In Today‘s world of COVID, basic necessities of a commoner has expanded from just food, house, clothes to the protective measures and equipments. The GOI has issued various requests, notifications urging every citizen to help government in fighting COVID collectively by various means, be it self-social distancing, donating, social works etc., the Ministry of Corporate Affairs issued clarification vide circular no. 10/2020 dated 23.3.2020, that spending of the Corporate Social Responsibility funds for COVID-19 is eligible CSR activity.

During the two month time starting from 22.3.2020, all the business activities, except those engaged in providing essential supplies (that too a very thin list of activities with all the due cautions leading to increase in their operating costs), were totally shut down and suffered a major setback as no one was prepared for such a long lasting crisis. Sub-sequently in Lockdown 2.0 and then to 3.0, Government over the time has issued various clarifications and  Procedures, which provide for reopening of commercial and industrial establishments w.e.f 3.5.2020 in a phased manner. In these Procedures Ministry of Home Affairs has mandated the followings:

  • Temperature Screening
  • Provision of Protective Equipment such as Masks Gloves
  • Provision of Sanitizers at convenient places
  • For workers coming from outside, special transportation facility will be arranged without any dependency on public transport system
  • Medical insurance for the workers
  • Ensure social distancing amongst workers working in office as well as factory premises
  • Frequent sanitization of premises as well as vehicles entering the premises.

The aforesaid scenario has raised a seminal question of whether ITC can be availed of such expenditure incurred by an organization? The question that remains largely unanswered has been the subject of widespread debate in the current context.

The examination of the following provisions for such ITC eligibility will be relevant in this regard:

ITC is allowed in respect of inward supplies used in the course or furtherance of business by  virtue of Section 16 ‗Eligibility and conditions for taking Input Tax Credit‘ However,  this section is superseded by  Section 17(5)  of  the Act where-in  it imposes certain restrictions on which ITC cannot be availed, which include :

  • goods or services or both used for personal consumption
  • goods lost, written off, destroyed or disposed-off by way of gifts or free samples distributed

Additionally, it has been clarified vide GST Circular No. 92/11/2019 dated 7.3.2019 that ITC shall not be available to the supplier on the inputs,  input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration.

Thus, for ITC to be disallowed, such items should be covered under either of the following:

  • personal consumption, or
  • gifts

Personal Consumption‘ is a considerably broad term, the extent and scope of which has been clarified by AAR Tamil Nadu.

Goods or services or both used for personal consumption;

  • In the instant case, the applicant has their own in-house hospital  for use by the employees, retirees and their This is a  free center where all the services and medicines are provided free to the employees. No consideration is charged from the employees for  this. This provision of free medical care is mandatory as per the Regulations made under Major Ports Act. These are mandated to be provided to the applicants employees, their dependents, pensioners and family pensioners for their own in-patient and out-patient treatments. These treatments include medicines which are also provided free of charge to the employees for their personal use. The medicines and medical facilities are proved by the applicant to its employees for their personal use. Therefore, as per Section 17 (5) (g) of CGST/TNGST ACT,  input tax credit is not available for the medicine that the applicant is procuring for the consumption of its employees and pensioners and their dependents. The applicant has stated in their application that these are not “goods for personal consumption” as the applicant pays for  the same. The argument does not hold. The fact of who pays for the medicines here is irrelevant to the usage of the  said  medicines.  They are used by the employees and dependents and hence are for personal consumption and the applicant is ineligible to  take  input tax credit on the inward supply of medicines used to provide health facilities to its employees in its hospital.
  • In view of the foregoing, we rule as under:

The applicant is not entitled to take credit of input  tax  charged  on  the inward supply of medicines which are used to provide medical facilities to

the employees, pensioners and dependents in the in-house hospital.

A possible inference that can be drawn from the above pronouncement of AAR Tamil Nadu is that for the determination of eligibility to take credit of input tax, it is imperative to differentiate whether the consumption is for performing a task or as a reward for performing a task.  In the case quoted above, it is apparent that the applicant was disentitled from taking credit of input tax as  the consumption by employees was not an essential for performing a task but in fact, a reward for performing tasks. Seeing the current scenario, it can be easily concluded that preventive measures and equipments such as masks, gloves, sanitiser etc. are essentials for performing a  task and thus,  cannot be regarded as things for personal consumption.

The Apex Court in case of Commissioner Of Income-tax, Kerala Vs. Malayalam Plantations Limited, has held that the expression ‘for the  purpose of the business‘ may include not only the day to day running of a business but also  the rationalization of its administration and modernization of its machinery. It may include measure for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile titles. It may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for the carrying on of a business. It may also bring in many other acts incidental to the carrying on of a business.

From the above Judgment, it can be inferred that expenses incurred by a taxable person to run the business should be termed as expenditure incurred in the course of business. To protect employees from the spread of COVID 19, employer incurs the subject expense so that  business  can run smoothly.  Thus, the expense of procurement of masks and sanitizers can be referred as expenditure incurred in the course of business.

‗Gift‘  has  not  been  defined  under  the  GST  Act,  however  we  may  draw reference from ‗Transfer  of  Property  Act‘,  which defines “Gift is  the  transfer  of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee.”

Since, in the above discussed case such supplies are mandated by the Government and are in pursuant to a statutory obligation, thus cannot be treated as voluntarily even if supplied without consideration. In view of the above discussion it is clear that such supplies cannot be termed as Gift.

What if such items are given without consideration as a part of CSR Activity?

Such expenses are mandatory and any failure would attract penal provisions, which might affect the business and sustainability of the company. Thus, such expenses are in the course or furtherance of business. The same has also been upheld by Hon‘ble Mumbai CESTAT in matter of ESSEL Propack Ltd. Vs. Commissioner Of CGST, Bhiwandi, wherein it was held  that  the  credit in respect of expenditure on CSR can be availed by the Company, which discharges CSR obligations. Hon‘ble CESTAT observed that CSR is not a charity but a mandatory requirement 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.

Expenses incurred to discharge Corporate  Social  Responsibility  (CSR)  are in the course or furtherance of the business of the Corporates due to following points:

  • Statutory requirement with penal provisions (proposed) under section 135 of Companies Act, 2013
  • Ethical and social responsibility towards
  • Smooth functioning for long
  • Improving public image & Increased media
  • Improvement in credit

Contrary to this, AAR Kerala, in the matter of IN RE: M/S. Polycab Wires Private Limited, disallowed the ITC in respect of goods distributed free of cost under CSR activities as per Section17(5)( h).

Appellate Authority on Advance Ruling, Odisha in the case of IN RE: M/S. National Aluminium Company Limited, has affirmed an Advance Ruling with contradictory remarks. AAAR held that ruling of the AAR that services availed in relation to plantation and gardening within the plant area including mining  area and the premises of other business establishments will qualify for input tax credit is found to be correct and added that “Creation and maintenance of green area/zone inside plant/mining/office premises is a business necessity for controlling pollution as well as atmospheric temperature. It is also a requirement for preventing soil erosion. This is also mandated  in  various  laws  under  which the appellant conducts its business such as the Forest Conservation Act, the Environment Protection Act, etc. Therefore, such activities are integral to the business activity of the appellant and can be treated as activities in course or furtherance of its business”. Although in the same ruling, AAAR has not allowed ITC on plantation done outside business/plant premises for discharging CSR, being not integrally related to business but welfare activities.

Thus in light of the above discussion, it becomes even more important for the Government to come forward with a positive clarification to clear the ambiguity and also promote corporates to drive their CSR spends towards COVID-19.

Analysis of some specific expenses done by entities during Lockdown:

  • Mediclaim Insurance

ITC on health insurance is restricted under 17(5)(b)(iii) of the Act unless it is obligatory for an employer to provide its employees under any law for the time being in force. The guidelines issued by MHA could be said to be mandatory and thus ITC on such insurance, which is done after post issuance of guidelines could be admissible. It is worth noting that ITC  on premium of life insurance policies would still be ineligible.

  • Transportation facility for workers coming from outside

ITC on Hiring, leasing or renting of motor vehicle is also ineligible unless mandated under any law for the time being in force. Since, as per the MHA guidelines it has been mandated for the establishments to provide transportation facility for workers, ITC on the same could be claimed.


“Advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in subsection (2) of section 97 or sub-section (1) of section 100 of the CGST Act, 2017, in relation to the supply of goods or services………




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