In a first clear direction on how state governments plan to tap into the corporate social responsibility funds, an Andhra Pradesh public sector unit has asked cement companies to consider supplying cement for a government project as a valid expenditure for the cause.
State-run AP State Housing Corporation Ltd (APSHC) has floated tenders for supply of 10 lakh metric tonnes of cement for its weaker section housing programme from cement manufacturers “under their corporate social responsibility” obligations.
The Companies Act that has come into force from this year has mandated that companies have to set aside at least 2 per cent from their net profit for expenditure on corporate social responsibility (CSR). But the rules issued by the ministry of corporate affairs note that CSR cannot be interpreted as the main business activity of a company. The expenditure has to be over and above it but this tender shows the companies can potentially claim a part of their business expenditure as CSR.
The tender document issued by the APSHC states that the Andhra Pradesh government (through letter no. 1852/Co-ordn.A2/2012-09, dated August 6, 2013) had permitted it to procure cement for its weaker section housing programme from “reputed cement manufacturers” under CSR.
“We have taken up the issue with the state government,” corporate affairs minister Sachin Pilot told The Indian Express.
In response to a query, APSHC claimed that the procurement, as tendered by the organisation, was “not under the mandated CSR obligation under the Act”. This procurement does not entitle them to use this supply of cement to show as CSR obligation.
The corporation, however, did not explain how it intended to prevent a supplier from claiming the same as CSR. B Venkatesham, managing director of APSHC, wrote in an e-mailed reply that the mention of the words corporate social responsibility in the tender is to highlight the fact that the supply of cement would be used exclusively for weaker section housing, “hence the quote may be suitably offered by the companies”.
Officials at MCA said this meant the CSR lolly was being offered as a sweetener to reduce the quoted price of the cement, so the claim by APSHC and the circular offering use of the same did pose problems.
Since the CSR bill has become a law in August this year, many companies are scouring for ways to meet their annual obligations.
Companies with a net worth of Rs 500 crore or more and running a net profit of Rs 5 crore or more during the financial year are required to form a CSR committee with at least one independent director. The CSR spend of a company that meets the threshold is required to be 2 per cent of the average net profits for the preceding three financial years.
Tenders floated by APSHC
AP State Housing Corporation has floated tenders for supply of 10 lakh metric tonnes of cement for its weaker section housing programme from cement manufacturers “under their corporate social responsibility” obligations
* However, rules issued by the ministry of corporate affairs notes that CSR cannot be interpreted as the main business activity of a company
* The expenditure has to be over and above it but this tender shows companies can potentially claim a part of their business expenditure as CSR