2020 (7) TMI 380 - AAR - GST

Tax exemption for medicines & healthcare supplies to in-patients clarified under GST law.

The ruling under Section 98 of the Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017 confirmed that the ... Composite supply - principal supply predominant test - ancillary supplies - health care services exempt under Sl.No.74 Heading 9993 of Notification No.12/2017 - Central Tax (Rate) - application of section 2(30) (definition of composite supply) - application of section 8 (taxability of composite supplies) - interpretative parity between supplies to in patients and composite health care (food-medicine analogy)Composite supply - health care services exempt under Sl.No.74 Heading 9993 of Notification No.12/2017 - Central Tax (Rate) - principal supply predominant test - Tax liability on medicines supplied to in patients through the hospital pharmacy. - HELD THAT: - The Authority examined whether supplies of medicines by the hospital pharmacy to in patients form part of a composite supply whose principal element is health care. Applying the definition of composite supply under section 2(30) and the test of predominance of the principal supply, the Authority found that the supply of medicines and consumables is naturally bundled with and integral to the treatment or care provided to in patients. The hospital's provision of treatment cannot, in ordinary commercial reality, be separated from the medicines, implants and consumables necessary for diagnosis or cure. Consequently, these supplies qualify as ancillary to the principal health care service and must be taxed in accordance with section 8 as part of the composite supply. As services by way of health care by a clinical establishment are nil rated at Sl.No.74 Heading 9993 of Notification No.12/2017 - Central Tax (Rate), the composite supply (including ancillary medicines supplied to in patients) is not liable to GST.Medicines supplied to in patients through the hospital pharmacy are not liable to tax, being part of the composite supply of exempt health care services.Ancillary supplies - interpretative parity between supplies to in patients and composite health care (food-medicine analogy) - health care services exempt under Sl.No.74 Heading 9993 of Notification No.12/2017 - Central Tax (Rate) - Tax liability on medicines, drugs, stents, implants and consumables administered to in patients during medical treatment or procedures. - HELD THAT: - The Authority considered whether items administered during treatment - including drugs, stents, implants and other consumables - are separately taxable. Relying on the clarification in the GST Council circular treating food supplied to in patients as part of the composite health care supply, the Authority applied the same principle to medical items administered in the course of treatment. These items are integral to rendering the health care service and therefore constitute ancillary supplies to the principal exempt health care service. Being part of the composite supply whose principal element is nil rated under Sl.No.74 Heading 9993 of Notification No.12/2017, such administered items are not liable to tax.Medicines, drugs, stents, implants and other consumables administered to in patients during treatment or procedures are not liable to GST.Final Conclusion: The Authority ruled that supplies of medicines and allied items to in patients through the hospital pharmacy, and items administered during in patient treatment or procedures, form part of the composite supply of health care by a clinical establishment and are exempt from GST under Sl.No.74 Heading 9993 of Notification No.12/2017 - Central Tax (Rate). Issues:1. Tax liability on medicines supplied to In-patients through pharmacy.2. Tax liability on medicines, drugs, stents, implants, etc., administered to in-patients during medical treatment or procedure.Analysis:Issue 1: Tax liability on medicines supplied to In-patients through pharmacyThe application filed under Section 97 of the Central Goods & Services Tax Act, 2017 and Andhra Pradesh Goods & Services Tax Act, 2017 by a non-profit organization providing healthcare services raised questions regarding the taxability of medicines supplied to in-patients. The Authority for Advance Ruling examined the nature of services provided, considering the definition of healthcare services and the exemption under Notification No. 12/2017 - Central Tax (Rate). It was established that the supply of medicines to in-patients through the pharmacy is part of a composite supply of healthcare services, which is exempt from tax under Heading 9993 of the notification. The ruling clarified that such supplies are not liable to tax.Issue 2: Tax liability on medicines, drugs, stents, implants, etc., administered to in-patients during medical treatment or procedureThe Authority further delved into the tax liability of medicines, drugs, stents, implants, etc., administered to in-patients during medical treatment or procedures. The ruling emphasized that these supplies are integral to the healthcare services provided to in-patients, forming part of a composite supply where healthcare is the principal service. As per Section 2(30) of the CGST Act, 2017, the tax liability for ancillary supplies, including medicines and consumables, is determined under Section 8. Given that healthcare services by a clinical establishment are nil rated under Heading 9993 of the notification, the medicines, drugs, stents, implants, and consumables administered to in-patients are also exempt from GST. This decision aligns with Circular No. 32/06/2018-GST, which clarifies the tax treatment of supplies in line with the composite nature of healthcare services.In conclusion, the ruling issued under Section 98 of the Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017 confirmed that the supply of medicines to in-patients through the pharmacy and the medicines, drugs, stents, implants, etc., administered during treatment are not liable to tax, as they are part of the composite supply of healthcare services exempt under the relevant notification.