2021 (7) TMI 537 - AAR - GST

Hospital Supplies & Services Tax Exemption Ruling

In Re: M/s. ST. Thomas Hospital

The ruling determined that the supply of medicines, surgical items, implants, stents, and other consumables to inpatients in a multi-specialty hospital ... Classification of supply - composite supply or bundled supply - healthcare services - supply of medicines, surgical items, implants, stents and other consumables used in the course of providing health care services to inpatients admitted to the hospital - supply of food to all the inpatients - eligibility of exemption under N/N. 12/2017 read with Section 8(a) of GST - avallment of ITC - common purchase of medicines and surgical items which are ultimately supplied on actual basis to inpatients and outpatients. HELD THAT:- Inpatient services falling under SAC 999311 means services provided by hospitals to inpatients under the direction of medical doctors aimed at curing, restoring and / or maintaining the health of a patient and the service comprises of medical, pharmaceutical and paramedical services, rehabilitation services, nursing services and laboratory and technical services - The primary purpose of the hospital is to provide treatment to the patients approaching them. The basic intention of the patients visiting the hospital is to get treatment for their ailment. Depending upon the severity of the illness the patient may require immediate medical attention, continuous monitoring etc. Therefore, according to their health condition they will be treated as out-patient or admitted as inpatient. The patients admitted to a hospital for treatment expect that proper diagnosis of the disease is made and treatment including appropriate medicines, surgical procedures if necessary, consumables and implants required along with proper diet is administered to them in the most efficient manner so that they can regain their health within the shortest possible time and resume their activities. Therefore, the medicines, implants, consumables and foods supplied in the course of providing treatment to the patients admitted in the hospital is an integral part of the health care service extended to the patients. The CBIC has in Para 5 (3) of Circular No.32/06/2018-GST dated 12.02.2018 clarified that food supplied to the inpatients as advised by the doctor / nutritionist is a part of composite supply of healthcare and not separately taxable. Thus, the applicant is a clinical establishment as defined in Para 2 (s) of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and the supply of medicines, surgical items, implants, stents, food and other consumables to inpatients admitted to the hospital for diagnosis, or medical treatment or procedures is a composite supply where the principal supply is healthcare services falling under SAC 999311 which is exempted as per entry at SI No. 74 of N/N. 12/2017 Central Tax (Rate) dated 28.06.2017. Availment and utilisation of input tax credit - common purchase of medicines and surgical items which are ultimately supplied on actual basis to inpatients and outpatients - HELD THAT:- The eligibility of credit of tax paid on the inputs and input services used for taxable as well as exempted supplies are governed by the provisions of Section 17 (2) of the CGST Act and Rule 42 of the CGST Rules, 2017. Rule 42 of the CGST Rules, 2017 prescribes the manner of determination of input tax credit in respect of inputs or input services and reversal thereof - Hence, where common credit on inputs or input services partly used for effecting taxable supplies and partly for effecting exempt supplies are availed the eligible input tax credit shall be calculated as per the formula prescribed in Rule 42 of the CGST Rules, 2017 and the common credit pertaining to exempt supplies calculated as per the said formula shall be reversed. 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.