2022 (3) TMI 1144 - AAAR - GST

Healthcare service provider denied GST exemption as accommodation charges exceed medical services portion under Entry 74

The AAAR Gujarat ruled that appellant's services do not qualify for GST exemption under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate). The ... Composite supply - principal supply - health care services - clinical establishment - strict interpretation of exemption notificationComposite supply - principal supply - Classification of the appellant's packaged services as a composite supply and identification of the principal supply - HELD THAT: - The Authority accepted that the appellant's packaged offering comprises accommodation, food and therapy forming a naturally bundled package. The GAAR had treated the package as a composite supply and found accommodation to be the principal supply, observing that the therapy could not be availed without accommodation and that the room rate formed the major part of the consideration. The appellant asserted that the medical treatment (Naturopathy/Ayurveda/Yoga) is the principal supply and accommodation and food are incidental, but did not produce evidence to rebut GAAR's finding that the room charges constitute the major portion of consideration. Value is a guiding, though not sole, factor in determining the principal supply and on the material before it the Authority concluded that accommodation attains the nature of principal supply and other components are ancillary. [Paras 5, 6, 19]The packaged services constitute a composite supply in which accommodation is the principal supply.Health care services - clinical establishment - Whether the appellant is a 'clinical establishment' providing 'health care services' within the meaning of the exemption entry - HELD THAT: - The notification defines 'clinical establishment' and 'health care services' by reference to institutions offering diagnosis, treatment or care in recognised systems of medicines. The Authority examined industry guidance and draft standards for naturopathy and clinical establishments to understand ordinary parlance. The appellant did not specify under which category of clinical establishment it claimed to fall, and it operates without outpatient facilities, admits only in-patients for minimum seven-day stays and conditions admission on package purchase. No authoritative evidence was produced to show that naturopathy treatment by its nature requires the fixed minimum stay claimed. The appellant's practice of not treating outpatients and the prominence of accommodation charges indicated primacy of stay rather than provision of clinical healthcare. On this basis the Authority found that the appellant does not fall within the definition of a 'clinical establishment' and its services are not services by way of 'health care services' under the exemption entry. [Paras 15, 16, 17, 18, 20]The appellant is not a 'clinical establishment' and its services do not qualify as 'health care services' under the exemption entry.Strict interpretation of exemption notification - Applicability of Entry No. 74 of the exemption notification to the appellant's services - HELD THAT: - Exemption notifications are to be strictly construed and the burden to show that a claim squarely falls within an exemption rests on the claimant. Having found that the principal supply is accommodation and that the appellant does not qualify as a clinical establishment providing health care services, the Authority held that the appellant failed to establish entitlement to the exemption under Entry No. 74. Reliance on administrative letters under the pre GST service tax regime and on a CBIC circular was considered but was found inapplicable because those references concerned hospitals/clinical establishments where the larger portion of charges relate to clinical consultants and ancillary nursing/medical services, unlike the facts here. A prior AAR decision relied upon by the appellant was not followed as it did not consider the issues decided in this case and is binding only on its applicant. [Paras 21, 22, 23, 24, 25]The appellant is not eligible for exemption under Entry No. 74 of Notification No. 12/2017-C.T. (Rate) and corresponding State notification.Final Conclusion: The Advance Ruling of the Gujarat Authority for Advance Ruling is confirmed: the appellant's packaged services are a composite supply with accommodation as the principal supply, the appellant is not a 'clinical establishment' providing 'health care services' under the exemption entry, and consequently the appellant is not eligible for exemption under Entry No. 74 of Notification No. 12/2017. Issues Involved:1. Eligibility for exemption under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.2. Classification of services provided by the appellant.3. Definition and applicability of 'clinical establishment' and 'health care services.'4. Interpretation of composite supply and principal supply.5. Applicability of CBIC Circular No. 32/06/2018-GST dated 16.02.2018.6. Previous exemption under Service Tax regime and its relevance.Issue-wise Detailed Analysis:1. Eligibility for exemption under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017:The appellant sought exemption under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which exempts 'health care services by a clinical establishment, an authorized medical practitioner or paramedics.' The GAAR held that the services provided by the appellant do not fall under this exemption as the services are classified under Sub-Heading No. 996311, which pertains to 'Room or unit accommodation services provided by Hotels, Inn, Guest House, Club and the like.'2. Classification of services provided by the appellant:The GAAR classified the services provided by the appellant as a composite supply with the principal supply being accommodation services. The appellant contended that the principal supply should be the health care services (Naturopathy, Ayurveda, Yoga) and the accommodation and food should be incidental. However, the GAAR observed that the rates of the room per night form the major part of the consideration towards the selected package, leading to the conclusion that accommodation services are the principal supply.3. Definition and applicability of 'clinical establishment' and 'health care services':The terms 'clinical establishment' and 'health care services' are defined under the Notification No. 12/2017-Central Tax (Rate). The appellant did not provide sufficient evidence to classify itself as a 'clinical establishment' as it does not have an Out Patients' Department (OPD) and only caters to in-patients with a minimum stay of 7 days. The appellant's services also include therapies not recognized as a system of medicine in India, such as Physiotherapy, Acupuncture, Reflexology, and Acupressure, which further disqualifies it from being recognized as a clinical establishment.4. Interpretation of composite supply and principal supply:The GAAR determined that the services provided by the appellant are a composite supply with accommodation as the principal supply. The appellant argued that the health care services should be considered the principal supply, but failed to provide evidence contradicting the GAAR's findings that the room rates form the major part of the consideration.5. Applicability of CBIC Circular No. 32/06/2018-GST dated 16.02.2018:The appellant referred to CBIC Circular No. 32/06/2018-GST, which clarifies that health care services provided by clinical establishments are exempt from GST. However, since the appellant does not qualify as a clinical establishment and the principal supply is accommodation, this circular does not apply to the appellant's case.6. Previous exemption under Service Tax regime and its relevance:The appellant had previously availed exemption from Service Tax under Notification No. 25/2012-ST. However, the letters from the Deputy Commissioner, Central Excise, Kalol Division, only advised the appellant to examine their Service Tax liability and did not provide a conclusive decision on the exemption. The previous Service Tax exemption does not influence the current GST exemption eligibility.Conclusion:The appeal was dismissed, and the GAAR's ruling was confirmed. The appellant, M/s. Oswal Industries Ltd. (M/s. Nimba Nature Cure Village), is not eligible for the benefit of Sr. No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The services provided by the appellant are classified as accommodation services, which do not qualify for the health care services exemption.