Tax Paid On Purchases To Meet The CSR Obligations Is Eligible For ITC: Telangana AAR

The Telangana Authority of Advance Ruling (AAR) has ruled that the tax paid on purchases made to meet the obligations under corporate social responsibility (CSR) will be eligible for input tax credit (ITC) under the CGST and SGST Acts.

The two-member bench of S.V. Kasi Visweswara Rao and Sahil Inamdar has observed that the expenditure made towards corporate responsibility under Section 135 of the Companies Act, 2013, is an expenditure made in furtherance of the business.

The applicant is a manufacturer of vermicelli and pasta products. The applicant filed an advance ruling application to determine the admissibility of ITC on its CSR expenditures.

During the COVID period, when oxygen was scarce in the country, the applicant donated an oxygen plant to AIIMS hospital Bibinagar, Yadadri Bhongir District, for the benefit of patients suffering from low oxygen levels, according to the application. The applicant has purchased a PSA oxygen plant and spare parts for that oxygen plant for Rs. 62,74,200, which includes an IGST of Rs. 9,16,200. The applicant was of the opinion that the expenditure made by them comes under the CSR provisions as per Section 135 of the Companies Act, 2013.

The applicant sought an advance ruling on the issue of its eligibility to claim ITC on the CSR expenditure spent by it since it was spent in accordance with the provisions laid down by the Companies Act, 2013.

Section 135(7) of the Companies Act, 2013 makes it clear that a company has no other way except to spend its CSR amount or transfer an amount to funds specified by the government. Non-spending of CSR funds will definitely have an impact on the functioning of the company, as penal provisions will have a financial impact as well as on how the brand is perceived by the customers.

The AAR noted that companies with a specified net worth or net profit are obliged to incur a minimum of 2% of their net profit towards their CSR, and failure to do so will attract a penalty under Section 135 that may go up to a maximum of Rs. 1 crore. The running of a company's business will be substantially impaired if they do not incur CSR expenditures.

Applicant's Name: Bambino Pasta Food Industries Private Limited

Dated: 20.10.2022

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