ITC on Medical/Health Insurance for employees ─ No amendments in GST Act in tune with MHA Instructions issued during COVID-19, leading to great Anomaly

The AAR, Rajasthan has pronounced judgement on 8.9.2021, in the case of RSWM Limited, Bhilwara (2021) 36 J.K.Jain’s GST & VR 316, that;

‘The applicant can’t claim ITC of GST charged by the Medical/Health Insurance Company in respect of insurance done for employees’

Background ─ Per Order No. 40-3/2020-DM-I(A) dated 15th April 2020 issued by Ministry of Home Affairs (MHA), the Government has made medical insurance mandatory for the workers of offices, workplace, factories, and establishments. As such, it is obligatory on all industrial and commercial establishments, workplaces, offices, etc. to provide medical insurance cover to its employees.

Questions on which the Advance Ruling is sought ─ Whether the applicant can claim input tax credit of GST charged by the Medical/ Health Insurance Company in respect of insurance done for employees? Report this ad

Findings by AAR─ Applicant has submitted that ITC on Health Insurance Services can be availed if it is obligatory to provide such insurance under any law, applicant wishes to submit that in view of the Covid-19 pandemic and to implement measures to prevent the spread of Covid-19 disease at the work place, Ministry of Home Affairs (MHA) vide its Order No. 40-3/2020-DM-I(A) dated 15th April 2020 made it obligatory for organizations to provide medical insurance cover to its employees. Further MHA has issued clarification via ref: IRDAI/HLT/CIR/ MISC/093/04/2020 dated 16.4.2020. In the said reference the Govt. has stipulated all industrial and commercial establishments, workplaces, offices etc. shall make arrangements for the implementation of Standard Operating Procedure (SOP) before starting their functioning. As per Clause No. 5 of Annexure-II for the purpose of social distancing for offices, workplaces, factories, and establishments Govt. has made medical insurance for the workers mandatory. Though. the above said order of MHA was issued on 15.4.2020, i.e., a year back but the fact remains that with the second wave of Covid-19 and consequential widespread outburst of the pandemic all the SOPs of MHA Order dated 15.4.2020 has become much more relevant. Every Govt. agency including Hon’ble Supreme Court is spreading this message for all such measures like social distancing, sanitizing, etc. Further all States Govt. are also declaring lockdown from time to time. This all shows that the SOP prescribed under MHA Order dated 15.4.2020 is still very relevant and it is merely a technical formality whether it is extended or not because in all respective State Govt. orders, the follow of such SOP is being made mandatory. A copy of Order of Ministry of Home Affairs Rajasthan dated 14.4.2021 and 18.4.2021 is enclosed as Appendix-1 and Appendix-2 respectively for the sake of reference highlighting and enforcing all such measures in public safety. In such circumstances, applicant submits that SOP dated 15.4.2020 is still very much under force and among other things it prescribes for Medical/Health Insurance of Employee also and therefore, in the interest of public at large same can be still considered as mandatory and hence, it is submitted that the requirement prescribed under S.17(5)(b) stands satisfied and therefore, ITC of GST paid on Medical/Health Insurance of Employees is available. 4. Analysis by AAR.─S.17(5)(b)(i), GST Act provides for restriction of ITC on Health Insurance services subject to certain conditions which reads as under:

“S.17(5) Notwithstanding anything contained in S.16(1) and S.18(1), ITC shall not be available in respect of the following, namely: ………

(b) the following supply of goods or services or both─ Report this ad (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance: Provided that the ITC in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;” On perusal of the above section, we observed that the following two condition is required to avail ITC to medical/health insurance. Report this ad (i) outward taxable supply should be same category. (ii) Inward supply should be an element of a taxable composite or mixed supply.

Conclusion by AAR  ─ It is a fact that the applicant is a manufacturer of textile item and supply is also taxable items. The AAR found that, neither applicant is a supplier related to health insurance service nor this service has an element of supply of textile. In view of the above the applicant cannot claim ITC of GST charged by the Medical/Health insurance company in respect of insurance done for employees, as provided u/s 17(5)(b)(i), CGST Act.

Ruling by AAR ─ The applicant can not claim ITC of GST charged by the Medical/Health Insurance Company in respect of insurance done for employees

Our views on Govt. Policy ─ The Govt. is not determined to give legitimate benefits to citizens of India inspite of Covid-19 pandemic & issuance of Order No. 40-3/2020-DM-I(A) dated 15th April 2020 by MHA coupled with observations by the Apex Court on India, since no amendments were carried out in the GST Act to smoothly comply with the Govt. guidelines by various citizens of India.

Even GST rates were not reduced/not exempted for Insurance Premium on Health, paid by Senior Citizens of India, where the Govt. admitted higher rate of death due to Covid-19 pandemic.

CA Om Prakash Jain s/o J.K.Jain, Jaipur

Tel.9414300730