As millions of people were contracting the coronavirus rapidly in the country, the Government started creating quarantine centres for the public’s safety. In this article, we will briefly discuss the impact of GST on these quarantine centres. In other words, we will elaborate on the applicability of GST on the compensation received by these quarantine centres.
Quarantine centres are a facility or an infrastructure where people who may have contracted the coronavirus are kept under quarantine for a period of up to 14 days (approximately) to reduce the risk of transmission of this virus. The Government located centres that were mostly in the city’s outskirts and ensured that there was at least one hospital with a critical care unit and an isolation facility nearby. Schools, hostels, unused health facilities, Panchayat Bhavans and hotels were the preferred locations. The purpose of having these quarantine centres was mainly to reduce the transmission of the coronavirus by:
To reduce the coronavirus spread, the Government took mandatory possession of various hotels, schools, hostels, etc. There were a lot of volunteers who helped with delivering food and other basic necessities. However, the recurring expenses at these quarantine centres (like electricity, water, staff salaries, and other miscellaneous expenses), were all incurred by the owners of these facilities. The owners could not operate their regular business due to the imposed lockdown. In some cases, they had zero earnings during the shutdown period. The Government was not providing any financial help in advance either. Therefore, these owners filed compensation claims with the Government to help them cover their expenses incurred during the period.
As per the GST law, two main aspects determine the scope of supply - Consent and Consideration. In the case of Quarantine centres, some of the owners (of the facilities) did not have any choice and had to offer their facilities to the Government for the intended use. Moreover, there is no question of consideration as the owners of the facility were not given any financial assistance. Hence, this transaction does not come under the purview of supply. Compensation is not the same as a consideration. Consideration is received for any sale, transfer, barter, exchange, lease, etc., whereas compensation is received to compensate for any losses that have been incurred. Hence, compensation received by quarantine centres is not taxable under GST. Note: Even if the Department treats this entire arrangement as a supply, GST will not apply to the compensation received by the quarantine centres. As per Notification No. 12/2017- Central Tax (Rate) dated 28 June 2017, pure services* are exempt from GST. *Pure services are services provided to the Central or State Government, Union Territory, local authority, or Government authority, concerning any function assigned to a Panchayat under Article 243G of the Constitution or concerning any function assigned to a Municipality under Article 243W of the Constitution. If we refer to the relevant function under Article 243W of the constitution, it includes: - “(f) Public health, sanitation conservancy and solid waste management”. The service of providing hotels, schools, hostels, etc. for the use of the Government as quarantine centres could be treated as functions related to public health. Hence, they come under the purview of the Article 243W of the constitution and the term ‘pure services’. Accordingly, the compensation received by quarantine centres is not taxable under GST. However, this understanding can change if the Department notifies or makes any amendments.