2018 (10) TMI 511 - AAR - GST

Hospital Pharmacy Services: GST Exemption for Inpatients, Taxable for Outpatients Based on Treatment Context

In Re: M/s. Ernakulam Medical Centre Pvt. Ltd.

Hospital pharmacy's GST liability determined by patient status. For inpatients, medicine supply is part of composite health care service and non-taxable. ... Levy of GST - supply of medicines and allied items through the pharmacy - Composite supply - health care services by a clinical establishment - exemption under N/N. 12/2017-CT (Rate) dated 28.06.2017 - Held that:- Health care services provided by a clinical establishment, an authorized medical practitioner or para medics are exempted vide Sl.No.74 of Notification No. 12/2017-CT (Rate) dated 28.06.2017. The word 'clinical establishment' means a hospital, nursing home, clinic, sanatorium or any other institution by whatever name called, that offers services or facilities requiring diagnostics or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases. In case of inpatient as well as out patient, medicines are dispensed based on prescriptions. Hence there is no privilege for the hospitals that are dispensing medicine to outpatients. Therefore pharmacy run by hospital dispensing medicine to outpatient or bye standers or others can be treated as individual supply of medicine and not covered under the ambit of health care services. Hence such supply of medicines and allied goods are taxable. Vide clarifications issued based on the approval of 25th GST Council Meeting held on 18-01-2018 [F.No.354/17/2018-TRU Dt.12-02-2018), it was clarified that food supplied to the inpatients as advised by the doctor/nutritionist is a part of composite supply of health care and not separately taxable. Other supplies of food by hospital to patients not admitted are taxable. The same principle is applicable in the case of dispensing of medicines also. Ruling:- The supply of medicines and allied items provided by the hospital through the pharmacy to the in-patients is part of composite supply of health care treatment and hence not separately taxable. The supply of medicines and allied items provided by the hospital through the pharmacy to the out-patients is taxable. Issues involved:Liability of hospital under GST Act on the supply of medicines and allied items through the pharmacy.Detailed Analysis:Issue 1: Exemption for supply of medicines to inpatientsThe applicant sought an advance ruling on the liability of the hospital under the GST Act regarding the supply of medicines and allied items through the pharmacy. The authorized representative of the hospital argued that medicines supplied to patients under medical prescription are exempted as health care services. The pharmacy exclusively dispenses medicines to inpatients and outpatients under the supervision of doctors. The examination revealed that health care services by clinical establishments are exempted under the GST Act. Inpatients receive a composite supply of lodging, care, medicine, and food as part of their treatment, making the supply of medicines to inpatients non-taxable as it is essential for facilitating health care services.Issue 2: Taxability of supply of medicines to outpatientsRegarding the supply of medicines to outpatients, the hospital only provides prescriptions, and outpatients have the freedom to procure medicines from the hospital pharmacy or external outlets. The hospital does not control the outpatient's treatment post-prescription. The analysis concluded that the supply of medicines to outpatients by the hospital pharmacy is not part of health care services and is taxable as an individual supply of medicine. This distinction was made based on the outpatient's freedom to choose where to procure medicines.Relevant Rulings:i) The supply of medicines to inpatients through the hospital pharmacy is part of a composite supply of health care treatment and is not separately taxable.ii) The supply of medicines to outpatients through the hospital pharmacy is taxable.Additional Clarification:The ruling aligns with the clarification that food supplied to inpatients as part of health care treatment is not separately taxable, similar to the dispensing of medicines. This principle ensures consistency in the tax treatment of supplies provided by hospitals to patients.This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the rulings delivered by the Authority for Advance Rulings, Kerala, regarding the liability of hospitals under the GST Act for the supply of medicines and allied items through their pharmacies.