Update On ITC on supply of Medical Facility to employees by employer

Update On ITC on supply of Medical Facility to employees by employer

In this update we shall discuss about allowability of ITC on supply of Medicines and medical facilities to employees and pensioners. M/s Chennai port trust have preferred application seeking advance ruling on the following questions:-

Whether they are entitled to take credit of input tax charges on the inward supply of medicines which are used or intended to use in the course or furtherance of business of the applicant?

The applicant submits that they are engaged in supply of port services and incidental supply of goods like disposal of discarded assets. They are maintaining an in-house hospital for providing health and medical cover exclusively to their employees and pensioners. They are governed by two regulations under Section 124(11) read with section 132(i) of Major Port Trusts Act 1963, which are (i) Chennai Port Trust Employees' (Contributory Outdoor and Indoor Medical Benefit After retirement) Regulations, 1989; (ii) Chennai Port Trust Employees' (Medical Attendance in the Trust's Hospital and Reimbursement of Hospital Charges) Regulations 1994.The hospital is only a cost centre and the inward supplies of medicines are provided only to the employees and pensioners free of cost.
Applicant Submissions:-The term “health service” is not defined in the Act or rules. The health and medical cover provide by the applicant will not get covered under definition of “Service” under section 2(102) of the act as no separate consideration is charged. Hence, the ITC for these inward supplies are not blocked credits under section 17(5)(b)(i) of the CGST Act,2017. These medicines cannot be considered as “goods used for personal consumption” since the cost of these medicines are borne by us as a part of service contract with its employees and pensioners as held in the case of Hindustan Coca Cola Beverages (p) Ltd. V. CCE (2015) 56 Taxmann.com 378/51 GST126 (Mum-CESTAT). The medicines are used in course of furtherance of business as per section 16 and are not blocked credit under section 17(5) (g) , consequently the applicant is eligible for ITC on inward supply of medicines under section 16(1) subject to fulfilment of rules 36 to 45 of CGST Rules.
Respondent’s Submissions:-The respondent submits that the activity of the applicant is providing port services and sale of disposal of discarded assets. Providing medical cover to their employees and pensioners are not part of their business activity and providing medical facility is being done only under service rules. Moreover, the medicines supplied to their employees and pensioners are free of supply. In view of the above fact the applicant is not eligible to claim ITC on inward purchase of medicines to be supplied to their employees for the reason that this activity is not their part and parcel of their activity and supply of medicines without any consideration amount to free supply, hence the applicant is not eligible for ITC.
Advance Ruling Authority’s View: -The medicines and medical facilities are provided by the applicant to its employees for their personal use. Therefore as per section 17(5) (g) of CGST/ TNGST Act, ITC is not available for the medicine that the applicant is procuring the consumption of its employees and pensioners and their dependents. The fact of who pays for the medicines here is irrelevant to the usage of the said medicines. They are used by the employees and dependents and hence are for personal consumption and the applicant is ineligible to take ITC on the inward supply of medicines used to provide health facilities to its employees in its hospital.
Ruling: -The applicant is not entitled to take credit of input tax charged on the inward supply of medicines which are used to provide medical facilities to the employees, pensioners and dependents in the in house hospital.
Normally, the businessman provides health care service to employees only due to the fact that it is required as service contract. These are in furtherance of business only. Hence, credit should be allowed. The expenditure is allowed in Income Tax also. Hence, it should be allowed and it will create credit chain also. There will not be cascading effect also.
Further, the transaction between employer and employee has been matter of dispute only. Firstly, in this row was the reimbursement of expenses by employer to employee was subject to reverse charge when unregistered had provided the service. Whether the service provided by employees of one branch to another branch in another state will be liable to GST. These points should be clarified by CBEC so that unnecessary litigation can be avoided.
This is solely for educational purpose.

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Update On ITC on supply of Medical Facility to employees by employer

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