Medical instruments placed at hospitals under reagent supply agreements constitute supply of services under Section 7 CGST Act

The AAAR Kerala held that placement of medical instruments by appellant at hospitals/labs under reagent supply and instrument use agreements constitutes supply of services under CGST Act, 2017. The appellant retained ownership while transferring right to use instruments for fixed tenure. Per Schedule II, Sl. No. 1(b), transfer of right in goods without title transfer qualifies as supply of services. The arrangement falls within Section 7's wide definition of supply, attracting GST liability as supply of services rather than goods.

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Issues Involved:
1. Whether the placement of specified medical instruments to unrelated customers like hospitals, labs, etc., for their use without any consideration for a specific period constitutes a "supply" under Section 7 of the CGST Act, 2017.
2. Whether such movement of goods constitutes otherwise than by way of supply under GST.

Issue-wise Detailed Analysis:

1. Whether the placement of specified medical instruments to unrelated customers like hospitals, labs, etc., for their use without any consideration for a specific period constitutes a "supply" under Section 7 of the CGST Act, 2017:

The appellant argued that the placement of specified medical instruments at the premises of unrelated hospitals is without any consideration and hence cannot be categorized as taxable supply under GST Act. The definition of "supply" under Section 7 of the CGST Act, 2017, includes all forms of supply of goods or services such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. The appellant's activity involves placing medical instruments at hospitals/labs for their use under a Reagent Supply and Instrument Use Agreement. The ownership of the instruments remains with the appellant, and the hospitals/labs only possess a non-transferable right to use the instruments during the tenure of the agreement.

The agreement also obligates the hospitals/labs to purchase reagents, calibrators, and disposables exclusively from the appellant at specified prices, with a minimum purchase obligation. If the hospitals/labs fail to meet the minimum purchase obligation, the appellant is entitled to raise a debit note equal to the deficit amount. This arrangement constitutes a valid consideration under Section 2(31) of the CGST Act, 2017, as it includes the monetary value of any act or forbearance in respect of, in response to, or for the inducement of the supply of goods or services.

The Appellate Authority concluded that the placement of specified medical instruments to unrelated customers like hospitals, labs, etc., constitutes a supply of services under the CGST Act, 2017, as it satisfies all the essential ingredients of "supply" as defined under Section 7 of the CGST Act, 2017.

2. Whether such movement of goods constitutes otherwise than by way of supply under GST:

The appellant contended that the movement of instruments to hospitals/labs under the agreement does not constitute a supply for consideration and should be treated as a movement of goods otherwise than by way of supply. However, the Appellate Authority noted that the agreement's terms and conditions clearly link the placement of instruments with the obligation to purchase reagents exclusively from the appellant. The minimum purchase obligation and the forbearance from using any other reagents serve as consideration for the placement of the instruments.

The definition of "consideration" under Section 2(31) of the CGST Act, 2017, includes the monetary value of any act or forbearance in respect of, in response to, or for the inducement of the supply of goods or services. Therefore, the movement of instruments under the agreement constitutes a supply for consideration and cannot be treated as a movement of goods otherwise than by way of supply.

Conclusion:

The Appellate Authority upheld the Advance Ruling Order No. KER/97/2021 dated 07/05/2021, concluding that the placement of specified medical instruments to unrelated customers like hospitals, labs, etc., for their use without any consideration for a specific period constitutes a supply under Section 7 of the CGST Act, 2017. The appeal filed by the appellant was rejected.

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