Recent GST clarifications and their impact: Tax relief in milling, pharma, education, food sectors
June, 20th 2021
The government recently published numerous clarifications on various issues pursuant to the decisions taken in 43rd and 44th GST Council Meetings. Many of these will have a positive impact on the public at large
Amid the situation of Covid-19, it would be cogent to say that citizens of the country were eagerly waiting for the grant reliefs and benefits beyond date extensions. The country’s middle class suffered significant losses in the current situation. The keen move by CBIC for providing clarification relating to the exemption of GST on various services provided by the Central and State Boards such as National Board of Examination (NBE) will benefit millions. CBIC clarified that GST would not be levied on services provided by the Central or State Boards, including NBE, in the conduct of examinations for students including entrance exams. This move will benefit millions of households whose wards are at different levels in education.
Furthermore, GST is also exempt on input services relating to admission, or conduct of examination, such as online testing service, result publication, admit card and questions papers etc., when provided to such Boards. This will further rationalize the cost of educational institutions, the benefit of which can be passed on to the households.
Mid-day Meal Scheme
The Mid-day Meal Scheme (“MDMS”) is the flagship school-based meal program of the Government of India. In India, 115.9 million children from vulnerable segments receive cooked meals every school day through the MDMS. The GST Council also stated that food services given to educational institutions (catering, including mid-day meals) are excluded from GST, regardless of whether the institution receives money from government grants or corporate donations. Hence, serving food to anganwadi shall also be covered by said exemption, whether sponsored by government or through donations from corporates. This clarification on the applicability of GST on food supplies to Anganwadis and Schools will reduce the cost of such meals, especially for corporate donors. Educational institutions involved in supplying such meals lower their GST costs, could now approach corporates to increase the budget for such donations/ contributions to fulfil their Corporate Social Responsibilities. Rural India, where the COVID-19 has crushed the education ecosystem, fueling spending on mid-day meals will attract more students relegating into a win-win situation for both the corporates and students.
The GST council also clarifies that no GST is applicable on the composite supply of service by way of milling of wheat into wheat flour, by any person to a State Government for distribution of such wheat flour under Public Distribution System. However, in case the supply of service by way of milling of wheat into flour or paddy into rice is not eligible for the exemption for the reason that value of goods supplied in such a composite supply exceeds 25%, then the applicable GST rate would be 5%.
This clarification will positively impact the industry as, in many cases, DGGI has demanded GST @18% from taxpayers. Now the taxpayers can claim the benefit under this clarification, and the material component will be decided on a case-to-case basis, which has to be checked by the books of accounts and cost sheets. Refunds can be filed on excess tax on the basis of calculation. This clarification will undoubtedly end all the pending disputes where the summons have been issued related to the milling of wheat or paddy.
GST Council, in its 44th meeting, reduced the GST Rates on the specified items being used in Covid-19 Relief and Management till September 30, 2021, as specified below:
Oxygen, Oxygen generation equipment, and related medical device
Testing Kits and Machines
Other Covid-19 related relief material
The Ministry of Chemicals & Fertilizers, National Pharmaceutical Pricing Authority (NPPA) instructs all manufacturers and marketing companies to revise MRP of drugs/formulations on which tax/GST rates have been reduced. Recalling, re-labelling, or re-stickering on the label of container or pack of released stocks in the market prior to the date of notifications is not mandatory if manufacturers are able to ensure price compliance at the retailer level through the issuance of a revised price list.
Whereas savings in medication and related equipment is beneficial to the public, limiting the exemption period would make it impossible for businesses to plan new investments and expand their supply chains to ensure that relief material reaches every corner of the country. Companies engaged in the manufacturing and trading of these medicines would hope that the relief period is extended beyond September 30 till the time this pandemic threat is over.
Recent clarifications establish that the spirit of the GST council is to ease the complexities in the GST Law, including GST rates. The interest of all the States and Center is to ensure that there is a balance and fairness in the taxation principles. We look forward to many other clarifications in the coming months on the GST taxation principles.