FEBRUARY 11, 2023

By Advocate Anandaday Misshra, Founder & Managing Partner, AMLEGALS

BUDGET 2023, also referred to as the first budget in the Amrit Kaal, has tried to check all contours of the society with a vision to take India to the next decade of growth with "Saptarishi" i.e. seven segments of the country, to prioritize in order to successfully enter into the Amrit Kaal.

What is proposed?

Finance Bill, 2023 proposes to introduce a provision under Section 17(5) of the Central Goods and Services Tax Act, 2017 to put a curb on the availing of Input Tax Credit (ITC) on activities pertaining to the obligations under Corporate Social Responsibility (CSR). Such a proposal can be dropped so as to align with the ultimate intent of the Amrit Kaal.

The Finance Bill, 2023 vide Clause 130 - Amendment of Section 17 proposes to insert in sub-section (5), after clause (f), a clause named (fa) which stipulates that

"(fa) goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013;".

Why CSR?

The concept of CSR was implemented firstly by India as a nation, whereby it put the responsibility on companies with stipulated financials to discharge their social obligation under Section 135 of the Companies Act, 2013.

"This created a legal obligation to be complied with by the companies."

Why GST?

The saga of placing GST in the ecosystem of India, commenced two decades ago when a dire need was felt for creating a seamless flow of Input Tax Credit in the supply chain mechanism.

What is the position of CSR under Blocked ITC?

With the advent of GST w.e.f. 1st July, 2017, there had been no restriction on availing of ITC on such an inward supply or supply meant for filling CSR obligation which is mandated by the Companies Act, 2013 in the course or furtherance of the business.

"It evolved and got settled with the jurisprudence laid down by various Courts including Constitutional Courts."

Why a proposal for Exclusion under an Obligation?

The chemistry behind this is yet to be known but it has been aired that Covid-19 has seen a steep surge of availing of ITC on CSR which also created a certain level of suspicion at the exchequer's end.

"Irrespective of the actual reason, it has resulted in double jeopardy in as much as at one end, there is an obligation to be performed in the course or furtherance of business and on the other, an exclusion has been proposed to be created under the exclusions in blocked credit."

What is the Impact?

There are two schools of thought on this issue, wherein according to the first school this curb on the availing of ITC would not have a great impact on the activities under CSR.

However, the second school of thought on the issue has highlighted a grey area and aired that the planning for allocation of fund towards the activities under the CSR for a company would be carried out in a manner of cum-tax value.

Before I put this topic to rest, a moot question that arises is "At what cost are we gearing up for CSR?" and while putting some brakes on the flow of ITC, whether we are deviating from the ecosystem of ITC under GST or is the emphasis only to check the availing of ITC on CSR irrespective of its unintended & implied effects?

Hope wisdom and best judgment prevail behind this denial of ITC on CSR.

[The views expressed are strictly personal.]