ABSTRACT Chemical is right at the core of advance industrial systems, which is why it has attained a serious concern for disaster management. Chemical disasters are often traumatic in impact on humans usually resulting in casualties along with damage to nature and property. Unlike natural disasters, preventive and regulatory measures assume greater significance when we talk about chemical disasters. India too, has witnessed several chemical disasters in the past 50 years, highlighting the need for safeguards against such events. This paper’s focus lies on two of the most dangerous gas leaks India has witnessed until this date, i.e. the Bhopal Gas Leak and the Vizag Gas Leak. The author discusses in detail what went wrong prior to and during the Bhopal Gas leak, which is followed by an explanation on how the safety initiatives have evolved after the 1984 incident. In the next section, the author tries to decode the Vizag leak of 2020 with emphasis on how the company could bypass the safety norms in place. The author then discusses the gap in the present framework governing Chemical Disasters (including gas leaks) and proposes certain measures that could be implemented for effective management of such disasters.

1. Analysis of the recent ruling of CESTAT, New Delhi in M/s
Power Finance Corporation Ltd. v. Commissioner (Appeal),
Central Excise and Service Tax, LTU, New Delhi and
Implications of the same on GST.
Service Tax Appeal No. 50753 of 2017
Order No. – Final Order No. 50502/2022
Bench:
Rachna Gupta (Judicial Member)
P.V. Subba Rao (Technical Member)

2. Facts of the case:
- The Appellant - a Non-Banking Financial Company - financing projects.
- Pays service tax on banking and other financial services that it provides.
- Appellant took Cenvat Credit on service tax - paid on services relating to CSR for period 01.04.2011
to 31.12.2015.
- Show-cause notice issued on 12.04.2016 to the Appellant - denying cenvat credit.
- Ground for SCN being - CSR expenses do not constitute input service for output service - ‘banking
and other financial services’.
- Order-in-original (impugned order) passed by the Commissioner of Central Excise and Service Tax,
LTU, Delhi on 01.12.2016,
- Denied credit on service tax of Rs. 78,68,936 taken by the Appellant in the relevant period.

3. Submissions made in the Appeal:
1. Expenditure on CSR - discharge of statutory liability u/s 135 of the Companies Act, 2013.
2. Services availed in respect of CSR activities - constitutes input service under Rule 2(I) of CENVAT
Credit Rules 2004.
3. Appellant relies on the cases of Essel Propack Ltd. and Millipore India Pvt. to further their stance.
4. Appellant - taken Cenvat Credit under bonafide belief of being entitled to it - therefore, extended
period of limitation must not be invoked.
5. Penalty u/s 76 of the Finance Act, 1994 - concerns default in payment of service tax - the present
dispute is in respect of Cenvat Credit. Thus, Penalty - not imposable.

4. Submissions, on behalf of the Revenue:
1. Revenue - supports impugned order - submits that to check if service qualifies as an ‘input service’,
definition of input service under Rule 2(I) of Cenvat Credit Rules, 2004 to be referred.
2. Relevant portion of the definition reads as: “Any service used by a provider of taxable service for
providing an output service”.
3. In case of service providers, only thing required to be checked - whether there is a nexus between
output services and the services on which credit is claimed.
4. CSR - even though, an obligation under Companies Act - no nexus to the services provided.

5. Issues involved:
1. Whether expenditure incurred by the Appellant in discharging CSR can be construed as Input Service for
the output services rendered by it?
2. Whether extended period of limitation can be invoked in the present case?
3. Whether penalty is imposable under section 76 of Finance Act, 1994.

6. Decision of the Hon’ble CESTAT, New Delhi:
1. CSR - LEGAL OBLIGATION AND NOT INPUT SERVICE FOR OUPUT SERVICE - ”BANKING
AND OTHER FINANCIAL SERVICES”
2. LANGUAGE OF RULE 2(I) CCR, 2004 – ABSENCE OF LEGISLATIVE INTENT
The definition reads as: “for providing output services”. Expenses towards CSR are not used for
providing output services, thus, they are not to be construed as input services, for providing ‘banking
and other financial services’.
3. CSR- NOT MENTIONED EVEN IN THE INCLUSION CLAUSE OF DEFINITION
4. DEMAND FOR PENALTY: NO EVIDENCE OF FRAUD OR COLLUSION

7. .
Coming to the examination of case laws, cited by the Appellant, Hon’ble CESTAT
observed as following:
1. In respect of Millipore India Pvt. Ltd case, the Hon’ble Karnataka High Court
had made just a passing reference to CSR in para 7 but that did not form an
issue in dispute, nor any decision was taken on whether CSR qualifies as an
input service.
2. In respect of Essel Propack Ltd. case, the order of CESTAT Mumbai does not
lay down correct law as Rule 2(I) does not include ‘activities relating to
business’ as input service. And, it is not in the hands of tribunal to modify or
enlarge scope of this Rule with the same being a legislative or quasi-
legislative function.

8. Summary of the ruling of Hon’ble CESTAT:
● CSR obligation is consequent to the rendering of output services.
● Only such services which are used for providing output service qualify as input service. There could be
services which are used not for providing output service but for some other business purpose.
● Some services which may not be used for providing output service have been mentioned in the inclusion
part of the definition of input service. However, CSR was not mentioned therein.
● Mumbai Tribunal ruling in case of Essel Propack Ltd., which allowed CENVAT credit on CSR activities,
does not lay down the correct law.
● Tribunal held that the taxpayer was not entitled to CENVAT credit on services used for undertaking CSR
activities. However, demand for extended period of limitation was set aside.

9. Input Tax Credit on GST paid towards CSR Expenses:
Provisions under the CGST Act, 2017:
● While the earlier legislations imposed numerous restrictions on credits, such conditions are now a lot
relaxed with Section 17(5) of the CGST Act mentioning a list of supplies for which credit is not
available.
● According to Section 16(1) of the CGST Act, every registered person is entitled to take input tax
credit on supplies of goods or services or both used in the course or furtherance of business. This is
unlike the erstwhile Cenvat credit regime credit was available only if the goods/ services were
covered by the definition of inputs, input services or capital goods.
● Therefore, based on the above-mentioned provisions it can be said that input tax credit is available
for any inward supply which is used in the course or furtherance of business, unless it is covered by
the negative list mentioned under Section 17(5) of the CGST Act

10. Contrary Rulings over the subject:
● In the case of Polycab Wires Pvt Ltd reported at 2019-VIL-100-AAR, the applicant had distributed electrical goods to people
affected by flood in Kerala against discharge of its CSR obligations. The Kerala AAR held that the applicant distributed
electrical items on free basis without collecting any money and for these transactions input tax credit would not be
available as per Section17(5)(h) of the KSGST Act and CGST Act. Therefore, it can be seen that the provisions of Section
17(5)(h) of the CGST Act are invoked to deny ITC of goods distributed free of cost for meeting CSR obligations.
 Section 17(5)(h) of the CGST Act - according to this sub-section, ITC is not available for “goods lost, stolen, destroyed,
written off or disposed of by way of gift or free samples”. It is to be seen that the said sub-section merely places ITC
restriction on free distribution of goods and does not restrict ITC on provision of services for free.
● In the case of CIT v. Ajax products Ltd reported at (1965) 55 ITR 741, the Supreme Court had held that there was no scope
for intendment where the words used by the legislature were clear and unambiguous. Therefore, the restriction under
Section 17(5)(h) cannot be made applicable on free provision of services.

11. .
● Uttar Pradesh Authority for Advance Ruling (‘AAR’) in the matter of Dwarikesh Sugar Industries
Ltd (2021) held that a company is mandatorily required to undertake CSR activities and the same
thus, forms a core part of its business process. Hence, the CSR activities are to be treated as
incurred in “the course of business”.
● Thus, Uttar Pradesh AAR held that the expenses incurred by the Company in order to comply with
requirements of CSR under the Act qualify as being incurred in the course of business and are
eligible for ITC in terms of the Section 16 of the CGST Act, 2017.
● Gujarat Authority for Advance Ruling (‘AAR’) in the matter of Adama India Pvt. Ltd (2021) held that
“CSR activities, as per Companies (CSR Policy) Rules, 2014 are those activities excluded from
normal course of business of the applicant and therefore not eligible for ITC, as per section 16(1) of
the CGST Act.”

12. Presenter’s comments on whether ITC can be availed
on GST paid towards CSR Expenses, incurred in the
course or furtherance of business?
● It is relevant to note that the scope of input service under GST is wider and covers all services used in
the course or furtherance of business (unless the service comes under ‘blocked credit’).
● However, in case of service tax, as already explained earlier in the presentation, in order to claim
CENVAT credit, an input service must have a nexus with the output service. Then only can the credit
be availed. So, there exists a clear difference in scope, when the two definitions are viewed.
● In my opinion, therefore, the ruling in M/s Power Finance Corporation should not be considered to be
applicable when it comes to availing credit on GST paid towards CSR Expenses, in the course of
business.

13. .
● However, a clarification is still required because the CESTAT in Power Finance Corporation Ltd. also held
that CSR is consequent to the rendering of output services. If that logic is applied to GST, question of
availing ITC should not even arise, because CSR expenses will not satisfy the definition under CGST Act
which includes goods or services used or intended to be used in the course or furtherance of his business.
● AAR of Uttar Pradesh, on the other hand, in the context of GST, has held that a company is mandatorily
required to undertake CSR activities and the same forms a core part of its business process. CSR activities,
therefore, are to be treated as incurred in “the course of business”. The expenses, thus, incurred by the
Company in order to comply with requirements of CSR under the Act qualify as being incurred in the course
of business and are eligible for ITC in terms of the Section 16 of the CGST Act, 2017.
● I think that there is a need for another ruling, either from a larger bench of CESTAT or from a High Court or
the Supreme Court, overturning what has been laid down in M/s Power Finance Corporation case. The 2
member bench, instead of clearing the ambiguities, has contributed to further confusion when it comes to
the status of CSR activities, being part of a business.

14. .
● In my view, considering the mandatory requirement of CSR under Companies Act, 2013 and other
direct & indirect advantages which the Corporate derives by discharging CSR, such activities should
well be considered a part of business, because of their assistance in smooth running of a business.
● MOREOVER, as already pointed out, while discussing Polycab Wires Pvt Ltd case, there exist
doubts over the rationale in respect of the distinction created when it is about availability of ITC on
free distribution of goods (and services) under section 17(5) of the CGST Act. It is high time that the
government brings in amendment to ensure that ITC is allowed for distribution of goods and
services alike for CSR. This will encourage the industry to come forward for taking up similar
projects of CSR which otherwise requires government support.

15. THANK YOU