Introduction

While we write this article, the entire world is suffering through an uncertain phase, caused by the outbreak of COVID-19. No one would ever have imagined that the tiniest specie existing on the planet; which can’t be even seen with the naked eyes, would put the entire world on a halt. As the scientists are still finding a cure to the virus, every nation of the world is fighting with this pandemic in its own ways.

Most of the businesses, except those engaged in providing essential supplies, are not even able to operate. Governments all over the world are well versed with the fact that in this hour of exigency, businesses need to be protected from any undue harassment. In line to this, the Government of India has also announced several measures to provide relief to the industry and businesses.

Hon’ble Prime Minister of India has also urged the citizens of India to support the government in its fight against the pandemic. Resultantly, in addition to the common citizen of the country, large corporate houses are also extending their support to the Government and people of India to fight this pandemic.

To encourage the Companies to contribute to fight the pandemic, recently Ministry of Corporate Affairs has issued a clarification, stating that the amount spent by Companies towards fighting this pandemic would be counted towards fulfilment of their statutory obligation of Corporate Social Responsibility (CSR). An illustrative list of transactions, which would be counted for CSR expenditures are given below

•		Cash donations to PM-CARES Fund, Chief Minister Relief Funds or any other similar fund
•		Supply of essential items such as Masks, Sanitizers, Personal Protective Equipment (PPE), Ventilators – without recovering any consideration

In addition to this, Ministry of Home Affairs of India has also issued certain guidelines and standard operating procedures (SOP) for organizations/entities towards sanitization of workplaces, procurement of temperature measurement equipment’s, sanitizers, masks, gloves and other equipment’s, arrangement of transportation facility for workers etc.

At this juncture, it is imperative for the businesses and industries to analyze the tax treatments from Goods and Service Tax perspective. In this article, we would be covering GST implications on the transactions which would be relevant in this context

Analysis

Proceeding further, let’s now examine the transactions from GST standpoint with a reference to the Input Tax Credit:

•		Cash donation to PM-CARES Fund, Chief Minister Relief Funds or any other similar fund
		In such types of transaction, no tax element would be involved and hence the question of taking Input Tax Credit (ITC) does not arise.
•		Supply of essential items such as Masks, Sanitizers, Personal Protective Equipment (PPE), Ventilators – without recovering any consideration
		When these items are procured by the registered person, GST at applicable rates is discharged. Subsequently, when these items are supplied without any consideration, no tax is charged/deposited.
		As far as the question of ITC is concerned, section 16 of GST Act prescribes that a registered person shall be entitled to claim ITC of tax paid on the supplies, which are used in the course or furtherance of business. Further, section-17(5) restricts ITC in respect of certain supplies, which includes goods lost, written off, destroyed or disposed of by way of gift or free samples.
		In addition to this, GST Circular No. 92/11/2019 dated 7th March 2019, has clarified 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.
		However, with respect to ITC of GST paid on the above items, following points merit consideration:

–		The term ‘Gift’ has not been defined anywhere in GST laws. However, Transfer of Property Act defines ‘gift’ as below:
		“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”
		In the present case, the Company incurs such expenses in pursuant to a statutory obligation, and not ‘voluntarily’, therefore supply of items cannot be termed as gift
–		Samples are generally distributed to promote the product and the business, but in the instant case, these items are supplied pursuant to a statutory requirement, hence it cannot be termed as sample as well
		With regard to the above expenditures, it can be stated that CSR expenses are a cost to the companies, failure to comply with the same would attract penal provisions, therefore, an inference can be drawn that these expenditures are incurred in the course or in furtherance of the business and accordingly, ITC should be allowed.

		Further, the above has been upheld in one of the rulings of erstwhile regime, where Hon’ble Mumbai CESTAT, in the matter of Essel Propack Limited v. Commissioner of CGST 2018 (362) E.L.T.833 (Tri-Mumbai), 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.
		Though, in GST regime, AAR Kerala, in the matter of Polycab Wires Pvt Ltd. has taken a different view by disallowing the ITC in respect of goods distributed free of cost under CSR activities as per Section17(5)(h).
		However, on the other side of the coin, first entry of Schedule-I states that permanent transfer/disposal of business assets would be treated as supply, even if made without consideration, provided ITC has been availed on such assets. In this regard, it is imperative to note that there are three limbs of this entry :

(a)		Permanent disposal or transfer
(b)		Business asset
(c)		Where ITC has been availed

		With reference to the supply of essential items pursuant to CSR, it can be said that condition (a) & (c) may be satisfied as supply of such items is a permanent disposal or transfer and ITC has also been availed. Now let’s examine whether the goods transferred falls within the scope of ‘Business Assets’
		The term ‘Business Asset’ has not been defined anywhere in GST laws. As per accounting concepts, if some future benefits are expected to flow from a tangible or intangible item, it can be treated as an ‘asset’. However, there is a slight difference between incurring expenditures and generating an asset. While generating the asset, the primary intention which exist is to obtain future benefits for multiple years, while at the time of incurring expenditures, such intention is for much shorter period, i.e. normally not more than one year.
		The above view get further strengthens as the word used in this entry is “business assets”, instead of “goods”. Had it been ‘goods’, then transfer of every type of item would have got covered under this. But, legislature has intentionally kept this word as “Business Assets” so that only those items get covered here, where the element of future benefits exists.
		Therefore, in our opinion, the supplies in question would not get covered under the term ‘Business Asset’ and therefore, would not fall under the deeming fiction of ‘Supply’ as per Schedule-I.
		Though the unwarranted glare of the tax authorities can never be avoided, still, in principally, ITC of the expenditures incurred on CSR activities should be allowed in terms of the above discussion.
•		ITC on expenditures incurred for ensuring compliance to SOP issued by MHA
		In respect of ITC on expenditure incurred towards procurement of various items such as Temperature Measurement Equipment, sanitizers, masks, gloves etc. used or intended to be used while performing official duties, it may be concluded that these safety measures are required to be followed by every business as directed in MHA guidelines. Also, expenses incurred on such products would be counted towards furtherance or in the course of business, hence ITC on such supplies should be allowed.
		Department may dispute the ITC on these supplies by saying that these goods would be used for personal consumption of the employees. However, in our opinion, it can be well argued in the court of law.

Conclusion

Considering the present economic disruption caused by COVID-19, it is very tough for the businesses to even survive. In this hour of exigency, it is expected that the Government would take a liberal view and would come up with some positive clarifications to clear the sky which is presently clouded due to the confusions related to availability of ITC. It will further ensure the active participation of trade and industry to further strengthen the fight against this pandemic