The Corporate Social Responsibility(CSR) has been a matter of dispute since its inception and where there is an interplay with income tax or indirect tax.
In pre GST era, there were many disputes related to CENVAT Credit pertaining to CSR activies, some of which may be referred as below:
In Essel Propackv. Commissioner[2018-TIOL-3257-CESTAT-Mumbai], the Tribunal relied upon various definitions on CSR and for sake of simplicity the original para 6.1 is bifurcated and held as under:
“6.1. As found from the Handbook on CSR published by the Confederation of Indian Industry (CII) there is no single Universal accepted definition of CSR, though roots of CSR lie in philanthropy activity of Corporations globally.
The concept of CSR has evolved and now encompasses all related concept including corporate sustainability since EC defines CSR as the responsibility of enterprises arose for their impact on society who should have in place a process to integrate social, environmental, ethical human rights and consumer consciousness into the business operation and core statute in close collaboration with their stake holders.
The World Bank CST defines CSR as “the continuing commitment by business to contribute to economic development while meeting the quality of life in the work place and their family as well as of the community and society at large.”
Similarly, United Nations IDO also defines it as a management concept whereby companies integrate social and environmental concerns in their business operations and interaction with stakeholders (not only with share holders).
Therefore, CSR is generally understood as being the way through which the company achieves a balance of economic, environmental and social imperatives (triple bottom line approach), while at the same time it addresses the expectations of stake holders and shareholders.
UNIDO further elaborates it by saying that in this sense it is important to draw a distinction between CSR, which can be a strategic business management, and charity, sponsorship or philanthropy.
Even though the latter can also make a valuable contribution to poverty deduction, CSR will directly enhance reputation of a company and strengthens its brand. The concept of CSR clearly goes beyond charity.”
The Tribunal observed that CSR clearly goes beyond the charity and hence, it is a golden line for demarcation whenever a situation arises as to what is for charity and what is not.
The Tribunal concluded as under:
“11. To pin point the dispute, it is now to be looked into as to if CSR can be considered as input service and be included within the definition of “activities relating to business” and if in so doing, a company’s image before corporate world is enhanced so as to increase its credit rating as found from the handbook of CSR activities discussed above. The answer is in the affirmative since to win the confidence of the stake holders and shareholders including the people affected by the supply of raw material from their locality say natural resources like mines and minerals etc. the hazardous emission that may result in production activities.”
Karnataka High Court
In Commissioner of C. Ex., Bangalore-II v. Millipore India Pvt. Ltd. 2012 (26) STR 514 (Kar), the Karnataka High Court held as under:
“5 . Therefore, it is clear that those factors have to be taken into consideration while fixing the costs of the final products. If services tax is paid in respect of any of those services which forms part of the costs of the final products certainly the assessee would be entitled to the cenvat credit of the tax so paid. That apart, the definition of input services is too broad. It is an inclusive definition. What is contained in the definition is only illustrative in nature. Activities relating to business and any services rendered in connection therewith, would form part of the input services. The medical benefit extended to the employees, insurance policy to cover the risk of accidents to the vehicle as well as the person, certainly would be a part of the salary paid to the employees. Landscaping of factory or garden certainly would fall, within the concept of modernization, renovation, repair, etc., of the office premises. At any rate, the credit rating of an industry is depended upon how the factory is maintained inside and outside the premises. The Environmental law expects the employer to keep the factory without contravening any of those laws. That apart, now the concept of corporate social responsibility is also relevant. It is to discharge a statutory obligation, when the employer spends money to maintain their factory premises in an eco-friendly, manner, certainly, the tax paid on such services would form part of the costs of the final products. In those circumstances, the Tribunal was right in holding that the service tax paid in all these cases would fall within the input services and the assessee is entitled to the benefit thereof.”
On perusal of the above, the observation of the Courts is as clear as day light it has to be mandated by law and not a mere charity.
The summary can be as under:
a.If CSR can be considered as input service and be included within the definition of “activities relating to business” and if in so doing, a company’s image before corporate world is enhanced so as to increase its credit rating as found from the handbook of CSR activities discussed above.
b.The concept of corporate social responsibility is also relevant. It is to discharge a statutory obligation, when the employer spends money to maintain their factory premises in an eco-friendly, manner, certainly, the tax paid on such services would form part of the costs of the final products.
The same ratio and analogy will still be applicable even in post GST era and will also be a guiding factor even when there exists a restriction under Section 17(5)(h) of CGST Act,2017.