Organizations are taking preventive measures and incurring expenses for the safeguard of their employees and to avoid spread of Covid-19. It includes using of mask, Hand-sanitizers, equipment, office cleaning, health insurance, special travelling arrangements for employees etc.
Now the question arises whether the Input tax credit on the expenses made to avoid the spread of disease would be eligible or not and if taxpayer is exporter or Supplier to SEZ, whether he will be eligible for the refund or not.
Provisions relating to Input tax credit are contained in Section 16 and are restricted by the provisions of Section 17(5) of the CGST Act 1017.
Conditions specified in section 16(2) are as follows:
- He is in possession of Tax Invoice
- He has received the goods/services
- Tax has been actually paid to the government
- He has furnished the return under section 39
Once the above conditions fulfilled, restriction mentioned in section 17(5) needs to be checked. Clause b of the section 17(5) states that the following supply of goods/services or both is blocked:
Food and beverages, outdoor catering, personal consumable, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft except when used for the purposes specified therein, life insurance and health insurance.
Based on the reading of the extract of section 17(5) of CGST Act, 2017, the Input services pertaining to health services, renting or hiring of motor vehicles and life insurance and health insurance are restricted/blocked from availment of Input Tax credit against set-off output liability for the month.
Relaxation in the provision of section 17(5):
Proviso to clause b of section 17(5) provides that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.
So, the Input related to the goods and services shall be available only if any law prevailing at the time makes it obligatory for the employer to provide those facility to the employee.
In the current scenario Ministry of Home Affairs (‘MHA’) has issued the Order No. Order No. 40-3/2020-DM-I (A) dated 15th April, 2020 by exercising of power conferred under section 10(2) (i) of Disaster Management Act, 2005
As per the Order issued by MHA, the offices, workplaces, factories and establishments have to implement the Standard Operating Procedure (‘SOP’) prescribed in the Annexure-I and II wherein serval measures to be taken and adopted for their employees. As per Annexure-II of the Order, the employers have to facilitate following major aspects for their employees:
- Disinfected all the areas of workplaces/offices/factories/establishments wherein the employees probably visit such as cafeteria, entrance gate, meeting room, conference room, washrooms, equipment etc.,
- Transportation facility for employees coming from outside,
- Medical Insurance,
- Thermal scanning and Cameras,
- Provision for hand wash and Sanitizer, and,
Conclusion: In our opinion, though the Input on the following categories of services is blocked under the provision of section 17(5), However the same can be availed because these expenditures has been made obligatory for the organisation till the date the guidelines issued by the MHA under law of Disaster management Act, 2005 prevails.
The issue is not specifically clarified by the Department, revenue can take a different stand on the issue.