Fact of the case: M/s. Essel Propack Ltd. situated in village Vadavali at Thane District manufactures multi-layer plastic laminates falling under chapter heading 39201012 & 39201012 of the Central Excise Tariff Act, 1985 and it has been availing cenvat credit facility under the Cenvat Credit Rules 2004. Audit was conducted in the factory and it was detected that between the period October 2009 and November 2010 cenvat credit of service tax amounting to Rs 12,12,772/- was availed towards such company’s commitment to corporate social responsibility (CSR) and audit pointed out the same to be inadmissible.
Assesses Contention: The said expenditure was incurred by the company which was covered under the activities relating to business as provided under the definition of input services given in Rule 2(l) of the Cenvat Credit Rules 2004 and the services of students were utilised in relation to manufacturing business of the appellant since they were assigned duties to prepare data sheet, maintain production log book, support preventive maintenance of machines, and assist production operators and in the process, they learn the nature of job that made them eligible to become future workers in factories. The CSR activity 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. However, it is clear that CSR is not only a holistic approach but it has integrated the core business strategy since it addresses the wellbeing of all stake holders and not just companies’ shareholders.
Held: In the case of Essel Propack Ltd vs. Commissioner of CGST, Bhiwandi vide Appeal No. E/85322/2018 dated August 31, 2018, the Hon’ble CESTAT observed that CSR which was a mandatory requirement for the public sector undertakings, has been made obligatory also for the private sector and unless the same is to be treated as input service in respect of activities relating to business, production and sustainability of the company itself would be at stake. Further, CSR activity being held as input service that was maintained by the appellant through an agency(Trust), the other dispute relating to suppression etc. that would attract extended period is not required to be discussed in the appeal, nor the part acceptance of the duty liability by the appellant. Therefore, credit of service tax against payment made to M/s Shree Kalamadevi Charitable Trust for imparting training to students of under-privileged section of society in discharge of Corporate Social Responsibility (CSR) is admissible and the order passed by the Commissioner (Appeals) demanding duty, interest and penalty against input service availed by the appellant company towards fulfilment of CSR activity is hereby set aside.
Inference of the above judgment can be applied in GST regime as well where Section 16(1) of the CGST Act, 2017, allows every registered person to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. But, one needs to be careful as regards the list of blocked credit given under Section 17(5) of the CGST Act. Thus, GST input tax credit in respect of CSR activities may be availed provided that the same is not covered under the blocked credit list.