A tax is a compulsory impost by the Government to raise revenue for the exchequer. In turn, it is expected that Government of the day utilizes the revenue in the best interest of its citizens. Simply put, the money is effectively of the citizens or entities transacting in a particular country. The Government collects part of it as tax to efficiently manage/run the country. All this is elementary. However, in every tax legislation, the Government has the power to exempt certain activities/transactions from the levy in ‘public interest’. The exemption could be a full waiver of tax or a partial waiver. The Government may decide to have conditions attached to the exemption or decide against it.The Government has wide latitude or discretion while deciding to grant or not grant an exemption.
As citizens of India struggle with the second wave, the Indian Revenue authorities announced some tax/duty relaxation measures. However, conditionalities attached to some of the exemptions establish lack of empathy and foresight of Indian Revenue for its citizens. For instance, there has been relaxation for hospitals/other facilities providing Covid treatment to take payment in cash exceeding two lacs during the months of April and March 2021 with the caveat that PAN/Aadhar of the patient/payer will be required (Income Tax Notification no. 56/2021/F. No. 225/58/2021-ITA.II dated 07.05.2021). As is visible, need of the hour for hospitals/other facilities and patients themselves is administrative curtailment of such conditionalities. However, the Indian Revenue appears to be more interested in trail of PAN/ Aadhar of the patient/ payer. Similarly, while there is exemption on imposition of IGST on oxygen concentrators imported by the State Government or via any entity, relief agency or statutory body authorized by the State Government; such exemption is not available to an individual if she seeks to import the same by way of gift. A country in crises due to its mismanagement, it is not surprising that relatives/ friends outside India would be keen on helping their folks back home by gifting oxygen concentrators from outside India. However, such gifts are subject matter of 12% IGST(Notification no. 30/2021-Cus dated 01.05.2021). This very issue stands challenged in the Delhi High Court and the Court has taken cognizance of the matter. The Delhi High Court has also passed interim directions to ensure that oxygen concentrators are cleared by customs and made available to the concerned individual with certain conditions (Gurcharan Singh v. Ministry of Finance WP (C) 5149/2021).
Further, the Indian Revenue authorities have reduced rate of GST on certain critical equipment but have failed to provide an outright exemption. The reasoning of the Indian Revenue has been that an exemption may be counterproductive, as manufacturers of such equipment will not be entitled to the credit stream if the final product gets exempt,resulting in rise in the final price of the commodity instead of reduction. There could be some merit in the argument. However, deeper reading of the law entails the problem is rectifiable. As of now the effective slab rate of GST for goods/servicesis 05%, 12%, 18% and 28% (Notification no. 1/2017-CT Rate dated 28.06.2017). By Notification no. 2/2017-CT Rate dated 28.06.2017, exemption has been provided to remaining goods. Thus, it is important to note that goods are tax free not because of nil rate of tax under section 9 CGST Act but because of the exemption granted under section 11 CGST Act.
Interestingly, definition of “exempt supply” [section 2(47) CGST Act)] includes within its ambit both -goods which attract nil rate of tax and goods which may be wholly exempt from tax. As of today, no goods attract nil rate of tax under section 9 CGST Act. Even then the legislature was aware that tomorrow there could be a nil rate of tax on goods. This is because section 9 CGST Act empowers the Government to levy any tax so long as rate of tax does not exceed 20%. It is settled law that a nil/zero rate of tax is also a tax. Hence, vaccines and other goods for Covid treatment can be made subject matter of nil rate of tax by issuing necessary notifications under section 9 CGST Act. The last piece of the puzzle would be dealing with the definition of “exempt supply”. For this,a simple amendment in this definition will suffice. Nil rate of tax on vaccines and other goods for covid treatment can be carved out of the definition of ‘exempt supply’as an exception measure. The tax legislations are famous for their provisos and double provisos. Similarly, an exception as suggested above will greatly benefit the country in these trying times, even though at first blush,itmay appear to go against the original intent of the law. Resultantly, vaccines and other goods for Covid treatment can effectively be made nil rated and simultaneously credit chain or refund mechanism of the suppliers can continue to remain intact. If there are other connected changes in law, then theyshould be undertaken. Thus, the law appears to provide enough leeway. It is for the GST Council to apply the law with intent and foresight required in the present times.
There is a line of thinking that GST should be free from all exemptions and even for vaccines/critical goods for Covid treatment, no exemptions should be extended. However, this argument is fallacious given the dire situation the country finds itself in. Firstly, India has not adopted a classic GST system. The Credit chain itself is not seamless. Secondly, the present GST law itself has various exemptions. The only distinction is that such exemptions ensure that Credit chain is broken. Whereas, if the definition of “exempt supply” is amended in the manner suggested above, the Credit chain continues to work and the vaccines/critical goods for Covid treatmentcan become nil rated. To some, this may be against economic principles; however, today it is constitutional principles that are required to take precedence over revenue collectionrelating to vaccines/critical goods for Covid treatment. Extra-ordinary times require extra-ordinary measures.
While there may notbe equity in tax. Tax itself cannot be de-linked with duty of the State. It is the constitutional duty of the State to ensure right to life, health and well-being of its citizens. Even if with the best efforts of the State, as a country we are struggling during the pandemic, it would be apt for Indian exchequer to decipher means of simplifying tax laws, avoiding unnecessary conditionalitiesand eliminating tax related formalities during Covid treatment.