2022 (3) TMI 1204 - AAAR - GST

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 or not - placement of specified medical instruments by the appellant at the premises of unrelated hospitals, labs etc. in pursuance of the agreement for their use for a specific period - movement of goods otherwise than by way of supply or not - Section 7 of the CGST Act, 2017 - HELD THAT:- The GST liability is attracted when there is a supply of goods or supply of services. In order to determine the fact in issue, the first condition to be verified is that whether the activity qualifies to be classified under the term 'supply' as specified under section 7 of the Act. Further it is to be verified that whether the activity is supply of goods or Supply of services. It is noticed that the definition of the term 'supply' is very wide and inclusive one. It includes all forms of supply such as sale transfer, barter, exchange, licence, rental, lease or disposal. From the contention raised by the appellant, it reveals that they place their specified medical equipments to identified hospitals or laboratories as per the terms and conditions of the Reagent supply and Instrument use agreement. Accordingly, the hospitals or laboratories where the equipments are installed have the right to use the machine during the period of contract; but the title and ownership of the instrument continues to be with the appellant and the customer has to return the instruments to the appellant at the end of the specified period or at the earlier termination of the agreement - there is provision of transferring right to use the instruments from appellant to hospitals/labs for a fixed tenure. As per the provisions contained in Sl. No: 1(b) to schedule II of the Act, it is specified that any transfer of right in goods or of undivided share in goods without the transfer of title thereof is a supply of services. Hence, the activity of the appellant prima facia qualifies to be categorized as supply of services vide Schedule II to the Act. It is well settled principle that a taxing statute must be interpreted in the light of what is clearly expressed; it cannot imply anything, which is not expressed, it cannot import provisions in the statute so as to supply any assumed deficiency. Thus, it is evident that the activity or transaction undertaken by the appellant qualifies to be categorised as 'supply' as defined in Section 7 of the CGST Act, 2017. Accordingly, it is concluded that the placement of specified medical instruments to unrelated customers like Hospitals, labs etc for their use the appellant constitutes supply of services under CGST Act, 2017. 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.