Outpatient pharmacy supplies are not composite health care services and remain taxable under GST exemption rules.

Supply of medicines and allied items through a hospital pharmacy to outpatients was not treated as part of a composite health care service under GST. The AAAR distinguished inpatient treatment, where medicines form part of a bundled treatment package under continuous medical supervision, from outpatient transactions, where consultation and medicines were separately billed and the patient remained free to buy medicines elsewhere. Because the outpatient supply was not naturally bundled with health care services, exemption under Serial No. 74 of Notification No. 12/2017-Central Tax (Rate) did not apply. The supply was therefore taxable.

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Issues: Whether the supply of medicines and allied items through the hospital pharmacy to outpatients forms part of a composite supply of health care services and is exempt from GST under Serial No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Analysis: The supply to inpatients was distinguished from supply to outpatients. In the case of inpatients, medicines and allied items were found to be part of a bundled treatment package under continuous medical supervision, and therefore to form part of health care services. In the case of outpatients, the consultation and supply of medicines were separately billed, the patient was free to procure medicines from elsewhere, and the hospital had no control over the continued treatment or purchase decision. On that basis, the supply of medicines and allied items to outpatients was held not to be naturally bundled with health care services and could not claim exemption as composite supply.

Conclusion: The supply of medicines and allied items through the hospital pharmacy to outpatients is taxable under GST and the exemption does not apply.

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