CX - CSR activity can be considered as Input service since included within definition of 'activities relating to business': CESTAT
By TIOL News Service
MUMBAI, OCT 29, 2018: THE appellant is a manufacturer of multi layer plastic laminates and avails CENVAT credit.
Denial of CENVAT credit (of Service tax) to the appellant against payment made to a third agency i.e. M/s. Shree Kalamadevi Charitable Trust for imparting training to students of under-privileged section of society in discharge of corporate social responsibility is challenged before this Tribunal. Appellant had engaged youth from the lower strata of the society in its factory to provide them on the floor exposure to the production activities of the company and in so doing, it has engaged them in preparation of data sheet, maintenance of production log book, preventive maintenance of the machine and assist in production operation as well as transfer of raw materials etc.
The adjudicating authority denied the credit of service tax on the ground that the said service did not fall within the definition of Input Service as defined in rule 2(l) of the CCR. The period involved is October 2009 and November 2010 and the credit involved is Rs.12,12,772/-
The AR submitted that there was no nexus of input services with the business activity of the appellant since CSR activities are welfare activities and not related to business/ production related activities.
So also, the service of imparting training had been provided by the trust M/s. Shree Kalamadevi Charitable Trust to the students of the weaker section of society and not by the appellant company itself and, therefore, there was no service provided by the Trust against which CENVAT credit could be claimed by the appellant. It is also pointed out that Section 135 of the Companies Act effective from 01.04.2014 on mandatory CSR activities to be discharged by the company pertains to the period not covered under the period of dispute which was between October 2009 and November 2010 and, therefore, the contention of the appellant that such obligation of CSR activity was discharged in compliance to statutory obligation is not to be accepted.
The Bench considered the submissions and after adverting to the definition of CSR found in section 135 of the Companies Act, in the Handbook on CSR published by the Confederation of Indian Industry (CII), by the World Bank, by the United Nations Industrial Development Organisation (UNIDO), observed thus -
+ 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.?
+ The handbook further emphasizes the usefulness or benefit of robust CSR programme.
+ CSR is not a charity since it has got a direct bearing on the manufacturing activity of the company which is largely dependent on smooth supply of raw materials … and the same also augments the credit rating of the company as well as its standing in the corporate world.
The moot question, the Bench noted was - Whether 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.
The CESTAT further observed -
++ The answer is in the affirmative - since to win the confidence of the stakeholders and shareholders including the people affected by the supply of raw material from their locality, say natural resources like mines and minerals etc. and the hazardous emission that may result from production activities.
++ 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.
The appeal was allowed by setting aside the impugned order passed by the Commissioner(A).
(See 2018-TIOL-3257-CESTAT-MUM)
