Hospital medicine supply to in-patients exempt as composite healthcare service, out-patient pharmacy sales taxable under GST

The Tamil Nadu AAR ruled on healthcare services exemption under GST. For in-patients, supply of medicines, drugs, and surgical goods during treatment constitutes composite supply of healthcare services and is exempt under Notification 12/2017-CT(rate) until 17.07.2022, thereafter exempt only for rooms not exceeding Rs. 5000/- per day. For out-patients, medicine supply by hospital pharmacy is not naturally bundled with consultation services, hence taxable as individual supply. Implants fitted surgically are exempt as composite supply, while mobility aids and prosthetics are taxable as individual supplies being capable of separate purchase.

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Issues Involved:
1. Whether the supply of medicines, drugs, and other surgical goods to In-Patients qualifies as "composite supply" under "health care services" exemption.
2. Whether the supply of medicines, drugs, and other surgical goods to Out-Patients qualifies as "composite supply" under "health care services" exemption.
3. Whether the supply of Implants, Prosthetics, and Mobility aids qualifies as "composite supply" under "health care services" exemption.

Issue-wise Detailed Analysis:

1. Supply of Medicines, Drugs, and Surgical Goods to In-Patients:
The applicant, a multispecialty hospital, provides various healthcare services, including medicines, drugs, and surgical goods to in-patients during their treatment. The hospital argued that these supplies are naturally bundled with the health services provided and should be considered a composite supply, thus qualifying for exemption under "health care services" as per Notification No. 12/2017 CT (Rate).

The judgment confirmed that the supply of medicines and consumables to in-patients is naturally bundled with health services, which is the principal supply. Therefore, such supplies are considered a composite supply of health services and are exempt from GST under Sl. No. 74 of Notification No. 12/2017 CT (Rate). However, from 18.07.2022, if room charges (excluding ICU/CCU/ICCU/NICU) exceed Rs. 5000 per day, the applicable tax rate is 5%.

2. Supply of Medicines, Drugs, and Surgical Goods to Out-Patients:
The applicant contended that the supply of medicines and consumables to out-patients should also be considered a composite supply of health care services and thus exempt from GST. However, the judgment found that the supply of medicines to out-patients is not naturally bundled with the consultation services. The out-patients are not mandated to purchase medicines from the hospital pharmacy and can buy them from any pharmacy.

The judgment concluded that the supply of medicines and consumables to out-patients is an independent supply and not a composite supply of health care services. Hence, such supplies are taxable under GST.

3. Supply of Implants, Prosthetics, and Mobility Aids:
The applicant argued that implants, prosthetics, and mobility aids provided during the treatment should be considered part of the composite supply of health care services. The judgment differentiated between implants and mobility aids. Implants like stents and pacemakers, which are essential for the treatment and recovery of in-patients, are considered part of the composite supply of health care services and are exempt from GST under Sl. No. 74 of Notification No. 12/2017 CT (Rate).

However, prosthetics and mobility aids, such as wheelchairs and crutches, are generally prescribed and can be purchased independently by the patients. These are not naturally bundled with the health care services and are considered independent supplies, hence taxable under GST.

Ruling:
1. The supply of medicines and consumables to in-patients during their stay in the hospital is a composite supply of health care services and is exempt from GST, provided the consolidated bill indicates these supplies. Effective from 18.07.2022, if room charges exceed Rs. 5000 per day, the applicable tax rate is 5%.
2. The supply of medicines and consumables to out-patients is not a composite supply and is taxable under GST.
3. The supply of implants during the treatment of in-patients is a composite supply of health care services and is exempt from GST. However, the supply of prosthetics and mobility aids is an independent supply and is taxable under GST.

This judgment provides clarity on the taxability of various supplies made by hospitals to in-patients and out-patients, distinguishing between composite and independent supplies under GST regulations.

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