Can Business claim Input Tax credit of GST on Health Insurance, Masks, Sanitizers, Transport for Covid19 Expenses?

Can Business claim Input Tax credit of GST on Health Insurance, Masks, Sanitizers, Transport for Covid19 Expenses?

Introduction

The world as a whole is facing a huge crisis now. Human welfare and safety has been put on a huge risk. While, unemployment and poverty seems to be on a rise due to the effects of the COVID 19, many people are coming forward to help one another in any small way they can. Employers are also taking initiatives of providing masks, sanitizers, gloves, bottled water, food, health checkup facilities etc to their employees. Organisations even though facing liquidity crunch right now have realised the significance of such staff welfare expenses.

The question arises whether the employer can avail the benefit of ITC for the expenses incurred on account of preventive measures against COVID 19.

Can GST be claimed for Staff Welfare Expenses on account of preventive measures taken against COVID Spread?

As per the current provisions, ITC cannot be availed by the employer on motor vehicles used to transport persons, supply of food or beverages, supply of health services, rent-a-cab, health insurance, life insurance services and human consumption items.

However, Inputs on the same can be claimed only if the same are OBLIGATORY (enforced by any Law for time being)

Thus, it is clear that if any expense is mandated by the government on the employer, the employer will be able to claim ITC for the same.

Let us refer to the directives issued by the Ministry of Home Affairs (MHA) in this regard.

According to MHA Order Dt. 17.5.2020 on extension of lockdown till 31.5.2020 with guidelines on lockdown measures

Some additional directives for workplace are:-

1. Provision for thermal scanning, handwash, sanitizer will be made available at all entry and exit points and common areas
2. Frequent sanitisation of entire office, common facilities and all points which come into human contact.

According to MHA Order Dt. 1.5.2020 to extend Lockdown period for 2 weeks w.e.f. 4.5.2020 with new guidelines

Some additional directives for workplace are:-

1. Wearing of face cover is compulsory in all work places and adequate provision of the same should be made
2. Provision for thermal scanning, handwash, sanitizer will be made available at all entry and exit points and common areas
3. Frequent sanitisation of entire office, common facilities and all points which come into human contact.
4. Employees showing any symptoms of COVID 19 should be immediately sent for checkup in nearby medical hospitals/clinics.
5. Arrangement for transport facilities to be ensured with social distancing wherever public/private transport is not feasible
6. Intensive communication and training on good hygiene practices shall be taken up

According to MHA order dt 15.04.2020, with Revised Consolidated Guidelines

Some Standard Operating Procedures for social distancing in offices, factories, workplaces and establishments

1. All workplaces to have adequate measures for temperature screening and provide sanitizers at convenient places
2. All organisations to sanitise their workplaces between shifts.
3. All areas in the premises to be disinfected
4. For workers coming from outside, special transportation facility to be arranged without any dependency on public transport
5. Medical insurance for workers to be made mandatory

1. Medical insurance for workers to be made mandatory

Let us refer to the below table to understand what expenses will be allowed for ITC taking into view the MHA guidelines:-

Nature of Expenses	Before Pandemic (Normal Case)	During Pandemic (Re: Government order)
Masks, Sanitizers, temperature screening and similar equipment’s	Not Eligible	Eligible
Rent or Hire of Vehicles for Workers transportation	Not Eligible	Eligible
Health Insurance for workers	Not Eligible	Eligible
Food and Beverages	Not Eligible	Not Eligible Since not mandated by law
Transport facilities for employees wherever public/private transport is not feasible	Not Eligible	Eligible

Important: GST Claim possible only if the above expenses is made against GST Invoice which must also have the GST details of the entity purchasing/ availing such goods or services.

As per CGST Act, 2017, ITC of health insurance, staff welfare expenses (masks, sanitizers, thermal screening etc) is not available except where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

Thus, with effect from April 15, 2020, it has become mandatory via the Order issued by MHA, for every employer to obtain medical insurance for the workers and thus, the Input Tax Credit on such medical insurance shall be available.

 In order to ensure that the insurance obtained by them falls within the ambit of instructions issued by MHA, a letter may be obtained from the insurance company that the medical insurance policy obtained by the assessee falls within the ambit of the MHA guidelines.

Reference to Case Laws to reiterate the above points:-

In order to understand the above orders and provisions made by the government from time to time we can also take references from the case laws mentioned below

1. The Madras High Court in CCE vs. Brakes India Ltd has held that when the employer spends money to maintain factory premises in an eco-friendly manner based upon the directives issued by the Statutory Authorities, the tax paid on such services would form part of the costs of the final product, that the same would fall within the ambit of ‘input services’.

2. The DB Karnataka High Court in CCE vs. Stanzen Toyotetsu India (P) Ltd has held that Group Insurance Health Policy, so taken under Section 38 of the ESI Act, 1948, which mandates that all employees in factories or establishments, to which this Act applies, is a service which would constitute an activity relating to business and is a “input service”.

Therefore, Insurance Policies taken by the Employer for the workmen employed by employer in terms of MHA Order issued under statutory provision i.e. Section 10(2)(1) of Disaster Management Act,. is mandatory nature and hence ITC to be allowed by virtue of above judgment.

3. The Tribunal in the case of Hindustan Zinc Ltd Vs. CCE 2013 has held that tax paid on ambulance purchase to meet the statutory obligations would be allowed as a credit. On the same analogy, ITC would be allowable on acquisition of Ambulance to meet the casualty or emergency during the COVID 19 period.

4. The Group Medical Policy and Group Insurance Health Policy is otherwise mandatory by virtue of Section 38 of ESI Act and hence Cenvat credit/ITC would be permissible – CCE Vs. Mirco Lab Ltd 2011(270) ELT 156 Kar HC.

Therefore, Insurance Policies taken by the Employer for the workmen employed by employer in terms of MHA Order issued under statutory provision i.e. Section 10(2)(1) of Disaster Management Act,. is mandatory nature and hence ITC to be allowed by virtue of above judgment.

5. The Tribunal in the case of Northern Coalfields Limited Vs. CST MANU/CE/0447/2019 dt.20.11.2019 held that amounts spent under Corporate Social Responsibility CSR  is a statutory obligations as per Section 135 of Companies Act, 2013 and hence is entitled to Credit.

Further, expense that will qualify as CSR expense during the time of this pandemic, the Ministry of Corporate Affairs as issued clarification for the same.

1. In accordance to vide No. 10/2020 dated 23rd March, 2020 the Ministry has clarified spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure and also various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII where it is evident that there is promotion of health care including preventive health care and sanitation, and disaster management.

2. Contribution made to State Disaster Management Authority to combat COVID-19 Management Authority shall qualify as CSR expenditure.

3. Contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure.

So on which expenses will not be treated as CSR Expense and hence not be admissible for credit?

1. Payment of salary/wages to employees and workers during the lockdown period shall not qualify  CSR Expenditure and therefore shall not be  admissible.

2. Payment of wages to temporary or casual or daily wage workers during the lockdown period is purely contractual obligations and under Section 135 of Companies Act, 2013 it shall   therefore not count towards CSR expenditure.

3. Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19 does not fall in the ambit of Schedule VII of the Companies Act, 2013 and, therefore, any contribution to such funds shall not qualify as CSR expenditure.

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