We are going through the impact of Covid-19 pandemic all over the world and no less in India. Government is making its best efforts to fight the situation however it is responsibility of every citizen to support in their own way. Many Citizens and business houses has jumped into this fight already by providing food, medicine and other daily supplies to the daily wage workers and poor people who has become the victims of the lockdown. Now from the tax perspective is ITC available on such purchases which are bought by business houses for distribution to poor and needy?
Let’s understand the definition of Input and Input Credit.
Section 2(59) defines “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business
Section 2(62) defines “input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act,
but does not include the tax paid under the composition levy;
Section 2(63) “input tax credit” means the credit of input tax;
So, basis the definition of Input, any goods other than capital goods used or intended to be used in the course or furtherance of business. Here to qualify as input, its compulsory that input is used in the course of furtherance of business then the question arrives whether credit can be taken on it. The support given to poor and daily wagers in this moment of crisis may not be categorised as used or intended to be used in the course of furtherance of business since this is a gesture of charity than furtherance of business so can these purchase qualify for taking ITC? If not, then is their a notification required from the Government to support such tax payers who are standing with the Nation at the time of crisis. And if Government decides to provide relief and allow ITC for such transactions then how will the department identify which is genuine transaction which qualify for ITC and which are not?
Moreover, blocked credit under Section 17(5) includes supply of food and beverages so does it fall under blocked credit?
Well, people who have come forward to help may not really be looking for ITC at this juncture as the intention is compassion and not really business at this point but this is just a question from tax perspective!