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The COVID-19 Pandemic has forced every one of us into an era that was not thought of, or even imagined by anyone. There are a variety of lifesaving measures be it national-wide lockdowns, the shutdown of businesses, closing the international and national borders as well as working remotely are being carried out by authorities in order to keep the effects to a minimum. 

With regard to the effect that covid-19 may have on the human race, some organizations are getting into social initiatives, including the distribution of essential items for the poor, such as masks and sanitisers.

The contribution of companies to fight the spread of the disease would be considered CSR spending in the Companies Act.

To analyze the implication of GST on the above CSR expenditure, we need to understand the applicability of provisions of this law on both the parts of the transactions i.e. Procurement of Facility/ Asset (Inward Supply) and Spending the Facility/ Asset (Outward Supply).


Section 16(1) of the CGST Act, 2017 defines the eligibility for taking input tax credit, which is as under:

"16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49, be entitled 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 and the said amount shall be credited to the electronic credit ledger of such person"

ITC on CSR activity: The new battleground

Further, the term "Business", as defined under section 2(17) of the CGST Act, 2017, includes:

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

(f) admission, for a consideration, of persons to any premises;

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

(h) services provided by a race club by way of totalisator or a licence to book maker in such club; and

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities".

Section 17(5) of CGST Act, 2017 which covers the cases where ITC shall be blocked. Clause (h) of Section 17(5) blocks ITC in respect of goods lost, stolen, destroyed, written off or disposed-off through gift or free samples.


As per section 135 (1) of Companies Act, 2013, "Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director."

And as per sub-section (5) of the section 135 of the Companies Act, 2013, "The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two percent of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy".


Further sub-section (7) of the section 135 of the Companies Act, 2013, specifies that "If a company contravenes the provisions of sub-section (5) or sub-section (6), the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both".

Accordingly, we observe that any Company, who meets the criteria for CSR, is mandatorily required to incur in CSR activities to be in compliant with the Companies Act, 2013 and non-compliance of these provisions may lead to business disruptions.

We refer to the Companies (CSR Policy) Rules, 2014, made by the Central Government in exercise of its powers under section 469 of the Companies Act. Rule 4(1) of the said Rules reads as follows:

"4.(1) The CSR activities shall be undertaken by the company, as per its stated CSR policy, as projects or programs or activities(either new or ongoing), excluding activities undertaken in pursuance of it’s normal course of business.”

Further, vide Companies (CSR policy) Amendment Rules 2021, even the definition of CSR, itself, excluded activities undertaken in pursuance of normal course of business of the company, reproduced as follows, the Rule 2(d) of said Rules, defines CSR as follows:

2(d) "Corporate Social Responsibility (CSR)" means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these rules, but shall not include the following, namely:

(i) activities undertaken in pursuance of normal course of business of the company:

Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that –

(a) such research and development activities shall be carried out in collaboration with any of the institutes or organizations mentioned in item (ix) of Schedule VII to the Act;

(b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board's Report;

(ii) any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level;

(iii) contribution of any amount directly or indirectly to any political party under section 182 of the Act;

(iv) activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);

(v) activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services;

(vi) activities carried out for fulfilment of any other statutory obligations under any law in force in India.



As per sec 16(1) of CGST Act 2017, every registered person will be allowed to avail ITC in respect of the inward supplies that are being used or intended to be used in the course or furtherance of business. However as per sec 17(5), ITC will not be allowed on goods or services used for personal consumption or goods disposed of by way of gift or free samples.

Therefore, in light of above-mentioned provisions, its always disputed whether ITC shall be available this case because root cause of debate is that "whether CSR expense can be considered in course or furtherance of 'business' or not?”

While the term business is defined under CGST Act, the phrase "in course or furtherance of business" is not defined in the law. Dictionary meaning of the term "furtherance" implies advancement, promotion of scheme, etc. Therefore, furtherance of business would imply advancement of business, promotion of business. Any activity carried on with a purpose to achieve business objectives, business principles, business continuity and stability would per se amount to an activity in course or furtherance of business.

There are numerous rulings & judgements in this case and some are in favour of taxpayers wile others favour Revenue. Let's examine some well-known ones:


Dwarikesh Sugar Industries Ltd. (AAR- UTTAR PRADESH), (ORDER NO. 52 OF 2020)

Dwarikesh Sugar Industries Ltd. hereinafter referred as "Dwarikesh Sugar”, is a company engaged in business of manufacture and sale of sugar and allied products. In order to comply with Corporate Social Responsibility (CSR) in terms of Section 135 of Companies Act, applicant undertakes certain activities. The applicant is compulsorily required to undertake CSR activities in order to run its business and accordingly, it becomes an essential part of it business process as a whole and, therefore, said CSR activities are to be treated as incurred 'in course of business'.

Expenses incurred by company in order to comply with requirements of Corporate Social Responsibility (CSR) under Companies Act, 2013 ('CSR Expenses') qualify as being incurred in course of business and eligible for input tax credit (ITC) in terms of section 16

In order to comply with Corporate Social Responsibility (CSR) in terms of section 135 of Companies Act, "Dwarikesh Sugar” undertakes certain activities. Since CSR expenses are not incurred voluntarily, they do not qualify as 'gifts' and, therefore, its credit is not restricted under section 17(5). Free supply of goods as a part of CSR activities is not restricted under section 17 (5) (h).



M/s ADAMA INDIA PRIVATE LIMITED hereinafter referred as "Adama”, submitted that furniture, stationery, plant and machinery items, oxygen concentrators / oxygen plant procured and donated as part of the CSR activity cannot be treated as gift and hence ITC on such items cannot be blocked under the provisions of section 17(5)(h) of the CGST Act. As per Rule 4(1) to the Companies (CSR Policy) Rules, 2014 CSR activities undertaken by the company shall exclude activities undertaken in pursuance of its normal course of business. Further, as per Section 2(d) Companies (CSR policy) Amendment Rules 2021, w.e.f. 23-1-2021, Corporate Social Responsibility does not include activities undertaken in pursuance of normal course of business of the company.

Thus, it is inferred the CSR activities are not the activities undertaken in pursuance of applicant’s normal course of business. In terms of Section 16(1) of the CGST Act a registered person is entitled to take credit of input tax charged on any supply of goods or services or both, which are used or intended to be used in the course or furtherance of business.

CSR activities, as per Companies (CSR Policy) Rules, 2014 are those activities excluded from normal course of business of the company and therefore the applicant is not eligible for Input Tax Credit, as per Section 16(1) of the CGST Act.

Polycab Wires (P.) Ltd., (AAR - KERALA), (ADVANCE RULING NO. KER/30/2019)

Applicant (Polycab), a dealer in electrical goods, had distributed electric items like switches, fan, cables, etc. to flood effect people in State of Kerala under CSR expenses on free basis without collecting any money. For these transactions input tax credit will be not be available to applicant.


The issue relating to availment of ITC on CSR was in dispute during IDT Regime also.

Corporate Social Responsibility (CSR) can be considered as Input service and be included within definition of 'activities relating to business' for availing Cenvat Credit. - Mumbai CESTAT in Essel Propack Ltd. v. Commissioner of CGST, Bhiwandi ([2020] 117 409 (Mumbai - CESTAT)

The Tribunal held that CSR undertaken by the company for specific reasons, is not in the nature of charity as it has got a direct relation on its manufacturing activities which is largely dependent on smooth supply of raw materials. CSR activities improved the image of the company, and thus they can be considered as activities relating to business.


CSR activities have a high impact on the image of the company and are also mandatory as per the provisions of the Companies Act, 2013. It enhances the reputation of the company and thus creates the goodwill of the company. Therefore, it can be ascertained that Corporate Social Responsibility activities are incurred in the course or furtherance of business. CSR activities though not directly linked to business activities of a company, these give an indirect benefit to the company and help in improving its social image. CSR activities are compulsory for a company and non-compliance of law might render company and its office bearers punishable under Companies Act, 2013. Thus, performing CSR activities are must for a company for its effective & smooth functioning. Further, section 17(5)(h) of CGST Act cannot be applied in case of CSR activities because CSR expenditure can not be equated with "gifts”.

Therefore, based upon above arguments, the restriction under Section 17(5)(h) cannot be made applicable on free provision of services. But that is not the spirit of the law as for as CSR is concerned and government must come out with some clarification to avoid unnecessary litigation on the issue.

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