prpri ITC availability on Covid supplies provided by Corporates to Employees & Others ITC availability on Covid supplies provided by Corporates to Employees & Others

The recent trend and the most happening event of the hour now is vaccination. Moreover, to rewind and look back a month ago, Country was in requirement for a lot of medicine, equipment supplies and now the vaccinations. Many of the employers had come forward to either help their employees or the society by providing such materials at free of cost.

These supplies like masks, sanitizers, thermal scanners, vaccines are going to be a regular procurement which shall be provided for employees as the pandemic will last few more months or years.

These supplies are procured by paying GST and the question here is whether the ITC on such supplies which are provided for the welfare of employees/ provided as a part of CSR to the society shall be allowed as eligible ITC.

Why is the question on its eligibility?

  • 16 allows only ITC on goods or services used for the furtherance of business
  • 17(5)(b) allows only ITC on goods or services provided to employee if it is obligatory under any law to provide the same
  • 17(5)(h) restricts ITC on goods distributed by means of gift

Considering the above points, it is necessary to validate whether the covid-19 supplies would fall under the above points to understand its eligibility.

Covid supplies provided to Employees:

The Ministry of Home Affairs (‘MHA’) has issued various orders with respect to the guidelines to be followed in the office premises. Few of the guidelines are usage of face masks by all employees, frequent sanitization of workspace, installation of thermal scanners at the entry of office, ensuring regular supply of soaps or hand sanitizers etc.

To ensure adherance with the guidelines mentioned by MHA every corporate may need to shell out money for purchasing the same, which would also include the GST component.

In order to avail ITC of the above supplies, the supplies should undergo the following two tests:

a. Test 1: Eligible under S.16 – Satisfy that it was rendered for the furtherance of business

and

b. Test 2: Not ineligible as blocked credit under S. 17(5) – Specific supplies provided to employees

Test 1:

There are no case laws under GST, however reference can be drawn on the same note from the Income Tax Laws. In the case of Commissioner of Income Tax Kerala, Vs Malayalam Plantations Limited [1964 (4) TMI 9-SC] it was held that the term ’purpose of business ‘may not include only the day to day running but may also include measure for the preservation of the business.

Though there is no outright mention about ITC eligibility on preventive measures in the GST Act, from the intention of the law , it can be derived that such expenses shall be treated as rendered for the furtherance of business.

Test 2:

As per S.17(5) ITC is not available on food and beverages, outdoor catering, life insurance, health insurance etc if provided to employees shall not be eligible as eligible ITC. However, there is a proviso under the said section that the same shall be allowed if it is mandated under any law for the time being in force.

No specific law has made it mandatory for providing such supplies to the employees except for health ministry issuing guidelines and on a plain reading of the provisions, it may be ineligible under the GST Laws.

However, considering the recommendary nature of guidelines, the revenue may consider the same eligible as well.

Covid supplies provided as CSR:

In terms of S.17(5)(h) of the CGST Act, CSR activities like donating covid related medical equipments or any other supply on which tax was paid and distributed by means of gift shall be ineligible to claim as ITC under the GST Laws.

Again, the government has to bring in some clarity whether such donations/CSR activities shall form part of the business and ITC of the same shall be availed.

The law as of today does not permit to claim the general relief material provided. However it has to be analysed on a case to case basis as sometimes it is provided for a concessional rate and if ITC is availed it may also be a deemed supply under Schedule I, for which value shall be determined under the GST Rules.

Conclusion:

In light of the above discussion, much expectation is on the government to come out with some clarification on the eligibility of ITC with respect to the expenditures incurred by Corporates towards employees or to the society at large. Positive approach would encourage many corporates to undertake many welfare measures which will benefit the society also as a whole.

Author Bio

Qualification: CA in Practice
Company: Paul & Aravind LLP
Location: Bengaluru, Karnataka, India
Member Since: 15 Dec 2020 | Total Posts: 5
I am a Chartered Accountant by profession. I have a total of 6+ years of work experience, which is 3 years of experience in employment with a big 4 audit firm (during GST implementation phase) and 3 + years of experience in practise. View Full Profile

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