The Authority for Advance Rulings (AAR) Gujarat bench has ruled that corporate social responsibility (CSR) initiatives are not part of regular company operations. It ruled in a case involving a private limited business, Adama India. The AAR stated Adama India would not be eligible for GST input tax credit.
If the CST authorities implement this decision during evaluations, it would be a massive blow to India Inc, which has spent extensively on CSR initiatives like giving medical assistance through oxygen concentrators and sanitisers, to mention a few.
This is another typical instance of two AAR benches having opposing opinions on the same subject. In its April 8 issue, TOI reported the Uttar Pradesh (UP) bench’s judgment in Dwarikesh Sugar Industries.
In this instance, the AAR panel ruled that CSR spending is spent to meet a company’s legal responsibilities. Thus, the company’s CST paid on CSR-related purchases may be offset against its GST obligation (this is referred to as ITC).
The applicant company supplied pesticides, fungicides, and herbicides to the Gujarat AAR. Its CSR expenditures included school notebooks and course materials, seats and tables in schools and hospitals, cement benches in public areas, oxygen-generating plants in hospitals, masks, sanitisers, and oxygen concentrators.
It asserted that since CSR expenditures were obligatory, they are expended in the course of business. So it should qualify for ITC.
But the Gujarat AAR bench disagreed. It went on to say that the UP AAR bench’s decision did not bind it and that AAR judgements only bind the applicant and the appropriate GST authorities.