Hospital supplies to in-patients exempt, out-patients taxable under CGST/SGST

The case involved the taxability of supplies provided by a hospital to in-patients and out-patients. The Authority for Advance Ruling (AAR) determined that the supply of medicines, surgical items, implants, consumables, and other allied items, as well as food and room on rent to in-patients, constitutes a composite supply of health care treatment and is exempt from CGST/SGST. However, the supplies to out-patients were deemed not part of a composite supply of health care treatment and therefore taxable under CGST/SGST.

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Issues Involved:
1. Taxability of supply of medicines, surgical items, implants, consumables, and other allied items provided by the hospital to in-patients.
2. Taxability of supply of medicines, surgical items, implants, consumables, and other allied items provided by the hospital to out-patients.

Issue 1: Taxability of Supplies to In-Patients

The applicant, Terna Public Charitable Trust, operates a hospital and a pharmacy. They sought an advance ruling on whether the supply of medicines, surgical items, implants, consumables, and other allied items through the hospital-owned pharmacy, as well as food and room on rent to in-patients, constitutes a composite supply of health care treatment and is therefore not taxable under CGST/SGST.

The hospital provides comprehensive care to in-patients, including lodging, food, and medical supplies as part of the treatment process. The Authority for Advance Ruling (AAR) observed that these supplies are indispensable to the health care services provided to in-patients. The AAR referenced Sr. No. 74, Heading No. 9993 of Notification No. 12/2017-CT(Rate) dated 28.06.2017, which exempts health care services provided by a clinical establishment. The term "clinical establishment" includes hospitals offering diagnostic or treatment services. The AAR concluded that the supply of medicines, surgical items, implants, consumables, and other allied items, as well as food and room on rent to in-patients, is part of a composite supply of health care treatment and is exempt from GST.

Issue 2: Taxability of Supplies to Out-Patients

The applicant also sought clarity on whether the supply of similar items to out-patients is part of a composite supply of health care treatment and thus exempt from CGST/SGST. The AAR noted that out-patients receive prescriptions from the hospital but have the freedom to purchase medicines from any pharmacy, including the hospital's pharmacy. The hospital does not control the continuous treatment of out-patients. The AAR distinguished between the services provided to in-patients and out-patients, stating that for out-patients, the hospital's role is limited to diagnosis and prescription. The supply of medicines and other items to out-patients does not form part of a composite supply of health care treatment. Therefore, such supplies are taxable under CGST/SGST.

Conclusion

1. The supply of medicines, surgical items, implants, consumables, and other allied items, as well as food and room on rent to in-patients, is part of a composite supply of health care treatment and is exempt from CGST/SGST.
2. The supply of medicines, surgical items, implants, consumables, and other allied items to out-patients is not part of a composite supply of health care treatment and is taxable under CGST/SGST.

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