ITC allowed in respect of supplies made as part of CSR activities as the same are not “gifts” under Section 17(5)(h)


ITC allowed in respect of supplies made as part of CSR activities as the same are not “gifts” under Section 17(5)(h)

M/s Dwarikesh Sugar Industries Ltd


Short Overview: 

The applicant, a company incorporated under Companies Act 2013 had undertaken activities like construction of school building, free supply of furniture and electrical goods to school, and other goods and services on which GST is charged, in

order to comply with its CSR obligations as mandated by. Section 135 of the Companies Act, 2013.

Pursuant to the above procurements and supplies, the applicant sought an advance ruling as to whether such expenses incurred by the company  qualify as being incurred “in the course of business” for availing ITC in terms of Section 16 of the CGST Act or not.

Additionally, whether ITC in relation to CSR activities is blocked under Section 17(5)(h) of not, as free supply of goods.

Further, whether goods or services used for construction of building, to the extent they are not capitalized in the books, are

restricted under Section 17(5)(c)/(d) or not.

The Authority for Advance Ruling ruled as under :

  • In view of the decision of Tribunal in Essel Propack Ltd. as well as the Hon’ble High Court decision in Millipore India (P)

Ltd., as the applicant is compulsorily required to undertake CSR activities in order to run its business, it becomes an

essential part of its business and thus are to be treated as incurred “in the course of business”

  • Carving out a clear distinction between goods given as “gifts” and those provided as a part of CSR activities, it can be said

that while former is voluntary and occasional, the latter is obligatory and regular in nature, and thus, CSR expenses do not qualify as “gifts” and hence, its credit is not restricted under Section 17(5)(h) of the CGST Act.

  • ITC on construction/works contract services is restricted under Section 17(5)(c)&(d) only to the extent of capitalization in the books of the Applicant. Thus, ITC on goods/services related to construction/ WCS, not capitalized, will be available.

However, there appears to be one ruling which is against the present case. Th is views were expressed in Poly cab wire case 2019 24 GSTL 103 AAR KAR