All eyes on GOM call on taxing Covid items
The Goods and Services Tax (GST) Council has decided to constitute a Group of Ministers (GOM) to recommend within 10 days the tax rates on items, including vaccines, required to deal with Covid-19 pandemic. It has also recommended full tax exemption on imports of drugs required for treating black fungus disease and imports of Covid-related medicines and medical equipment for free distribution when purchased from abroad.
In a press conference after the GST Council meet on Friday, the government attributed its reluctance for rate cuts to apprehensions about whether the private hospitals will pass on the benefits of any rate cuts on Covid related items to the intended beneficiaries and collateral impact of rate cuts on other items. Under the GST laws, hundreds of mass consumption items and essential services are exempted fully or attract a lower rate of tax than the standard rate of 18%. The laws provide for refund of accumulated input tax credit due to inverted rate structure. Also, the laws contain specific provisions for anti-profiteering measures, which deal with failure to pass on the benefits of tax rate cuts to the consumers. Hopefully, the GOM will consider all these factors.
A week earlier, in the Delhi High Court (W.P.(C) 5149/2021, CM No. 16554/2021), the government had defended its decision to tax import of Covid related items purchased from abroad for free distribution in India saying if someone can afford to pay for the goods, he can very well afford to pay the taxes on the goods. That reasoning is now abandoned. Specified goods, whether obtained as donation or on payment, imported from abroad for free distribution will be fully exempted till end August.
In the same case, the Delhi High Court held that imposition of Integrated GST (IGST) on oxygen concentrators which are imported by individuals and are received by them as gifts (i.e. free of cost) for personal use, is unconstitutional. The Court also quashed the notification bringing down the IGST on such items from 28 per cent to 12 per cent. “Tax is an exaction that does not, ordinarily, recognise equity. It must, however, bend to the will of equity in times of calamity”, said the Delhi High
Court. The judgment has several controversial aspects that lead to unintended consequences. In the press conference after the GST Council meet, the government said that implications of the judgment will also be studied by the GOM and that in the meantime, the imports of oxygen generators by individuals received as gifts for personal use will be governed by the Delhi High Court judgment.
The GST Council has also decided to rationalise and simplify many provisions for compliance such as reduction/waiver of late fee for non-furnishing form GSTR3B for the tax periods from July 2017 to April 2021, rationalisation of the upper cap of late fee to align it with tax liability/turnover of the taxpayers, extension of time limit for filing the tax returns, reduced interest rate for late payment of taxes, simplification of annual returns and so on. Some useful clarifications will also be issued by the government. The levy of Compensation Cess beyond July 2022 will be discussed later. The provision for interest on net tax liability will get retrospective effect from July 1, 2017.
Now, the focus shifts to the GOM recommendations on rate cuts on Covidrelated items.