Hospital pharmacy medicine supply to in-patients exempt as composite healthcare service, out-patients taxable separately

The AAR Tamil Nadu ruled on the classification of medicine and consumables supply by hospital pharmacy units. For in-patients, the supply of medicines and consumables during admission until discharge constitutes a composite supply of healthcare services under SAC 999311, qualifying for exemption under Notification 12/2017-CT(Rate). The services are naturally bundled as healthcare cannot be provided without medicines during treatment. However, for out-patients, medicine supply by hospital pharmacy is treated as individual taxable supply, not composite healthcare service, as consultation and medicine supply are not inextricably linked for outpatients who only visit for consultation and advice.

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Issues Involved:
1. Whether the supply of medicines and consumables to in-patients by the pharmacy unit of Be Well Hospitals constitutes a "Composite Supply" of health care services under GST and is consequently exempt under Notification No. 12/2017-CT (Rate) read with Section 8(a) of GST.
2. Whether the supply of medicines and consumables to out-patients by the pharmacy unit of Be Well Hospitals constitutes a "Composite Supply" of health care services under GST and is consequently exempt under Notification No. 12/2017-CT (Rate) read with Section 8(a) of GST.

Detailed Analysis:

Issue 1: Supply of Medicines and Consumables to In-Patients
1. Composite Supply Definition: Section 2(30) of CGST ACT defines "composite supply" as a supply consisting of two or more taxable supplies of goods or services which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

2. In-Patient Services: The hospital provides comprehensive treatment to in-patients, including room rent, nursing care, diagnostics, medicines, and consumables. These services are billed together, indicating a composite supply where the principal supply is health care services.

3. Circular No. 32/06/2018-GST: This circular clarifies that the entire amount charged by hospitals from patients, including retention money and payments to doctors, is towards healthcare services and is exempt.

4. Explanation to Classification of Services: SAC 999311 includes inpatient services that comprise medical, pharmaceutical, paramedical services, nursing services, and laboratory services provided under the direction of medical doctors.

5. Ruling: The supply of medicines and consumables to in-patients during their stay in the hospital is considered a composite supply of health care services. This supply is exempt under Si No 74 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 and Notification No.II(2)/CTR/532(d-15)/2017.

Issue 2: Supply of Medicines and Consumables to Out-Patients
1. Nature of Out-Patient Services: Out-patients visit the hospital for consultation and may receive prescriptions for medicines and consumables. However, they are not mandated to purchase these from the hospital pharmacy and can buy them from any pharmacy of their choice.

2. Billing Practices: Separate bills are issued for consultation and pharmacy supplies, indicating that these services are not naturally bundled.

3. Circular No. 32/06/2018-GST: This circular clarifies that supplies of food to out-patients or their attendants are taxable, implying that similar principles apply to the supply of medicines and consumables.

4. Ruling: The supply of medicines and consumables to out-patients is not considered a composite supply of health care services. These supplies are taxable as individual supplies under GST.

Conclusion:
1. In-Patients: The supply of medicines and consumables to in-patients during their hospital stay is a composite supply of health care services and is exempt from GST.
2. Out-Patients: The supply of medicines and consumables to out-patients is not a composite supply of health care services and is taxable under GST.

Ruling:
1. In-Patients: Supply of medicines and consumables used in the course of providing health care services to in-patients admitted to the hospital for diagnosis, medical treatment, or procedures till discharge is a composite supply of In-Patient Healthcare Service and is exempt from CGST and SGST.
2. Out-Patients: Supply of medicines and consumables used in the course of providing health care services to out-patients is not a composite supply and is taxable to GST.

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