Textile manufacturer cannot claim input tax credit on employee health insurance under Section 17(5)(b) CGST Act 2017

AAR Rajasthan ruled that a textile manufacturer cannot claim input tax credit on GST charged by medical/health insurance companies for employee insurance. The authority determined that two conditions under Section 17(5)(b) CGST Act 2017 must be satisfied: outward taxable supply should be of same category, and inward supply should be an element of taxable composite or mixed supply. Since the applicant manufactures textile items and insurance services are unrelated to textile supply, neither condition was met, thereby disallowing the ITC claim.

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Issues involved:
Claiming input tax credit for GST charged by the Medical/Health Insurance Company in respect of insurance done for employees.

Analysis:

Issue 1: Claiming input tax credit for GST on medical/health insurance:
The applicant sought an advance ruling on whether they could claim input tax credit for GST charged by the Medical/Health Insurance Company for insurance done for employees. The applicant argued that due to the MHA order dated 15.04.2020 mandating medical insurance for employees to prevent the spread of Covid-19, input tax credit should be available as per Section 17(5)(b) of the CGST Act, 2017. The applicant contended that the SOP issued by the MHA was still relevant, making medical/health insurance mandatory, thus satisfying the conditions for availing input tax credit. However, the Authority for Advance Ruling analyzed the provisions of Section 17(5)(b)(i) and concluded that the applicant, being a manufacturer of textile items with taxable supplies, did not meet the conditions required to claim input tax credit for health insurance services. Therefore, the ruling was made that the applicant could not claim input tax credit for GST charged by the Medical/Health Insurance Company in respect of insurance done for employees.

Conclusion:
The Authority for Advance Ruling determined that the applicant was not eligible to claim input tax credit for GST charged by the Medical/Health Insurance Company in relation to insurance for employees, based on the provisions of Section 17(5)(b)(i) of the CGST Act, 2017.

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