While the GST Council meets on Saturday to discuss tax cuts on critical COVID-19 related material including vaccines, medicines and equipment, industry donors are urging a rethink on the timing for the applicability of the Integrated GST (IGST) exemption announced on imported relief supplies after the council’s last meeting.
At its May 28 meeting, the Council had decided to extend the IGST exemption granted on relief material received free from abroad as donations to State-approved entities, effective since May 3, to those wanting to make such donations after purchasing the material overseas.
The May 31 notification on the grant of this waiver was, however, prospective and tax experts said a judicial intervention may be required to make it applicable on imports made earlier amid the surging second wave.
Several firms including MNCs had imported oxygen equipment and other supplies urgently for donations to State governments, domestic charities and hospitals.
“The date of applicability for the reduced rate will remain a subject matter of debate and judicial intervention may be required,” said Abhishek A Rastogi, partner at Khaitan & Co.
The Delhi High Court has taken up a petition challenging the Centre’s exclusion of such imports from the ‘ad hoc’ GST exemption for COVID-19 relief material received from abroad.
Gujarat and Haryana had introduced schemes to reimburse the IGST paid by domestic entities importing material for free donation in their jurisdictions.
‘Prepared for third wave’
Regulatory experts said ensuring parity on the IGST waiver would help India prepare better for a possible third wave, by freeing up resources used in GST levies for fresh donations.
“Extending exemptions from May 3 would indeed be beneficial, as the duties already paid by the corporates on such imports would be a cost to the companies, and this would bring parity with imports received free of cost,” said Mahesh Jaising, Deloitte India partner. For imports that had arrived, but not cleared as of May 31, the tax exemption would apply, according to Siddharth Surana, advisor-strategy and transformation at RSM India. “It would be a much-needed relief for Indian corporates if the exemption is made applicable from May 3, 2021,” he said.
“Ideally, the government should consider providing refund of the IGST paid by entities who imported COVID material on a paid basis for free distribution,” opined Rajat Bose, partner at Shardul Amarchand Mangaldas & Co.
“It would have been fair (to make the waiver for such imports effective from May 3,” said Abhishek Jain, partner (indirect taxes) at EY India. As this would entail refunding GST levies on imports between May 3 and May 31, this could have been ‘cumbersome’, he added.
While the Council’s deliberations on Saturday will focus on a Group of Ministers’ report on possible reductions to GST levies on COVID material, Mr. Jaising said other issues also need consideration.
“Industry hopes for a clarification on spends on COVID material clarifying eligibility of GST input credit, where the material has been used for donations or CSR purposes or used for their employees,” he added.
Mr. Jaising also called for a more dynamic approach to tax exemptions on COVID relief material as the requirements may keep changing.
The list of “relief material may therefore be updated real-time or kept open ended, to ensure better preparation during these challenging times,” he suggested.
