Composite healthcare supply exemption covers inpatient medicines, consumables and food; common input tax credit must follow statutory apportionment.

Medicines, surgical items, implants, stents, consumables and food supplied to inpatients were treated as naturally bundled with the principal supply of healthcare services, so the inpatient treatment package constituted a composite supply and qualified for exemption as healthcare services. Common purchases used for both inpatients and outpatients could not be covered by the applicant's proposed credit formula; where inputs are used for both exempt and taxable supplies, input tax credit must be restricted and apportioned under the statutory mechanism in Rule 42.

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Issues: (i) Whether medicines, surgical items, implants, stents and other consumables supplied to inpatients as part of hospital treatment form a composite supply of healthcare services and qualify for exemption; (ii) Whether food supplied to inpatients forms part of the composite supply of healthcare services and qualifies for exemption; (iii) Whether the proposed formula for availing input tax credit on common purchases of medicines and surgical items supplied to both inpatients and outpatients is correct.

Issue (i): Whether medicines, surgical items, implants, stents and other consumables supplied to inpatients as part of hospital treatment form a composite supply of healthcare services and qualify for exemption?

Analysis: Healthcare services supplied by a clinical establishment are exempt under entry 74 of Notification No. 12/2017-Central Tax (Rate). Composite supply under Section 2(30) of the Central Goods and Services Tax Act, 2017 is determined by the principal supply under Section 2(90) and Section 8(a). Medicines, implants, consumables and similar items supplied to inpatients in the course of diagnosis or treatment were held to be naturally bundled with healthcare services and ancillary to the principal supply.

Conclusion: Yes. The supply to inpatients is a composite supply, the principal supply being healthcare services, and the exemption applies.

Issue (ii): Whether food supplied to inpatients forms part of the composite supply of healthcare services and qualifies for exemption?

Analysis: Food supplied to inpatients as part of their treatment was treated as incidental to the healthcare service and not as a separate supply. The supply was held to be part of the overall inpatient healthcare bundle, consistent with the treatment of naturally bundled supplies under the GST framework and the exemption for healthcare services.

Conclusion: Yes. Food supplied to inpatients forms part of the composite supply of healthcare services and is exempt.

Issue (iii): Whether the proposed formula for availing input tax credit on common purchases of medicines and surgical items supplied to both inpatients and outpatients is correct?

Analysis: Where common inputs are used partly for taxable supplies and partly for exempt supplies, input tax credit must be restricted in accordance with Section 17(2) and reversed or apportioned under Rule 42 of the Central Goods and Services Tax Rules, 2017. The applicant's proposed formula was not accepted as the governing method.

Conclusion: No. The eligible input tax credit has to be computed in accordance with Rule 42 of the Central Goods and Services Tax Rules, 2017.

Final Conclusion: The ruling grants exemption treatment to inpatient healthcare supplies of medicines, consumables and food as composite supply, while directing that common input tax credit be determined only under the statutory apportionment mechanism.

Ratio Decidendi: Supplies that are naturally bundled with and ancillary to the principal supply of healthcare in inpatient treatment are taxable according to the character of the principal supply, and common input tax credit for mixed taxable and exempt use must be apportioned only under the prescribed statutory formula.

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