing rules

Input tax credit (ITC) cannot be claimed on the goods and services tax (GST) paid on expenses for corporate social responsibility (CSR), Uttar Pradesh-based authority for advance ruling (AAR) has ruled.

The ruling was given in a case relating to a company manufacturing and supplying automobile parts such as pistons, piston rings and engine valves.

The company asked the AAR whether it is entitled to avail of ITC for the GST paid on various services and expenses incurred towards discharging its CSR obligation.

It said these CSR activities improve the public image of the company, enhance its brand value and help it stand out from the competitors.

Since these activities promote business, the company engages various vendors or suppliers to carry out activities in relation to education, sanitation, healthcare and environment, it said.

On such supply of goods and services, the applicant pays the consideration to the suppliers along with the applicable GST.

The company argued that it should be entitled to ITC because expenses on CSR activities are incurred in the course of its business.

The AAR held that CSR activities, according to Companies (CSR Policy) Rules, 2014 are excluded from the normal course of business of the applicant and therefore are not eligible for ITC.

Harpreet Singh, partner indirect taxes at KPMG in India, said pursuant to the specific restriction on availing credit under the CGST Act and the fact that both under CSR rules and Income tax Act, CSR activities are considered as non-business expenses, availment of input GST credit on CSR spends has been contentious.

"This is true, even though some rulings under GST and under erstwhile Service tax have given an affirmative answer on availability of credit and thus, tend to give hope to taxpayers, ” said Singh.

[The Business Standard]