Most of the GST taxpayers are getting their office premises/buildings sanitized and special arrangements are being made to ensure proper hygiene to avoid spread of Covid-19 amongst the employees. Moreover, most of the companies are taking special consideration for their employees who had recently travelled from outside India.

Now the question arises whether credit of input tax paid on the expenses made to avoid spread of disease would be eligible or not and whether if the taxpayer is an exporter or supplier to SEZ unit, whether he will be eligible for refund under GST Act or not.

Legal Provisions

The provisions of Input Tax Credit are governed by Section 16 read with Section 17(5) of the CGST Act, 2017. Under normal circumstances a taxpayer certainly needs to fulfil the conditions prescribed u/s 16(2) of the CGST Act 2017 which are as under for availing input tax credit:

(a) He is in possession of a tax invoice

(b) He has received the goods/services

(c) Tax has been actually paid to the government

(d) He has furnished the return under section 39.

Though the conditions under section 16 are fulfilled, Section 17(5) places a restriction on availment of input tax credit in case of:

(b) the following supply of goods or services or both –

(i) Food and beverages, outdoor catering, beauty treatment, health services, ………

(ii) ……………..

(iii) ……………..

Provided that 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.

(g) goods or services or both used for personal consumption.

This would mean that tax payer can claim full input tax credit in case of health services, provided that it is obligatory for employer to provide to its employees under any law for the time being in force.

Further, it would mean that where a taxpayer uses goods/services for personal consumption either for himself or for his staff members, no input tax credit would be permissible. On this pretext expenses made on staff welfare including expenses on refreshment, playing area etc. are not permitted under GST Law.

It has also been laid down by the authority of advance ruling in case of Chennai Port Trust 2019(28) GSTL 600 (AAR-GST), that the credit in respect of inward supply of medical, diagnostic equipment, apparatus etc. used in own house hospital for the treatment of employees shall be treated to have been used for personal consumption and hence credit shall not be permitted as per section 17(5)(g).


For purpose of our understanding, we will divide our discussion into in to two parts, one expenses which are specifically used for employees like masks, sanitizer, etc distributed to employees and second other expenses like sanitizing and cleaning of premises/ building/ machines so that business shall not be affected due to such epidemic disease.

In regard to first part of discussion, as per Black’s Law Dictionary, term “personal” means “of or constituting personal property and term “consumption” means the use of thing in a way that thereby exhausts it. The term “welfare” means well-being in any respect; prosperity.

It shall certainly be point of debate whether expenses incurred for containing the spread of a disease which has been classified as an epidemic should be classified as personal purpose and relating to employee benefits or not. Given the present situation prevalent across the globe, it must be understood that these expenses are incurred out of compulsion instead of a routine activity. Though it can be considered to be for welfare of employees but the very fact that such expenses are necessary for continued operations cannot be ignored. Since in most of the states, coronavirus has been classified as epidemics under Epidemics Diseases Act 1897, any action performed under these circumstances shall be treated as a statutory obligation instead of voluntary care and welfare.

As per Covid-19 Regulations 2020, Covid-19 means The Coronavirus disease caused by Severe Acute Respiratory Syndrome Coronavirus 2 (SARS CoV2) as defined by World Health Organisation. Various state government under the powers vested by Covid-19 regulations 2020, have issued guidelines/instructions to employers/companies/institutions to carry out sanitation in their premises. Under these circumstances, expenses made on such activities shall be treated as an obligation instead of pure staff welfare and personal purpose.

Further, Clause 11 of the Covid-19 Regulations 2020 provides that any person/ institution/ organisation found violating any provisions of these regulations shall be deemed to have committed an offence punishable under section 188 of Indian Penal Code (45 of 1860). Empowered officers may penalize any person/institution/organisation found violating provisions of these regulations or any further orders issued by Government under these regulations.

In this situation, decision provided by authority for advance ruling in case of Chennai Port Trust would not be applicable as in such case, it is not obligatory for employers to provide health services to employees. Considering such obligation nature of transaction, proviso of section 17(5)(b) would be applicable and input tax credit in respect of health services would be applicable.

Now since the expenses incurred towards containing the spread of disease either for travel, quarantine, sanitizing the premises etc. is a statutory obligation and is a punishable offence, the restriction imposed under Section 17(5) (b) cannot be applied for admissibility of Input Tax Credit as it tends to bar only those personal consumption which have been done without any obligation of law.

In second part, expenses like sanitizing and cleaning of premises/ building which are used in the course or furtherance of business which is complying the provision of section 16(1) and input tax credit would not be restricted under section 17(5). Henceforth input credit would be allowed provided adherence of provision of section 16(2).

In this scenario, we can rely upon decision of CESTAT in case of Suzuki Powertrain India Ltd. vs. Commissioner of Central Excise, Delhi – III, Gurgaon, [2013] 37 245 (New Delhi – CESTAT) in which it was held that, credit relating to housekeeping and cleaning expenses even though is not directly related to manufacturing of final product shall be allowed.

Conclusion: Considering these circumstances, ITC would be allowed for expenses incurred for sanitizing and cleaning of premises/ building. Whereas in case of credit which are specifically used for employees, workers, staff would be permitted on the basis of health services provided in section 17(5)(b) read along with proviso given there under. Further, provided that taxpayer should maintain sufficient documents (such as deliverables for this services and communications and notices received under covid-19 regulations) to demonstrate that due to its obligatory nature of expenses it would not be treated as personal consumption.

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Qualification: CA in Job / Business
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Location: Pune, Maharashtra, IN
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April 2021