In re Adama India Private Limited (GST AAAR Gujrat)
The case of Adama India Private Limited’s appeal to the Authority for Advance Ruling (AAR) in Gujarat raises crucial questions regarding the applicability of Goods and Services Tax (GST) on Corporate Social Responsibility (CSR) activities mandated by the Companies Act, 2013. The primary concern is whether Input Tax Credit (ITC) can be claimed for inputs and input services used in CSR initiatives.
Background: Adama India Private Limited, a supplier of insecticides, fungicides, and herbicides, is obligated under Section 135 of the Companies Act, 2013, to undertake CSR activities. These activities involve spending on donations to government relief funds, educational societies, civil works, and more. Suppliers providing goods and services for CSR activities charge GST on their supplies, and Adama India seeks to claim ITC for these expenses.
Key Questions: The appellant sought clarity on two critical questions:
a. Are the inputs and input services procured for mandatory CSR activities considered “in the course and furtherance of business,” making them eligible for ITC under Section 16 of the Central Goods and Services Act, 2017 (CGST Act)?
b. If the answer to the first question is affirmative, do various categories of inputs and input services, such as books and stationery, civil works, plant and machinery, medical equipment, and furniture, qualify for ITC under Section 17(5) of the CGST Act?
AAR Ruling: The Gujarat Authority for Advance Ruling (GAAR) ruled that CSR activities, as defined by the Companies (CSR Policy) Rules, 2014, do not fall within the scope of “in the course and furtherance of business” under Section 16(1) of the CGST Act. Therefore, ITC cannot be claimed for expenses related to CSR initiatives.
Appellant’s Grounds for Appeal: Adama India Private Limited challenged the GAAR ruling on various grounds:
a. The GAAR did not provide adequate reasons for disallowing ITC on CSR activities or establish a nexus between CSR definitions and GST eligibility.
b. The GAAR wrongly equated “normal course of business” with “course and furtherance of business” under GST law, leading to an erroneous denial of ITC.
c. The appellant argued that CSR activities, being mandatory and contributing to goodwill, inherently promote business and should be considered “in the course and furtherance of business.”
d. The appellant cited relevant case law and emphasized that the SGST department supported their view on ITC eligibility for CSR activities.
Analysis and Findings: The GAAR ruling was based on the definition of CSR activities in the Companies (CSR Policy) Rules, 2014, which excludes activities undertaken in the normal course of business. However, the appellant contended that this definition does not negate the idea that CSR activities can still be in the “course and furtherance of business.”
The CGST Act, Section 16(1) states that ITC can be claimed for inputs and input services used in the course or furtherance of business. Since CSR activities are mandatory and can impact a company’s reputation and operations, the appellant argued they should qualify as being in the course and furtherance of business.
Furthermore, the appellant referred to a proposed amendment in the Finance Act 2023, indicating that CSR expenses would be listed as blocked credit, reinforcing the legislative intent to disallow ITC for CSR activities.
Conclusion: While the appellant’s arguments regarding the eligibility of ITC for CSR activities raise valid points, the GAAR’s ruling, based on the CSR policy definition, currently stands. The proposed legislative amendment adds further weight to the disallowance of ITC for CSR expenses. Therefore, companies must be aware of the GST implications and the evolving legal landscape surrounding CSR activities.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, GUJARAT
At the outset we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 and Gujarat Goods and Services Tax Act, 2017 (hereinafter referred to as the `CGST Act, 2017′ and the `GGST Act, 2017′) arc in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act, 2017 would also mean reference to the corresponding similar provisions in the GGST Act, 2017.
2. The present appeal has been filed under Section 100 of the CGST Act, 2017 and the GGST Act, 2017 by M/s Adama India Private Limted (hereinafter referred to as Appellant) against the Advance Ruling No. GUJ/GAAR/R/44/2021 dated 11.08.2021.
3. Briefly the facts of the case is as under :
4. M/s Adama India Private Limited, Plot No. D-2/CI I-1, GIDC Estate, Dahej, Tal-Vagra, Dahej, Bharuch-392130 Gujarat (herein after referred to as ‘the appellant’), holding GSTIN: 24AABCM8797N1ZO, are suppliers of insecticides, fungicides and herbicides.
5. The appellant submitted that as per Section 135 of the Companies Act, 2013, it has been spending the mandatory amount on Corporate Social Responsibility [‘for short — ‘CSR’] activities in the form of donations to the Government relief funds/ educational societies, civil works or installation of plant and machinery items in schools or hospitals, distribution of food kits etc,; that the vendors who supply goods/services to the appellant for the purpose of undertaking the CSR activities charge GST on their output supplies; that the appellant intends to avail the Input Tax Credit (ITC) of the inputs and input services being procured for the purpose of undertaking the CSR activities.
6. The appellant sought advance ruling on the following questions:
a. Whether the inputs and input services procured by the appellant, in order to undertake the mandatory CSR activities as required under the Companies Act, 2013, qualify as being in the course and furtherance of business and therefore will be counted as eligible ITC in terms of Section 16 of the Central Goods and Services Act, 2017 (CGST Act)?
b. Also, if the answer to the above question is in the affirmative, whether the categories of the following inputs and input services being procured by the appellant for the purpose of undertaking CSR activities will constitute as eligible ITC’ in terms of Section 17(5) of the CGST Act:
