Coronavirus (COVID-19), a virus that grew stealthily from the end of 2019 has become one of the deadliest viruses that is killing people worldwide. The normal life in India was disrupted due to lockdown, restrictions on commutation etc. due to covid. It affected almost all the industries in India and the second wave of COVID-19 in India (during 2021) has an increased death rate comparing to the previous. Further, more than the infection from the disease, the financial burden over the citizens on the medications (like remdesivir, oxygen cylinders, concentrators, ventilators, etc.), slow down of economy encumbrances him a lot. Hence, the citizens are not only under the necessity of medicinal requirements but also economic assistance.

Present Amendment

As a welcoming gesture, considering the difficulty of the high burden of tax borne by the ultimate consumer the Government has reduced the GST rate of specified items and exempted certain specified items which are being used in Covid-19 as a relief measure till 30th September 2021 vide notification no.05/2021-CT(R) dated 14th June 2021. (For easy reference to the list of the specified items you click the link and look into the respective notification).Furthe

r, Ministry of chemicals & Fertilizers, Department of Pharmaceuticals, National Pharmaceutical Pricing Authority vide its Office Memorandum – F.No. 19(175)/2019/DP/NPPA/Div.II dated 15th June 2021 has instructed the “Manufacturers and Marketing companies of drugs/formulations and medical devices” that the downward reduction in GST rates should be reflected in the MRP of the items sold to the consumers with the effect from the date of notification of such reduction (i.e. 14th June 2021) and the benefit of reduction in the rate of GST has to be passed on, since MRP of drugs/formulations is inclusive of GST.


Considering the background and the amendment as discussed above, following could be analysed –

Rate of Tax

i. The products purchased by the traders at higher rate (i.e., 12/18/28%) would be sold w.e.f 14th June 2021 at reduced rate of 5%/NIL.

ii. For transactions regarding continuous supply of goods (i.e. supplied in a continuous basis under a contract where a periodical invoice is issued) in such cases if the date of the periodical/regular invoice falls after 14th June 2021, then the supplier would get the benefit of the reduced rate of tax (provided the receipt of payment is also after 14th June 2021).

iii. Caution to be taken care that the reduction applies only till these are traded as goods. Once these becomes as integral part/composite to health care activities provided which are provided as services, the exemption applies to such health care services.

Input Tax Credit

iv. The ITC availed on the previous purchase of such products would not be affected unless such goods sold are exempted from GST i.e. If the rate is NIL for the goods supplied, then the ITC availed on such goods during the year has to be reversed in accordance with section 17(2) of CGST Act 2017 read with Rule 42 of CGST Rules. Further, this would continue when such goods are supplied in composite with the health care services referred supra. Hence, ITC on such goods would add to the cost of the supplier since the credit is liable for reversal and there won’t be any benefit that could be passed on to the consumer.

v. However, with respect to the goods whose rate of tax being reduced to 5% there won’t be any impact to the ITC availed on prior purchases at higher rate. The ITC availed under GST satisfying the vested conditions cannot be ceased later, as the credit is a vested and indefeasible right .

vi. The reduction in the GST rates during the period 14th June 2021 to 30th September 2021, may accumulate the input tax credit on supply of such goods, due to stock of prior period purchased at higher GST rates, to an extent (subject to the value addition on subsequent supply).

vii. In such cases, the taxpayer may decide either to utilise such accumulated credit for payment of other GST liabilities or avail the benefit of refund under Inverted Duty Structure (i.e., where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies).

viii. This decision of the business is very crucial since the Government has also instructed the business to mandatorily pass on the benefit of reduction in GST rate.

ix. Business where the cashflow issues are major may opt for the refund mode instead accumulating the credit for utilising against any future liabilities (This may vary from case to case based on their facts).

x. Department may turndown the refund application sighting the departmental circular 135/05/2020 – GST dated 31st March 2020 which provides that refund under Inverted Duty Structure shall not be applicable in cases where the input and the output supplies are the same.

xi. The view provided in the circular may not be legally correct as the provisions of the law under section 54(3)(ii) of CGST Act 2017 doesn’t provide any such limitation/restriction per se. The circulars are issued to officers for the purpose of uniformity in the implementation of this Act. Hence, a circular cannot override the provisions of the Act, rather it can only direct the officers for uniform implementation of provisions which are there in the Act.

xii. Circulars can supplant but not supplement the law. Circulars might mitigate rigours of law by granting administrative relief beyond relevant provisions of the statute, however, Central Government is not empowered to withdraw benefits or impose stricter conditions than postulated by the law. Hence, the above referred circular would ultra-vires the Act and be illegal to such extent.


xiii. Section 171 of CGST Act deals with Anti-profiteering measures which states that any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

xiv. Hence, it very much prudent for the taxpayer to ensure that any benefit arising out of reduction in the rate of GST on specified items has been actually passed upon to the recipient. The benefit may not be identical in all the cases, since where the goods has been exempted the ITC would be denied which would result in increase in cost. In such cases price would not be reduced.

xv. Further, the price may also not be mandatorily varied for those goods which were procured prior to 14th June 2021 under higher rate of tax. Even the office memorandum of Ministry of chemicals & Fertilizers referred supra says so.

xvi. Without getting into the legality and validity of the Anti-profiteering Authorities (absence of judicial members), exposure could be there for proceedings and penalty there upon, where the MRP has not been reduced by passing on the benefit, instead base price has been increased.


Considering the background and intention of the Government, regarding the reduction of GST rates on specified items used in COVID-19 medication and passing of the benefits of reduced rates to the consumer the taxpayer has to be vigilant in calculating the benefits arouse out of such reduction subject to the allowance of IDS refund on such goods where the rate of tax has been reduced to 5% and adjustment of increase in the cost of goods where the rate of tax has been reduced to NIL. Proper records, documentation, and professional guidance in decision regarding the revised price of the goods would avert the exposure of

  • demand from the department under anti-profiteering clause for non-passing the benefit of reduction in the rate of GST, and
  • avoid impact in the margin of the business


Special thanks to CA Venkataprasad (Partner, Hiregange & Associates) for reviewing this article and providing valuable suggestions.

For any clarifications/feedback, kindly feel free to get in touch –

Author Bio

Qualification: CA in Job / Business
Company: Hiregange Associates
Location: Kochi, Kerala, India
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One Comment

  1. Narendra Adawadkar says:

    Nice article expressing the issues which can lead to litigation. In fact the Govt should relax the reversal conditions when ever the notifications issued for temporary period. As giving the effect of tax reduction, MRP revisions adjustment in the cost and marketing strategy not possible in shorter time. Further the product will be dutiable and the business community can not re-work the process.

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December 2023