With the onset of pandemic in 2019 and the second wave worsening the situation in India, the sudden or say over demanding requirement of covid-19 supplies like Medicines, medical grade oxygen, oxygen concentrators and cylinders (hereinafter called ‘such supplies’) have come into place in 2021. The government had been imposing taxes on all of such covid-19 supplies till 14th June 2021.
Till then the government did not reduce any rates and when states started procuring the same the demand for rate cuts/exemption for GST on such items have come into place.
The process flow chart of the supplies is as below:
Raw Materials->Covid-19 supplies(Manufacturer)->Private /Govt Hospitals->End Consumer/Patient
(Scenario of patient charged for the supplies)
What has been done by the government on tax rates of such supplies?
The government did not want to completely exempt such supplies for the below reasons:
Why would it still be eligible ITC as most of the supplies are partly exempted?
In terms of S.17, an ITC would be ineligible if it is used for effecting exempt supplies. As per S.2(47) of the CGST Act, Exempt supply has been defined to include supplies which is wholly exempt only. Hence partly exempt supplies would not qualify as exempt supplies and would be eligible for ITC availment.
Will it be eligible for refund- as the manufacturer most likely to have inverted tax structure?
In terms of S.54 of the CGST Act, refund shall be claimed only when the supplier makes zero rated supplies and if ITC is accumulated on account of higher tax rates on inputs than the output supplies. Further it only restricts refund for NIL rated and fully exempt supplies.
Therefore, since these supplies are not fully exempt, the ITC accumulated on account of inverted tax structure can be claimed as refund.
This reduced rate of tax has therefore been a win-win move for the manufacturers, government as well as the end consumer with lower taxes, refund of ITC and with no double taxation.