Need For Modification Of Tax Norms On Essential Relief Materials Amid COVID-19

Apart from the relief measures already taken, various other tax measures can also be taken by the government of India for essential relief materials

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It would be not be an exaggerated statement that the emergence of COVID-19 pandemic has had the worst impact on the economy, diving substantial part of the industry standstill though out the globe. However, in these tough times, availability of essential relief items to each and every citizen of the country at a reasonable cost becomes very crucial. This is where the government plays an important part in providing support to essential relief sector inform of incentives, relaxations, etc., so that the critical supplies reach end-users seamlessly and cost burden is reduced on the said industries as well as consumers (being ultimate bearer of cost) in the face of global economic crisis.

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Taxation is considered to be backbone of an economy and modification and relaxation of tax norms by the government could be a big relief for said industries and consequently the common man. Apart from the relief measures already taken, various other tax measures can also be taken by the government of India for essential relief materials.

Custom and GST liability on import of COVID relief items

The central government has provided exemption on payment of custom duty on import of various goods essential for treatment of COVID-19, oxygen-related equipment and vaccines. However, from GST perspective, relaxation has been provided from payment of integrated tax on import of above mentioned goods provided the goods are supplied free of cost by the foreign supplier, distributed free in India and are imported by state government or an entity authorized by the state government. This exemption is further subject to conditions of providing declarations and certifications at the time of import or after import of goods. Further, rate of GST on import of oxygen concentrators for personal purposes is reduced to 12 per cent.

It is important to note that import of COVID relief related goods is still not tax free and a person is required to pay integrated tax on said imports. The government’s intention to provide exemption from integrated tax basis free of cost imports vis-a-vis paid imports does not seems logical. Further, the conditions prescribed for availing exemption from integrated tax on import of goods is another procedural hindrance which is uncalled for at this crucial juncture. Recently, the Delhi High Court ruled that levy of integrated tax on oxygen concentrators imported by individuals and received as gifts, free of cost, is unconstitutional.



Thus, the government must take into account the emergent situation and can provide exemption from IGST on import of all the essential goods subject to end usage of goods for the purpose of COVID relief, without any distinction. This will certainly reduce cost burden on ultimate consumers and allow every person to avail benefit of said exemption.

GST liability on indigenous procurement of COVID relief items

While the exemption has been provided for imports of certain goods mentioned above, GST is applicable on domestic supply of said goods, GST on COVID vaccines being 5 per cent and 12 per cent on oxygen concentrators and COVID drugs. There has been hue and cry from various stakeholders including many state governments calling for exemption from GST on COVID vaccines, drugs, oxygen concentrators, etc. However, the Finance Minister in a series of tweets has stated that exemption on domestic supply of COVID relief items would be counterproductive without benefitting the consumer”.

The Finance Minister has further stated that exemption is not provided to indigenously produced goods used for COVID-19 as the manufacturers will not be able to avail ITC, which in turn could lead to higher prices for end customers.

While no doubt the apprehension of the Finance Minister is correct regarding blockage of ITC and non-availability of refund of accumulated ITC, and the resultant effect in increase of price of COVID relief goods. However, point to be noted in today’s scenario is that the issue is not just of exemption but of ‘overall relief to essential sector and industry catering to Covid relief measures.

Thus, as an alternative to providing full exemption to COVID relief goods, option of reducing GST rate on such supplies to the minimum can be looked into. Thus, it would not only lessen the tax burden but with COVID relief goods being not exempt, the suppliers of such goods would be able to claim ITC.

ITC and corporate social responsibility (‘CSR’)

 

ITC availability on goods and services used for CSR activities is a matter of debate under GST Laws. The Ministry of Corporate Affairs has clarified that spending of CSR funds for creating health infrastructure for Covid care, establishment of medical oxygen generation and storage plants, manufacturing and supply of oxygen concentrators, ventilators, cylinders etc. will be eligible for coverage under CSR activities. However, no clarification has been issued by the Central Board of Indirect Taxes and Customs regarding availability of ITC on said expenses, which upshots an additional cost for suppliers of such goods.

Thus, a clarification in this regard would also be a welcome step.

Relaxation in compliances under GST

Various relaxations have been provided to tax payers with respect to filing of returns. Further, late fees have been waived off for the month of March 2021 and April 2021 for specified days. Also, rate of interest has been reduced basis the turnover of the taxpayers.

While the said relaxations have been given basis turnover of the tax payers, ideally, relaxations should be provided to all the taxpayers and not on basis of turnover, as COVID 19 has impacted industries in same manner. Further, the relaxation period should also be extended to minimum 6 months looking at the severity of the second wave of Covid 19.

Conclusion

Sometimes, extraordinary situations require extraordinary solutions. The Government needs to take radical measures in taxation regime in these difficult times and not just take garb of technicalities in the legislation. We sincerely hope some measures in GST would be announced to alleviate the pain of COVID-19 to the industry.

*About Author: Smita Singh is a  Partner at Singh & Associates and Mudita Bhadani is a Senior Associate at Singh & Associates