ITC restrictions clarified on medical supplies, with exemptions for independent sales

The ruling clarified that input tax credit (ITC) is restricted on medicines supplied to inpatients and outpatients as part of health care services, as they are considered exempt supplies. However, ITC can be claimed on medicines supplied independently. For medicines supplied to customers other than inpatients and outpatients, ITC can be claimed if tax is paid on such supplies. Additionally, ITC is restricted on the supply of food and beverages to inpatients, whether as part of treatment or patient-requested, as they are integral to health care services and exempt from tax.

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Issues Involved:
1. Restriction of input tax credit (ITC) on medicines supplied to inpatients.
2. Restriction of ITC on medicines supplied to outpatients.
3. Restriction of ITC on medicines supplied to other than inpatients and outpatients.
4. Restriction of ITC on supply of food and beverages to inpatients.

Issue-wise Detailed Analysis:

1. Restriction of ITC on Medicines Supplied to Inpatients:
The applicant, a hospital providing health care services, sought clarification on whether ITC should be restricted for medicines supplied to inpatients. The ruling clarified that the supply of medicines to inpatients is part of a "composite supply" of health care services. According to Section 2(30) of the CGST Act, 2017, a composite supply consists of two or more taxable supplies naturally bundled and supplied together. Here, the primary supply is health care services, and the medicines are ancillary. Since health care services are exempt under Notification No.12/2017-Central Tax (Rate), the applicant cannot claim ITC on medicines used for inpatients.

2. Restriction of ITC on Medicines Supplied to Outpatients:
For outpatients, the applicant supplies medicines in two ways: as part of health care services and as a separate sale from the pharmacy. When medicines are supplied as part of health care services, they are consumed in the provision of those services, which are exempt from tax. Therefore, ITC cannot be claimed on these medicines. However, if medicines are sold independently from the pharmacy, they are taxable, and the applicant can claim ITC on such supplies.

3. Restriction of ITC on Medicines Supplied to Other than Inpatients and Outpatients:
The applicant also supplies medicines to customers who are neither inpatients nor outpatients. These transactions are considered independent sales of taxable goods. The applicant is liable to pay tax on these sales and can claim ITC on the input taxes paid on such medicines, similar to any other supplier of taxable goods.

4. Restriction of ITC on Supply of Food and Beverages to Inpatients:
The supply of food and beverages to inpatients can be categorized in two ways: prescribed diet as part of treatment and food requested by the patient. If food is part of the prescribed diet integral to the treatment, it is considered part of the health care services and is exempt from tax, thus ITC cannot be claimed. If food is supplied based on the patient's request and not as part of the prescribed diet, it still becomes naturally bundled with the health care services, as the hospital does not allow outside food. Hence, it is treated as a composite supply of health care services, exempt from tax, and ITC cannot be claimed.

Ruling:
1. ITC is restricted on medicines used in the supply of health care services to inpatients.
2. ITC is restricted on medicines used in the supply of health care services to outpatients. However, if medicines are supplied independently, ITC can be claimed subject to tax payment on such supplies.
3. ITC is not restricted on medicines supplied to customers who are neither inpatients nor outpatients, provided tax is paid on such supplies.
4. ITC is restricted on the supply of food and beverages to inpatients as part of health care services.

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