Taxman must make life easier for Covid-relief importers

As Covid rages, the only option appears to be to source medical equipment and medicines from abroad

The second wave of Covid-19 took many by surprise, including the Central Board of Indirect Taxes and Customs (CBIC), although many others would say that the surprise was only because the authorities took the eye off the ball early this year, assuming prematurely that the pandemic had been consigned to history. The second wave has hit India so hard that beds in hospitals are hard to get, beds with oxygen are next to impossible, and there is a huge shortage of vaccines.

The only option appears to be to source medical equipment and medicines from abroad. But the CBIC would levy both Customs Duty and Integrated Goods and Service Tax (IGST) on such imports, thereby making the landed cost higher -- not an ideal scenario when most of the nation desperately needs these lifesavers.

After some back and forth, the CBIC responded. On April 20 and 24, it issued notifications exempting the import of Remdesivir, Beta Cyclodextrin, oxygen and vaccines from Customs Duty. However, the IGST levy remained. Finally, on May 3, CBIC issued a notification excluding such imports from IGST, too. Unfortunately, none of these notifications considered the urgency for importing these items -- there are terms and conditions to be met, forms to be filled, and reports to be given.

The IGST exemption notification is not termed a notification but an ad-hoc exemption order. It confirms that there would be no IGST levied on all items covered under the earlier notifications. However, a few conditions should be met. The said goods should be imported free of cost for the purpose of Covid relief by a state government or any entity, relief agency or statutory body authorised in this regard by any state government. The goods should be received from abroad for free distribution in India for the purpose of Covid relief.

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Before clearance of the goods, the importer has to produce to the Deputy or Assistant Commissioner of Customs a certificate from a nodal authority, appointed by a state government, that the imported goods are meant for free distribution for Covid relief. The importer must also produce within a period of six months from the date of importation a statement containing details of goods distributed free of cost, duly certified by the said nodal authority of the state government. If all these conditions are met, the exemption is available till June 30 of next year.

Questions

These notifications raise many questions. Should an ad-hoc exemption order place any terms and conditions? Should there be an expiry date for an ad-hoc exemption order? Considering the position India is in now, many are volunteering their services also, why should the exemption be available only to goods and not to services? Why should there be a condition that the goods should be imported free of cost?

From a cursory look at the terms and conditions, it would appear that the importer would be spending more time in the offices of the Customs Department than with the patient needing oxygen or the vaccine. Also, each of these notifications have different dates when the exemptions would expire. Customs Duty exemption for Remdesivir is available till October 31, while the exemption for oxygen and vaccines is on till July 31. The IGST exemption on all these is only till June 30. CBIC appears to have decided that after July, only Remdesivir would be required in India, for a further period of three months. Since no one knows when this wave will go and when another would come (there is already talk of a third wave), all of these notifications should have no sunset date -- they should just be there till the situation improves all around.

Even in the present dispensation, if goods are imported free of cost, a nominal value is put for customs purposes. For instance, holding companies located abroad usually send gift hampers for the employees of their subsidiary companies in India. However, the present situation is very different. Many organisations in India would not mind paying for Remdesivir, oxygen equipment and vaccines for distribution to the needy in India. Restricting the exemption only to Covid-related stuff only if they are imported free of cost serves a limited purpose. The exemption should be extended to all genuine imports of Covid-related equipment and services, even if they are paid for.

Apart from reducing the GST rate on Remdesivir and oxygen cylinders, CBIC has not done much else with regard to Covid. CBIC has been generous enough to provide exemptions and extensions for compliance-related duties of the taxpayer, such as filing of returns. However, a lot more can be done on rate-related mismatches under GST. At present, Remdesivir and oxygen cylinders attract a GST rate of 12% -- they were previously taxed at 28%. Since the end-user is going to be a patient who may or may not have a GST number, it would be best to exempt them from GST for some time. In case there is a GST number, the rate can be reduced to an easier 5% with no restrictions on availing input tax credit by the recipient. This may not be the right time for state governments to renew their battles with the central government on the issue of compensation, but this is bound to be brought up soon.

The central government is seeing a boost in GST revenues but has made large allocations for Covid-related reliefs. State governments would be wanting the central government to draw a balance between its commitments to the citizens and the states. On all counts, the central government is going to be assessed on how it handles the Covid crisis. As of now, it still has a long way to go.