• Dwarikesh Sugar Industries Ltd. (‘the Applicant’) is a company incorporated under the Companies Act, 2013 (‘the Companies Act’) and is engaged in the business of manufacturing and sale of sugar and allied products
• To comply with the Corporate Social Responsibility (‘CSR’) under Section 135 of the Companies Act, the Applicant undertakes the following expenses:
• Construction of school building, additional rooms, laboratories etc.
• Free supply of furniture/ fittings such as tables, chairs etc., to be used in the school
• Free supply of electrical goods to be used in school
• Other expenses such as provision of goods/ services to Registered Charitable Trusts/ NGOs

• Whether the expenses incurred by the Applicant to comply with the requirements of CSR under the Companies Act qualify as being incurred in the course of business and eligible as Input Tax Credit (‘ITC’) under Section 16 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’)?
• Whether free supply of goods as a part of CSR is restricted under Section 17(5)(h) of the CGST Act?
• Whether goods and services used for construction of school building which is not capitalised in the books of accounts is restricted under Section 17(5)(c)/(d) of the CGST Act?

Ø  Any company which meets the criteria for CSR is mandatorily required to be in compliance with CSR mandate under the Companies Act to avoid business disruptions

Ø  Relying on the decision of Hon’ble CESTAT Mumbai in the case of Essel Propack Ltd. v. Commissioner of CGST, Bhiwandi [2018 (362) ELT 833] and the Hon’ble High Court of Karnataka in the case of Commissioner of Central Excise, Bangalore v. Millipore India (P.) Ltd., the AAR held that CSR activities shall be treated as incurred ‘in the course of business’ since such activities become an essential part of the business and the Applicant is mandated to undertake such activities to run its business

Ø  CSR expenses are obligatory and regular in nature as opposed to a ‘gift’ which is voluntary and occasional in nature. On account of an obligation to incur such CSR expenses, the same cannot be considered as ‘gift’ and the ITC of free supply of goods under CSR cannot be restricted under Section 17(5)(h) of the CGST Act

Separately, AAR placed reliance on Advance Ruling for the state of Rajasthan in the case of Rambagh Palace Hotels Pvt. Ltd. and held that ITC on goods and services used for construction of school building will not be available to the extent of capitalisation