Can registered persons claim Input Tax Credit of GST paid on Medical Insurance, Masks, Sanitizers, and other expenses incurred due to COVID-19

Published At: 16-Jun-2020

Due to the ongoing COVID-19 pandemic human welfare and safety have been put on high risk all over the nation.

Government of India is taking various measures & actions to overcome this COVID-19 pandemic by issuing several orders& guidelines from time to time. The Ministry of Housing Affairs issued order no 40-3/2020-DM on 29th March 2020 laying out the guidelines / directions to be followed during the lockdown period.

Revised consolidated guidelines along with directions to strictly implement the guidelines were issued on 15th April 2020. As per Annexure-II of the revised guidelines, some of the measures and standard operating procedures (SOP)to be implemented by all offices, workplaces, factories and other establishments are  given herein below :

1)     Mandatory thermal scanning of everyone entering and exiting the workplace to be done.

2)     Medical insurance for the workers to be made mandatory.

3)     Provision for hand wash & sanitizer will be made at all entry & exit points and common areas. Sufficient quantities of all items should be available.

4)     All workplaces shall have adequate arrangements for temperature screening.  

5)     Wearing face cover to be made compulsory. 

Now the question arises whether the employers/registered persons can take input tax credit under GST on these expenses incurred on account of measures against COVID -19??

Let us refer to the different relevant points or provisions  for a better understanding.

Under GST law as per section 16 of CGST Act, All registered persons shall be entitled to take credit of input tax of goods services received by them, which are used or intended to be used in the course or furtherance of their business subject to certain conditions & restrictions.

Section 17(5)(b)of CGST Act restricts availment of ITC on various goods & services like rent-a-cab, health insurance, etc unless it is obligatory for an employer to provide the same to its employees under any law for the time being in force

Section 17(5)(g) of CGST Act restricts availment of ITC on goods or services used for personal consumption.

Therefore the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force and provided such goods or services are not used for personal consumption.

Disaster Management Act (DMA) was enacted to tackle disasters at all levels of government. The Central Government has notified COVID as notified disaster under this Act.

Various Guidelines and orders have been issued periodically by the Ministry of Home Affairs under provisions of DMA. These orders & guidelines are binding on all the State Governments and Union Territories. The State Government and local authorities have issued further guidelines based on the Green/Orange/Red/Containment zones in the respective local boundaries. The MHA guidelines as applicable to the person in his respective area of operations should be considered while applying the law.

Further, the guidelines of MHA issued under the powers conferred under Section 10(2)(l) of the Disaster Management Act, 2005 and as per section 72 of the Disaster Management Act,2005 states that the DMA act will have an overriding effect on any other law for the time being in force.

Therefore guidelines issued by  MHA are of obligatory nature on businessmen/dealers registered under the GST law. Hence, it could be said that all measures, SOP & guidelines are obligatory for an employer to provide the same to its employees under any law for the time being in force.

Let’s understand the same in tabulated form.

ITC ELIGIBILITY ASSESSMENT-DUE TO COVID19

Expenditure

ITC generally Eligible under GST Law

ITC Eligible if it is obligatory under any law for the Employer

Whether Covered by MHA Guidelines for Covid19(Zone wise)

Eligibility

Under GST law due to Covid19

Life Insurance

No

Yes

No

No

Medical Insurance for Workers

No

Yes

Yes *(from 20-04-2020 to 17-05-2020)

Yes

Food & Beverages

No

Yes

No

No

Hand wash & Sanitizers, thermal scanning, face mask & others sanitization related product.

Yes **

N/A

Yes

Yes

Rent a Cab/Hiring of motor vehicles for transportation

No

Yes

Yes *** (Special transport facility)

Yes

Communication and Training on  good hygiene

No

Yes

Yes

Yes

Checkup of Employees showing COVID 19 symptoms

No

N/A

Yes

Yes

 

Note :

Registered persons can take ITC on medical insurance paid in the time period from 20.04.2020 to 17.05.2020

** ITC is eligible if incurred in the course or furtherance of business. However, ITC will not be admissible if used for personal consumption.

*** For workers coming from outside special transportation facility will be arranged without any dependency on the public transport. 

APMH Comments :

The guidelines mention that medical insurance of workers is mandatory. The issue which arises is whether the employees could be covered under the definition of worker? – There is no proper definition of workers under the DMA Act and Guidelines. It would not be appropriate to confine the meaning of workers only to employees working in a factory, since the guidelines are applicable to workplaces, offices, factories and other establishments.

The ITC on the expenses tabulated hereinabove can be availed subject to the restrictions, conditions and MHA guidelines and that too only for the periods and areas in which the MHA guidelines are applicable at the local authority level.  Department may dispute the ITC on these supplies by arguing that these goods or services  would be used for personal consumption of the employees. However, in our view, such expenses incurred by the dealers are in consonance with the guidelines issued by MHA and become an obligation under the DMA law and these expenses are not for personal consumption of the dealer but are in relation to carrying on its business activities during these tough Covid19 era.

Co-Author

Jagruti Shah

Senior Associate

GST Compliance

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