Many taxpayers are coming forward to help and support the nation during this lockdown caused due to COVID-19. Since they want to contribute for this noble cause but they might be afraid of GST implications on the same. To give them a clear picture, here is discussion on GST implications on various contributions made.
Since donations & CSR are nowhere defined in GST Law so let us start with some basic definitions & relevant provisions of various laws:-
Donation (General Definition): A donation is a gift for charity, humanitarian aid, or to benefit a cause. A donation may take various forms, including money, alms, services, or goods such as clothing, toys, food, or vehicles.
CSR: Section 135 of the Companies Act, 2013, inter alia, provides for companies having net worth of rupees five hundred crore or more or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more in a financial year to spend at least 2% of the average net profits of last 3 years for the company’s Corporate Social Responsibility (CSR) policy.
Activities which may be included in the CSR policy by the companies are specified in schedule VII of the Companies Act, 2013.
Generally, donations are made in the form of money or by the way of distributing the goods seeming essential during such situations. To discuss about taxability of such items under ambit of GST; we have to discuss whether they fall under GST premise.
Section 2(52) of the CGST Act, 2017; defines “goods” as every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
Section 2(102) of the CGST Act, 2017; defines “services” as anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.
As per section 7(1)(a) of the CGST Act, 2017; supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
Schedule I of the CGST Act, 2017 specifies transactions which will come under ambit of supply even if made without consideration. Entry 1 of the said schedule states Permanent transfer or disposal of business assets where input tax credit has been availed on such assets thereby including the supplies of business assets made without any consideration even for charitable purpose provided that ITC has been availed on such assets.
Now various arguments has been made whether only capital goods will be included in business assets or stock (either raw material or finished goods) will also qualify the definition of business assets for above mentioned provision. Till now no clarification has been made by government on such issue; so either view can be taken by taxpayer.
As per ICAI Background Material; It can be said that satisfaction/discharge of obligation under the Companies Act in itself is the consideration for the supply.
Therefore, it can be said that goods supplied free of cost in lieu of corporate social responsibility (CSR) activities, then such supply will not be considered without consideration. Infact, consideration in such cases will be monetary value of CSR expenditure made.
Section 17(1) of the CGST Act, 2017 states that where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.
And further subsection 5 of section 17 clearly blocks input tax credit in respect of goods or services or both used for personal consumption (sec17(5)g)) and Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples (sec17(5)(h)).
Below mentioned table explains GST implications under different situations:-
|Type of Contribution (Donation/ CSR)||Supply||Valuation||ITC|
|Monetary contribution||Not supply since money doesn’t come under definition of goods or services. Therefore transaction in money doesn’t qualify supply as per GST provisions||Question of Valuation will not arise in this situation||Question of ITC will not arise in this situation|
|Distribution of goods (manufactured or purchased) at concessional rates||
Since distribution of goods at concessional rates will satisfy the condition of section 7 of the CGST Act, 2017; this will constitute as supply
GST will be charged considering the value of supply as per valuation principles under GST Law
If supply of such goods has been made to unrelated person (which is generally the case) then value of supply will be amount received against such supplies and GST will be discharged on such consideration.
In all other cases; consideration received will be subject to valuation rules i.e. Rule 28/30/31 of the CGST rules, 2017 and accordingly GST liability will be paid on such value calculated.
|Complete ITC will be available subject to section 16 & 17 of the CGST Act, 2017|
|Distribution of goods (manufactured/ purchased) without any consideration or Free supply of goods||Case 1: Supply made under ambit of CSR policy
Considering the section 7 of the CGST act, 2017; it will considered as supply under GST.
Case 2: Supply made over and above CSR ambit or made voluntary
As per sec7(1)(a) of the CGST act, 2017; it will not considered as supply since it is made without consideration.
|Case 1: Considering the GST provisions and ICAI background material mentioned above; it can be concluded that value of supply in such case will be value of such CSR expenditure.
Case 2: Since supply is made without any consideration; therefore valuation provisions will be taken in consideration while discharging GST liability on it.
|Case 1: Since consideration is identified in this case; therefore it will neither fall under Entry 1 of Schedule 1 nor under section 17(5) thereby full ITC will be eligible subject to sec16 of the CGST Act, 2017.
Case 2: Since supply is qualified on the basis of Entry 1 of schedule I of the CGST Act, 2017 and it states that ‘Permanent transfer of business assets where ITC has been availed on such assets’.
But if it is not treated as supply as per Entry 1 of schedule 1; then ITC will be blocked as per sec17(5)(h).
Author can be reached at [email protected]