2020 (9) TMI 337 - AAR - GST

Medical Service Provider Eligible for GST Input Tax Credit on Diagnostic Lab Setup Assets

The Authority for Advance Ruling determined that the medical service provider could avail GST input tax credit on equipment, furniture, reagents, and ... Health care services as including diagnostic services - Clinical establishment as including diagnostic laboratories - Exemption of services by clinical establishments under Entry No. 74 of Notification No.12/2017 - Input tax credit subject to restriction where supplies are partly taxable and partly exempt (Section 17(2) CGST Act) - Disallowance of input tax credit on tax component where depreciation claimed on capital goods (Section 16(3) CGST Act) - Input tax credit on capital goods and consumables used for taxable suppliesHealth care services as including diagnostic services - Clinical establishment as including diagnostic laboratories - Exemption of services by clinical establishments under Entry No. 74 of Notification No.12/2017 - Input tax credit subject to restriction where supplies are partly taxable and partly exempt (Section 17(2) CGST Act) - Disallowance of input tax credit on tax component where depreciation claimed on capital goods (Section 16(3) CGST Act) - Eligibility to avail input tax credit on equipments, furniture and other capital goods purchased for establishing the diagnostic laboratory. - HELD THAT: - The Authority held that the services rendered by the applicant are diagnostic services and therefore constitute health care services. The applicant's laboratory, established to carry out diagnostic or investigative services of diseases, qualifies as a clinical establishment. Consequently, those services fall under Entry No. 74 of Notification No.12/2017 and are exempt. Because the applicant undertakes both exempt and taxable supplies, input tax credit on capital goods is admissible only to the extent attributable to taxable supplies in accordance with the restriction on apportionment for mixed use under Section 17(2) of the CGST Act. Further, where the applicant claims depreciation on the tax component of capital goods under the Income Tax Act, the input tax credit on that tax component is not allowable as per the rule embedded in Section 16(3) of the CGST Act. The Authority therefore allowed ITC on capital goods subject to the statutory apportionment and the proviso concerning depreciation. [Paras 6, 7, 8]Input tax credit on equipments, furniture and other capital goods purchased for the project is allowable, subject to apportionment under Section 17(2) CGST and disallowance where depreciation on the tax component is claimed under Section 16(3).Health care services as including diagnostic services - Exemption of services by clinical establishments under Entry No. 74 of Notification No.12/2017 - Input tax credit subject to restriction where supplies are partly taxable and partly exempt (Section 17(2) CGST Act) - Eligibility to avail input tax credit on reagents and consumables used for performing diagnostic tests. - HELD THAT: - The Authority concluded that diagnostic tests supplied by the applicant to the hospital are exempt as health care services provided by a clinical establishment under Entry No. 74. Since the applicant is engaged in both exempt and taxable supplies, input tax credit on reagents and consumables is admissible only to the extent attributable to taxable supplies and must be restricted in terms of Section 17(2) of the CGST Act. Thus ITC on consumables is not wholly available where they are used for exempt supplies; entitlement must be apportioned in accordance with the statutory restriction. [Paras 6, 7, 8]Input tax credit on reagents and consumables used in tests is allowable only to the extent attributable to taxable supplies and must be restricted under Section 17(2) CGST.Final Conclusion: The Authority ruled that the applicant's diagnostic services qualify as exempt health care services by a clinical establishment under Entry No. 74, and accordingly allowed input tax credit on capital goods and on reagents/consumables only to the extent attributable to taxable supplies in terms of Section 17(2) CGST Act, subject also to the limitation where depreciation on the tax component is claimed under Section 16(3) CGST Act. Issues:1. Eligibility of GST input tax credit on purchased equipment and furniture.2. Eligibility of GST input tax credit on purchased reagents/consumables for tests.Analysis:Issue 1: Eligibility of GST input tax credit on purchased equipment and furniture:The applicant, a medical service provider, sought an advance ruling on whether they could avail GST input tax credit on equipment, furniture, and fixtures purchased for establishing a Molecular Diagnostic Laboratory. The applicant argued that since the services provided fall under medical services, GST should not be levied. They believed that as fixed assets in their books, they should be eligible to claim input tax credit on the GST paid for such assets.During the personal hearing, the applicant reiterated their position, emphasizing that the services provided to the hospital were exempt from tax under the CGST/KGST/IGST Act. They also highlighted that the purchased assets were capitalized in their books as capital goods, making them eligible for input tax credit on the inward supply of such assets.The Authority for Advance Ruling examined the submissions and relevant provisions of the CGST and KGST Acts. They determined that the diagnostic services provided by the applicant qualified as 'health care services' under the notification, making them exempt from tax. Additionally, since the applicant established a medical diagnostic laboratory, they were considered a 'clinical establishment,' further supporting their eligibility for tax exemption under the Acts.Issue 2: Eligibility of GST input tax credit on purchased reagents/consumables for tests:The applicant also sought clarification on whether they could claim GST input tax credit on reagents and consumables purchased for conducting tests. The Authority clarified that the applicant could avail input tax credit on both the purchased equipment and furniture for the project and the reagents/consumables used for tests. However, this credit was subject to restrictions under Section 17(2) of the CGST Act, which limits the credit to taxable supplies, including zero-rated supplies.Furthermore, if the applicant claimed depreciation on the tax component of capital goods and plant machinery under the Income Tax Act 1961, the input tax credit on that tax component would not be allowed. Therefore, the applicant was deemed eligible for input tax credit on equipment, furniture, reagents, and consumables, subject to the restrictions outlined in Section 17(2) of the CGST Act.In conclusion, the Authority ruled that the applicant could avail GST input tax credit on both the purchased equipment and furniture for the project and the reagents/consumables used for tests, subject to the specified restrictions under the CGST Act.