2021 (7) TMI 537 - AAR - GST

Hospital Supplies & Services Tax Exemption Ruling

The ruling determined that the supply of medicines, surgical items, implants, stents, and other consumables to inpatients in a multi-specialty hospital ... Composite supply - Principal supply - Healthcare services exempted under Notification No.12/2017 - Clinical establishment - Inpatient services (SAC 999311) - Food supplied to inpatients as part of composite healthcare supply - Apportionment of input tax credit under Section 17(2) and Rule 42Composite supply - Principal supply - Healthcare services exempted under Notification No.12/2017 - Inpatient services (SAC 999311) - Supply of medicines, surgical items, implants, stents and other consumables to inpatients is part of a composite supply whose principal supply is healthcare services and is exempt under Notification No.12/2017. - HELD THAT: - The Authority examined the character of supplies made to inpatients and applied the statutory tests for composite supply and principal supply. The Explanatory Notes for SAC 999311 recognise inpatient services as comprising medical, pharmaceutical and paramedical services, including supplies incidental to treatment. Where various elements are naturally bundled in the ordinary course of business and one element (healthcare) is predominant, the bundle is to be treated as a single supply characterized by the principal supply. Medicines, implants, consumables and related items supplied to admitted patients are integral to treatment, are ancillary to the dominant healthcare service and therefore form a composite supply whose essential character is healthcare services exempted at SI No.74 of Notification No.12/2017. The Authority recorded that this conclusion follows the statutory definitions of composite supply and principal supply and the classification under SAC 999311. [Paras 8]The supply of medicines, surgical items, implants, stents and other consumables to inpatients is a composite supply with principal supply being healthcare services (SAC 999311) and is exempt under Notification No.12/2017.Food supplied to inpatients as part of composite healthcare supply - Healthcare services exempted under Notification No.12/2017 - Inpatient services (SAC 999311) - Food supplied to inpatients admitted for diagnosis, treatment or procedures is a component of the composite supply of healthcare services and is exempt under Notification No.12/2017. - HELD THAT: - The Authority considered the nature and purpose of dietary supplies provided to inpatients and relied on the Explanatory Notes to SAC 999311 and CBIC Circular No.32/06/2018 which treats food supplied to inpatients as advised by the doctor/nutritionist as part of the composite healthcare supply. Given that dietary provision to admitted patients is integral to treatment and enhances enjoyment of the principal healthcare service, it is ancillary to and forms part of the exempt composite supply. [Paras 8]Food supplied to inpatients admitted for diagnosis, treatment or procedures is a component of the composite healthcare supply (SAC 999311) and is exempt under Notification No.12/2017.Apportionment of input tax credit under Section 17(2) and Rule 42 - Input tax credit on common purchases partly for taxable and partly for exempt supplies - Input tax credit on common purchases of medicines and surgical items used partly for taxable outpatient supplies and partly for exempt inpatient supplies must be determined and reversed in accordance with Section 17(2) of the CGST Act and the formula prescribed in Rule 42 of the CGST Rules, 2017. - HELD THAT: - The Authority noted that where inputs are used partly for effecting taxable supplies and partly for exempt supplies, Section 17(2) limits the credit to that attributable to taxable supplies. Rule 42 prescribes the method and formula for apportionment and reversal of common credit. Accordingly, the eligible input tax credit in respect of common purchases that are ultimately supplied to both outpatients (taxable) and inpatients (exempt) must be calculated as per the Rule 42 formula; the ad hoc formula proposed by the applicant has no legal backing. [Paras 8]Eligible input tax credit on common purchases used for both taxable outpatient supplies and exempt inpatient supplies shall be computed and reversed as per Section 17(2) of the CGST Act and the formula in Rule 42 of the CGST Rules, 2017.Final Conclusion: The Authority ruled that supplies of medicines, surgical items, implants, stents, consumables and food to inpatients form a composite supply whose principal supply is healthcare services (SAC 999311) and are exempt under Notification No.12/2017; input tax credit on common purchases used for both exempt inpatient supplies and taxable outpatient supplies must be apportioned and the exempt portion reversed in accordance with Section 17(2) and Rule 42 of the CGST Rules. Issues Involved:1. Classification of medicines, surgical items, implants, stents, and other consumables used in providing healthcare services to inpatients as 'Composite Supply' under GST.2. Classification of supply of food to inpatients as 'Composite Supply' under GST.3. Availment of Input Tax Credit (ITC) on common purchases of medicines and surgical items supplied to both inpatients and outpatients.Issue-wise Detailed Analysis:1. Classification of Medicines, Surgical Items, Implants, Stents, and Other Consumables as 'Composite Supply' under GST:The applicant, a multi-specialty hospital, provides healthcare services, including the supply of medicines, surgical items, implants, stents, and other consumables to inpatients. The primary purpose of the hospital is to provide treatment to patients, and these supplies are integral to the healthcare services. According to Section 2(30) of the CGST Act, a 'composite supply' consists of two or more taxable supplies naturally bundled in the ordinary course of business, with one being the principal supply. Section 8(a) of the CGST Act states that the tax liability of a composite supply is determined by the principal supply, which in this case is healthcare services.The ruling confirms that the supply of medicines, surgical items, implants, stents, and other consumables to inpatients is a composite supply where the principal supply is healthcare services, classified under SAC 999311. This composite supply is exempt under entry at SI No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017.2. Classification of Supply of Food to Inpatients as 'Composite Supply' under GST:The hospital also provides food to inpatients, which can be under the direction of dieticians or doctors. The CBIC clarified in Circular No. 32/06/2018-GST dated 12.02.2018 that food supplied to inpatients as advised by doctors or nutritionists is part of the composite supply of healthcare and is not separately taxable.The ruling states that the supply of food to inpatients is a component of the composite supply where the principal supply is healthcare services falling under SAC 999311. This composite supply is exempt under entry at SI No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017.3. Availment of Input Tax Credit (ITC) on Common Purchases of Medicines and Surgical Items:The applicant sought clarification on the formula for availing ITC on common purchases of medicines and surgical items supplied to both inpatients (exempt supply) and outpatients (taxable supply). The eligibility of ITC on inputs and input services used for both taxable and exempt supplies is governed by Section 17(2) of the CGST Act and Rule 42 of the CGST Rules, 2017. The applicant's proposed formula for ITC apportionment lacks legal backing as per these provisions.The ruling concludes that the eligible ITC should be calculated using the formula prescribed in Rule 42 of the CGST Rules, 2017. The common credit pertaining to exempt supplies must be reversed according to this rule.RULING:1. The supply of medicines, surgical items, implants, stents, and other consumables to inpatients admitted for diagnosis, medical treatment, or procedures is a composite supply with healthcare services as the principal supply, exempt under Notification No. 12/2017.2. The supply of food to inpatients is a component of the composite supply with healthcare services as the principal supply, exempt under Notification No. 12/2017.3. The eligibility of ITC on common purchases of medicines and surgical items should be calculated as per the formula prescribed in Rule 42 of the CGST Rules, 2017.