2022 (8) TMI 921 - AAR - GST

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 ... Exemption from GST - Composite Supply or not - healthcare services - supply of medicines, drugs and other surgical goods to In-Patients during the course of diagnosis and treatment of disease, illness, injuries, deformities and abnormalities - supply of medicines, drugs and other surgical goods to Out-Patients during the course of diagnosis and treatment of disease, illness, injuries, deformities and abnormalities - supply of Implants, Prosthetics and Mobility aids during the course of diagnosis and treatment of disease, illness, injuries, deformities and abnormalities - HELD THAT:- From a joint reading of the the exemption entry and the definition of 'health care services' & 'clinical establishments' it is evident that the exemption is applicable to a “Clinical Establishment”, when services by way of diagnosis or treatment or care for illness, etc. are undertaken by such establishment under the directions of a medical doctor for the period upto 17.07.2022, after which the exemption is available only when such services are provided to in-patient who have been housed in rooms, the room charges of which do not exceed Rs. 5000/- per day. The applicant hospital is a Clinical Establishment and for the health care services provided as defined in the Notification above to in-patients from admission till discharge including the supply of medicines, implants and consumables, they are exempt under Si No 74 of Notification no 12/2017-C.T. (rate) dated 28.06.2017 as amended and Sl No 74 of Notification No.II (2)/CTR/532(d-15)/2017 vide G.O. (Ms) No. 73 dated 29.06.2017 upto 17.07.2017; and subsequent to amendment, effective from 18.07.2022, the exemption is applicable for the health care services provided by them to in-patients only when the room - If the room charges exceeds Rs. 5000/- per day then the applicable rate of tax for the health care services is 5% [2.5% CGST & 2.5 % SGST] as per entry No. 31A of the Notification 11/2017 CT(rate) dated 28.06.2017 amended vide notification 03/2022 Ct(rate) dated 13.07.2022 w.e.f 18.07.2022, subject to the conditions specified in Column(5) of the entry. Whether the supply of medicines drugs and other surgical goods used in the course of providing health care services to out-patients by pharmacy unit of M/s Kumaran Medical Center for diagnosis or treatment would be considered as “Composite Supply” of heath care services under GST and consequently they are eligible to avail exemption under Notification 12/2017 CT(rate) read with Section 8(a) of GST? - HELD THAT:- The patients are expected to undertake the prescribed medicines and consumables and the best possible treatment is provided for. In this regard, it is observed that the pharmacy is an outlet to dispense medicines and consumables based on the prescriptions. In the case of Out- patients, it is only of advisory nature and the patients are not mandated to buy from the hospital pharmacy only. They have the freedom to either buy from the hospital pharmacy or other pharmacies of their choice unlike in-patients, where the medicines and consumables are issued by the hospital pharmacy to ensure proper treatment. In the case of in-patients, the hospital is expected to provide provide lodging, care, medicine and food as part of treatment under supervision till discharge from the hospital. But in the case of out-patients, there is no such expectation on the hospital and the out-patient just walks in for consultation and advice. Hence it is clear that the supply of medicines and consumables and Service of consultation of out-patients is not inextricably linked and not naturally bundled. Therefore pharmacy run by hospital dispensing medicine to outpatient or bye standers or others can be treated as individual supply of medicine and not covered under the ambit of health care services. Hence such supply of medicines and allied goods are taxable - the supply of medicine, consumables, etc to out-patients by the Out-patient pharmacy are not exempted. Naturally bundled services - Whether the supply of implants, prosthetics and mobility aids during course of diagnosis and treatment of disease would fall under the ambit of composite supply of healthcare service? - HELD THAT:- The mobility aids, prosthetics which are in the nature of capable of bought and sold separately and which are not naturally bundled with the provision of treatment of patient in the clinical establishment is liable to GST as individual supply of goods. Thus, the supply of implants which are fitted in the body by a surgical procedure in the course of diagnosis and treatment of illness for in-patients would fall under the ambit of Composite Supply with Healthcare being the principal supply and they are exempt under S1 No 74 of Notification no 12/2017-C.T. (rate) dated 28.06.2017 as amended and SI No 74 of Notification No. II(2)/CTR/532(d-15)/2017 vide G.O. (Ms) No. 73 dated 29.06.2017 as amended, while the mobility aids, prosthetics being in the nature of individual supplies are not part of the 'Composite supply' of 'Health Care services' - the Supply of medicines and consumables used in the course of providing health care services to In-patients by pharmacy unit of Kumaran Medical Center for diagnosis or treatment during the patients admission in hospital till discharge is to be considered as “Composite Supply” of health care service under GST and consequently exemption under Notification No.12/2017- CT (Rate) read with Section 8(a) of GST is available for such supplies. 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.