GST: Representation to Address Concern Of Input Tax Credit On Procurement Of Covid-19 Related Goods

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GST: Representation to Address Concern Of Input Tax Credit On Procurement Of Covid-19 Related Goods

Tejasvi

@tejasvi

June 7, 2021

Public Policy

175

Background

As you aware, the GST Council has recently issued Notification No. 32/2021-Customs dated May 31, 2021 (Exemption Notification) for extending exemption from Integrated Goods and Services Tax (IGST) on import of COVID-19 related equipment on payment of consideration.. This will ensure parity between imports made free of cost and payment of consideration for the purpose of donation.
However, many taxpayers have already invested significant amount in procuring these goods on payment of IGST before issuance of the Exemption Notification. Moreover, not all equipment that are imported may be donated to specified institutions. In absence of clarity, importers may not be able to avail credit of taxes paid on imports and domestic procurements done on payment of applicable taxes.

Issue

S. 16 of Central Goods and Services Tax Act, 2017 (CGST Act) provides that tax charged on any supply of goods/ services/ both which are used/ intended to be used in the course of furtherance of business, shall be eligible for ITC.
However, S.17(5)(h) of CGST Act provides that ITC shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Further, S.17(5)(g) prohibits ITC on services/goods procured for personal consumption.
As large part of workforce is working from home, companies have been sending COVID-19 related equipment like PPE Kits, sanitizers, oximeters, oxygen canisters, medicines etc. to employees at their home to ensure their wellbeing. As these goods are not procured for use in office premises of taxpayers, it may be comprehended by tax officers that taxpayers are not eligible to avail ITC on such procurements under S. 17(5)(g) as these are used for personal consumption of employees.
Additionally, revenue authorities could also challenge credit on such procurements as the same have not been received by the taxpayer at their place of business in terms of S.16(2)(b) of CGST Act.
Further, Corporate Social Responsibility (CSR) activities are undertaken by taxpayers so that image of the company improves in the corporate world which in turn will help its business even though there is no monetary consideration specifically recovered for undertaking CSR activities
In various judicial precedents, it has been held that expenses incurred for CSR are eligible for ITC in terms of S.16 of CGST Act as they are undertaken "in the course of business.
Further, exemption from customs under Notification No. 32/2021-Customs dated May 31, 2021 or Ad-hoc Exemption Order No. 4/2021-Customs dated May 3, 2021 is based on certain conditions and certain taxpayers may not be able to fulfil the said procedural conditions and end up paying IGST on such procurements.
There should be clarity with respect to ITC on COVID-19 related procurements as these spends are mandatory in nature to ensure that safety protocols are followed as directed by Government from time to time and promote healthy lifestyle.

Recommendation

In this regard, NASSCOM has made a representation to key GST officials and Group of Ministers (GoM) to consider and remove ambiguity on eligibility of Input Tax Credit (ITC) on COVID-19 related procurements. We have requested the Government to issue following clarification to remove ambiguity of ITC on all COVID-19 related procurements made by taxpayers, by means of Notification/ Circular/ Removal of Difficulty Order:

Expenditure incurred by companies on CSR activities are eligible for ITC under S. 16 of CGST Act. The clarification should clearly bring out that the eligibility of credit is qua the CSR activities and will be available to companies which are not mandatorily required to undertake CSR activities under S.135 of Companies Act, 2013.
Further, all spends made by taxpayers on COVID 19-related equipment like PPE kits, oximeters, medicines towards ensuring wellbeing of employees/ their family should not be construed as personal consumption under S. 17(5)(g) of CGST Act.
Additionally, as these goods may be directly sent to employees’ home, receipt of equipment/ medicines by employees should be deemed to be received by the taxpayer himself to satisfy the condition of receipt as provided in S.16(2)(b) of CGST Act.

Removal of Difficulty order may also be issued under S. 172 of CGST Act clarifying that GST paid towards CSR spends for providing relief to people suffering from COVID-19 pandemic or giveaways provided to employees to ensure their safety, would be eligible for credit in terms of S.16 of CGST Act and will not fall under S. 17(5)(g) or 17(5)(h).
The said clarifications/ ROD should be made with retrospective effect so that taxpayers are eligible to claim credit even for spends incurred by them prior to issue of such clarification.

We hope you will find the update useful.

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Tejasvi