COVID-19: No GST Exemption on Masks, PPEs and Ventilators

It is unlikely that the government would exclude GST on medical products such as ventilators, PPEs, masks, test kits and sanitisers. The exemption results in blocking the input tax credit (ITC), thus rising production costs and, ultimately, the price for consumers.

There have been demands from some taxpayers to exclude GST on certain items such as ventilators, personal protective equipment (PPEs), helmets, test kits and sanitisers that are necessary items for COVID-19 care. The exemption from GST on such items will lead to a price reduction.

Currently, the GST rate on the ventilator is 12 per cent on the mask, 5 per cent on test kits, 12-18 per cent on sanitiser, and 5 per cent (cost up to Rs 1,000 per piece) and 12 per cent (if the cost is more than Rs 1,000 per piece) on PPE.

Sources said that the exemption from GST on these products would result in blocked input tax credit (ITC), thereby rising manufacturing costs and higher prices for consumers. Also, the GST exemption on these products would jeopardise the industry’s interest and would not result in any major market benefits. The GST exemption on a sanitary napkin has led to a similar situation for domestic producers in the past.

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The sources also mentioned that although customers do not benefit from the GST exemption on these items, the burden of enforcement would increase for manufacturers as they would be expected to keep a separate account of the inputs, input services and capital goods used to produce those products. Unless they are not in a position to maintain a different account, after applying detailed estimates, they shall be allowed to reverse the input tax credit on all inputs/input services used in the output of excluded PPE.

Furthermore, exempting such products would result in blocking ITC for domestic producers, but the sources added that importers would not suffer such blocking. The government exempted primary customs duty and health cess on these products (except sanitiser) until September 30, earlier this month.

While the elimination of customs duty may have adversely affected domestic manufacturing, it was done to meet the urgent need for these products to deal with the COVID-19 pandemic, given that the local supply would not have been adequate to meet the increased demand.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in

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