GST ON COVID SUPPLIES: WHY NOT FOLLOW SANITARY NAPKIN ROUTE?

[Dr. Sanjiv Agarwal]

Today entire world including India is badly hit by COVID virus and struggling hard to save the mankind. The medical fraternity and other stakeholders are leaving no stone unturned in medical treatment and health care. 

When we look at health care related services , it includes supply of goods, drugs and treatment . Today, on one hand, there is acute shortage of necessary goods which are required for COVID treatment while on the other hand, consumers and other stakeholders are demanding lower GST rate or exemption from GST on these items to make them affordable and within reach of affected persons.

Presently, levy of GST in India is at the following rates for various COVID related supplies:

Item.	GST rate(%)
PPE kits.	18
Hand wash.	18
Sanitisers- alcohol based.	18
Masks-cotton.	05
Masks-other than cotton.	12
Gloves.	12
Vaccine.	05
Ventilators.	12
Medical oxygen.	12
Oxygen concentrator.	12
Oxygen plant.	18
Oximeter.	18
Thermometer.	18
Ambulance.	28
Diagnostic services.	Exempt
Health care services.	Exempt

However, the Central Government has recently provided an ad hoc exemption from levy of basic customs duty, IGST and health cess on import of COVID related supplies if imported in india. 

Levy of IGST has also been exempted on import of items which are donated and distributed in india on free of cost basis as a COVID relief.

Recently , Union Finance Minister viewed that if full exemption from GST is given, vaccine manufacturers would not be able to  offset their input taxes and would pass them on to the end consumer / citizen by increasing the price. A 5 percent GST rate ensures that the manufacturer is able to utilise ITC and in case of overflow of ITC, claim refund ,hence exemption to vaccine from GST would be counter- productive without benefit to the consumers.

This may be true in a way as reduction in GST rate would adversely impact a ailment of ITC which could consequently affect the cost and price of the goods . However, there is an answer to this  Section 54(3) of the CGST Act, 2017,which deals with refund of tax, provides that a registered person may claim refund of any  unutilised input tax credit at the end of any tax period. However, no refund of unutilised input tax credit shall be allowed in cases other than zero rated supplies made without payment of tax, and where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies( other than nil rated or fully exempt supplies ) , except supplies of goods or services or both, as prescribed. 

Thus, Government , may, if it so wishes and feels it necessary, atleast  in larger public and national interest due to COVID , make such supplies fully exempt from GST or NIL rated. This was done in case of sanitary napkins widely used by women when GST on such items was slashed from 12 percent to NIL. In case of sanitary napkins, various writ petitions were filed in courts to demand exemption from GST. The court in one case even commented that when items like Kajal, sin door, bindi etc are out of the GST ambit, why can't sanitary napkins be . In July, 2017, CBIC clarified that reducing GST rate son sanitary napkins to NIL would result in complete denial of ITC to Indian manufacturers and zero eating imports. This will make domestically manufactured  napkins at a huge disadvantage , vis a vis imports, which will be zero rated.

However, in July, 2018, GST Council took a decision to 100 percent exempt the sanitary napkins from GST . The logic which applied to sanitary napkins as well be applied to COVID  goods as both relate to hygiene and health care. As an alternative, by a GST rate of 5 percent on various items instead of 12. 18 or 28 percent, manufacturers will be able to utilise cost all of input taxes by way of ITC and it would be a relatively better scenario.  COVID is more vital and fatal in today's context. Revenue can be gathered from other sources or later on.

Therefore, exempting all COVID related supplies from levy of GST is the need of the hour and GST Council and the Central Government should take a proactive decision on this . Sooner the better. Of course, it should also ensure flawless supplies to one and all.

States have been demanding convening of GST Council meeting which has not been held for last six months to thrash out various issues in GST law including compensation cess, rates of GST and exemptions.