Inpatient Services Classification & Tax Implications: Exempt Supply, Input Tax Credit Eligibility

The supply of medicines, consumables, and implants to in-patients by a multispecialty tertiary care hospital is classified as a composite supply of Inpatient Services under SAC 999311, exempt from CGST and SGST. The hospital is not eligible for Input Tax Credit (ITC) on input services exclusively used for providing exempt services to in-patients. For input services used for both exempt and taxable supplies, eligibility for ITC is determined by Rule 42 of the CGST Rules 2017 and TNSGST Rules, along with Section 17(2) of CGST/TNGST Act 2017.

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Issues Involved:
1. Classification of medicines, consumables, surgical, and implants used in healthcare services for in-patients under GST.
2. Eligibility of Input Tax Credit (ITC) for obligatory services provided to in-patients through outsourcing.

Issue-wise Detailed Analysis:

1. Classification of Medicines, Consumables, Surgical, and Implants under GST:

The applicant, a multispecialty tertiary care hospital, provides comprehensive healthcare services to both out-patients and in-patients. In-patients receive a range of services including stay facilities, medicines, consumables, surgical implants, dietary food, and other necessary procedures. The hospital contends that these supplies are naturally bundled and should be considered a "Composite Supply" of health care services, thus exempt under Notification No. 12/2017 read with section 8(a) of GST.

Legal Provisions and Interpretation:
- Section 2(30) of CGST Act defines "composite supply" as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services, which are naturally bundled and supplied in conjunction with each other, one of which is a principal supply.
- The hospital provides a range of services (room rent, nursing care, diagnostics, treatment, medicines, consumables, implants) under the direction of medical doctors, which are billed together.
- Circular No. 32/06/2018-GST clarifies that healthcare services provided by hospitals, including retention money and food supplied to in-patients, are exempt from GST as they form part of the composite supply of healthcare services.
- SAC 9993 (Human Health and Social Care Services) and SAC 999311 (Inpatient Services) include a comprehensive range of services provided to in-patients, which are classified as healthcare services.

Conclusion:
The supply of medicines, consumables, and implants to in-patients in the course of treatment is deemed a composite supply of health services. This composite supply is classified under SAC 999311 and is exempt from GST as per SI No 74 of Notification No. 12/2017-C.T. (rate) dated 28.06.2017 and corresponding state notifications.

2. Eligibility of Input Tax Credit (ITC) for Obligatory Services:

The applicant seeks clarification on the eligibility of ITC for services such as washing and sewage removal, housekeeping, and lease rent on machinery, which are outsourced.

Legal Provisions and Interpretation:
- Input services for laundry (washing bed sheets, pillow covers, gowns, etc.) are exclusively used for in-patients and are associated with providing exempt healthcare services.
- Housekeeping and lease rent on machinery are used for both exempt healthcare services to in-patients and taxable supplies (e.g., medicines to out-patients).
- Section 17(2) of the CGST/TNGST Act 2017 and Rule 42 of the CGST Rules 2017 govern the eligibility of ITC for services used for both exempt and taxable supplies.

Conclusion:
- The applicant is not eligible for ITC on input services used exclusively for exempt healthcare services provided to in-patients, such as laundry services.
- For input services like housekeeping and leasing of equipment used for both exempt and taxable supplies, the eligible ITC is determined by Rule 42 of the CGST Rules 2017 and TNSGST Rules as amended, read with Section 17(2) of CGST/TNGST Act 2017.

Ruling:
1. Medicines, consumables, and implants used in the course of providing healthcare services to in-patients by the applicant are classified as a composite supply of Inpatient Services under SAC 999311.
2. Supply of healthcare services or inpatient services by the applicant is exempt from CGST and SGST as per SI No 74 of Notification No. 12/2017-C.T. (rate) dated 28.06.2017 and corresponding state notifications.
3. The applicant is not eligible for ITC on input services used exclusively for providing exempt services to in-patients. For input services used for both exempt and taxable supplies, the eligible ITC is determined by Rule 42 of the CGST Rules 2017 and TNSGST Rules as amended, read with Section 17(2) of CGST/TNGST Act 2017.

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