GST on Covid Supplies Mercurius & Associates LLP

We all know that the entire world including, India, is being adversely impacted by the Coronavirus pandemic and is fighting hard to save humanity. The medical warriors and frontline workers are leaving no stone unturned in treating covid patients and inventing vaccines.

To defeat this virus, we need an adequate supply of medical goods such as santizers, masks, drugs, healthcare facilities, and medical practitioners. Unfortunately, on one side, there is a shortage of essential goods required in COVID treatment. On the other side, consumers and other stakeholders are demanding either a reduced rate or exemption from Goods and Service Tax (GST) on these items to make them affordable within reach of affected persons.

Presently, GST is levied at the following rates on various COVID related supplies:

Items	GST
PPE Kits	18%
Hand wash	18%
Sanitizers Alcohol Based	18%
Masks Cotton	05%
Masks Other than cotton	12%
Gloves	12%
Vaccine	05%
Ventilators	12%
Medical Oxygen	12%
Oxygen Concentrators	12%
Oxygen Plants	18%
Oximeter	18%
Thermometer	18%
Ambulance	28%
Diagnostic Services	Exempt
Healthcare Services	Exempt

However, Central Government has recently provided an ad-hoc exemption from charging essential customs duty, Integrated Goods and Service Tax (IGST), and health cess on importing COVID-related supplies in India. IGST has also been exempted on imported goods donated and distributed in India on a free-of-cost basis as a COVID relief.

As a result of the exemption above, provisions concerning input tax credit availability has undergone the following change:

Items	ITC (If used in business )	ITC (for donations)
Masks	Yes	No
Sanitisers	Yes	No
Gloves	Yes	No
PPE Kits	Yes	No

If the demand of the people is adhered to by giving total exemption from GST on output supply of covid related goods, then, as a result, manufacturers of such goods would not be able to set off their input credit taxes availed on purchase of raw materials. Hence covid related goods would be sold to the end consumers at higher prices.

Under the GST law, a registered person may claim a refund of any unutilised input tax credit at the end of any tax period if zero-rated supplies are made without tax payment. But, no refund of the input tax credit will be allowed where the credit has accumulated on an inverted duty structure except on supplies of specified goods and services. An inverted duty structure arises when the tax rate on inputs is higher than the tax rate on output supplies. As an alternate, if the GST rate is reduced on output supplies without a corresponding reduction in the GST rate of raw materials purchased, it would lead to the accumulation of enormous input tax credit again, resulting in a higher price of such goods.

Therefore, exempting all COVID-related raw materials and output supplies from charging GST is the need of the hour, and the Goods and Service Tax Council and the CG should take a pre-emptive decision on this.

At AJSH, we assist our clients with various GST matters (GST registration, GST advisory, GST assessments, filing of GST returns, claiming & GST audits) by providing them adequate support and guidance from our end. If you have any questions or would like to know more about covid supplies under GST, kindly contact us.