With the recent second wave of the Covid-19 pandemic sweeping the country, the importance of medical care and particularly, of oxygen equipment cannot be over-emphasized. In this backdrop, it has become commonplace for companies to purchase oxygen concentrators and provide the same to its employees on returnable basis depending on the needs of the employees.
While this is a welcome measure for the employees, one pertinent concern for the company is whether credit of the GST paid on oxygen concentrator given to employees on returnable basis after use is available to the company.
Typically, such oxygen concentrators are kept at the locations of the company and provided to the employees only on need basis. Once the oxygen concentrator is used by an employee, the same is received back by the concerned location of company and will be used further for other employees on need basis.
The entry point for availment of credit under GST law is the use of goods or services in the course or furtherance of business and thereafter, all supplies are also required to pass through the litmus test of not falling under any of the restricted categories.
The definition of “business” under GST law is of wide import including within its ambit any activity, whether or not it is for a pecuniary benefit. As far as the nexus with business is concerned, it is possible to take a stand that since the oxygen concentrators are used to assist employees to improve oxygen level during the COVID-19 pandemic, it can be said that the same will be used in the course or furtherance of the business of company by maintaining the health of its employees.
The restricted category which is causing a dilemma in the minds of the tax payers is the restriction vis-à-vis goods or services or both used for personal consumption.
The question is whether the oxygen concentrators which are given to the employees on need basis are for personal consumption and therefore, the credit is barred under the above restriction.
At first blush, it appears that the oxygen concentrators are indeed used by the employees and their families for their personal use and therefore, the same should be barred under the restricted category of “goods used for personal consumption”.
In order to analyse the position, it is of prime importance to understand the meaning of the term “personal consumption”.
The term “personal consumption” is not defined under GST law.
Drawing an inference from EU VAT law, in the context of motor vehicles, there was an exclusion from credit for a person who intends to use the motor car exclusively for the purposes of a business carried on by him. Further, the provision also stated that a taxable person shall not be taken to intend to use a motor car exclusively for the purposes of a business carried on by him if he intends to make it available (otherwise than by letting it on hire) to any person (including where the taxable person is a partnership, a partner) for private use, whether or not for a consideration.
In the decisions, while deciding on whether the motor vehicle was intended to be used exclusively for the purposes of a business, the following factors were considered:
- Legal impediment/restraint/contractual restraints to private use can be considered as unavailability for private use. (For e.g.: board resolution barring person from private use) The object is to prevent claims to deduct tax on cars purchased for business save where the possibility of private use is excluded.
- “Available” does not mean only physically available.
- Physical restraint as well as legal restraint equally effective. For e.g: Physical restraints such as parking the car in a locked car park out of business hours could be effective.
- Insurance cover not determinative whether for private use.
- Physical restraints for private use of motor vehicle can be ignored and therefore, motor vehicle was available for private use. Physical restraint does not prevent the private use of the vehicle.
It is to be noted that the EU VAT law in the context of non-business use is different than the reference to “personal consumption” under Section 17(5)(g) since in EU VAT, the law based on intention and availability for private use.
Though the terminology used under EU VAT law is not “personal consumption” but “non-business use”, even if the above is applied to oxygen concentrators given on returnable basis, it is worth noting that the use of the oxygen concentrator is not exclusive to any particular employee. Further, such oxygen concentrators are provided to the employees on need basis. Once the oxygen concentrator is used by an employee, the same is received back by the concerned location of company and will be used further for other employees on need basis. Accordingly, the use by the employee is only on need basis and not on an exclusive basis.
Additionally, the aspect which merits consideration is that the oxygen concentrators are not being consumed by the employees and their families. On the other hand, the oxygen concentrators are merely being “used” and not “consumed” by the employees and their families and returned after such use.
To further elaborate on this, in the process of using the oxygen concentrators, the same will not get consumed as a commodity by the employees and will be received back by the company for further use by other employees. Therefore, the use of the oxygen concentrators is regulated by the company and these are not consumed as such by the employees. Also, the oxygen concentrators would be given to employees only on need basis and would not be disposed of by the company. Based on this rationale, it is possible to take a stand that the oxygen concentrators given to employees on need basis is not hit by the bar of personal consumption.
On a cursory reading of the restriction of personal consumption, it may appear that since the oxygen concentrators are solely used by employees and their families, the same is barred by the restriction of “personal consumption”. In the absence of judicial precedents and clarity on the understanding of the term, “personal consumption”, availment of credit is not free from dispute. Owing to two possible interpretations, the issue is ripe for dispute.
Considering the current situation created by the Covid-19 pandemic and making available oxygen concentrators to employees on returnable basis being a common and recurrent practice, a suitable clarification should be issued covering the aforesaid highlighted issues to put an end to the woes of the trade and industry.
Views expressed above are the author’s own.
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