2023 (1) TMI 433 - AAAR - GST

COVID-19 vaccination by hospitals deemed composite supply with vaccine sale as principal component taxable at 5%

In Re: M/s. Krishna Institute of Medical Sciences Limited

The AAAR held that COVID-19 vaccination by hospitals constitutes a composite supply where the principal supply is sale of vaccine (goods) and auxiliary ... Classification of supply - supply of goods or supply of services - administering of COVID-19 vaccination by hospitals - administering of COVID-19 Vaccine by clinical establishments (Hospitals) - Healthcare services or not - HELD THAT:- In the instant case, there is no doubt that the applicant qualifies to be a clinical establishment but, the supply transaction is predominantly of sale of goods and not the service component of healthcare. The dominant intention of the recipient is the receipt of the vaccine followed by its administration and hence the principal supply is supply of vaccine and not the process of vaccination. The appellant himself acknowledges that the vaccine vial consists of multiple doses and one such dose is injected to the body of the recipient, as a part of the vaccination process. On the other hand he claims that there is no transfer of goods as such, which is a contradiction. This understanding of the appellant regarding vaccination process is flawed and distorted. The individual goes to the covid vaccination Center for the receipt of vaccine, by following the government guidelines of registering himself/herself in the portal and gets an appointment on a scheduled date to receive the vaccine, etc. Once the individual is vaccinated, there is transfer of goods undoubtedly, as the recipient receives the stipulated amount of dosage of medicine. Health Care Services are defined under 'Definitions' at (zg) of Notification No.12/2017 Central Tax (Rate) dt.28.06.2017. As per the definition, only diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy qualifies as “Health Care Services”. Needless to say, that when a person approaches a clinical establishment (hospital) for health care service like diagnosis/treatment/care for illness, injury, deformity, abnormality or pregnancy qualify for exemption under Entry 74 of Notification No. 12/2017 Central Tax (Rate) dt.28.06.2017. It is to also note that diagnosis/treatment/cure are services which are rendered by clinical establishments after being affected by disease - In the present case, the service rendered by the appellant is administration of Covid-19 vaccine which is also called Vaccination or Immunization - vaccination produces protection against disease and it is administered before the advent of disease. The discussed service of administering a vaccine does not fit into the definition of “Health Care Services” as per Notification No. 12/2017 Central Tax (Rate) dt.28.06.2017. The service of administering the vaccine has all the necessary elements to classify it as supply of goods and this has already been discussed supra. The outlet of supply or the supplier cannot decide whether a transaction can be classified as supply or not. There is transfer of medicine to the recipient when he approaches the Covid Vaccination Centre for vaccination, the recipient of vaccine makes a conscious choice of vaccine, and also pays a price for it as per the guidelines of the government - exemption is not allowed in the instant case against the claim of the applicant. While validating the decision of the lower authority that taxability of the supply comes under 'composite supply', wherein the principal supply is the 'sale of vaccine' and the auxiliary supply is the service of 'administering the vaccine' and the total transaction is taxable at the rate of principal supply i.e. 5%. Issues Involved:1. Classification of administering COVID-19 vaccination by hospitals as a supply of goods or services.2. Qualification of administering COVID-19 vaccination by clinical establishments as 'Health care services' under Notification No. 12/2017 Central Tax Rate.3. Eligibility of exemption under GST for administering COVID-19 vaccination by clinical establishments.Detailed Analysis:1. Classification of Administering COVID-19 Vaccination by Hospitals as a Supply of Goods or Services:The appellant argued that the process of vaccination should be considered a supply of service rather than a sale of goods. They contended that the hospital is not selling the vaccine to the recipient, as there is no transfer of title of the vaccine to the recipient. The appellant emphasized that the essence of the supply is the service of administering the vaccine, fulfilling the recipient's desire to get immunized.However, the authority concluded that the transaction is a composite supply, with the principal supply being the receipt of the vaccine (supply of goods) and the administration of the vaccine (supply of service) as auxiliary. The authority noted that the recipient's primary intention is to receive the vaccine, which is then administered. The vaccine vial contains multiple doses, and one dose is injected into the recipient, indicating a transfer of goods. The authority also referenced government guidelines and pricing structures, which include a tax component on the vaccine (goods) and a service charge for administration, reinforcing the classification as a composite supply taxable at 5%.2. Qualification of Administering COVID-19 Vaccination by Clinical Establishments as 'Health Care Services':The appellant argued that administering the COVID-19 vaccine should qualify as 'Health care services' under Notification No. 12/2017 Central Tax Rate, which exempts healthcare services provided by clinical establishments, authorized medical practitioners, or paramedics.The authority examined the definition of 'Health care services' under the notification, which includes services for diagnosis, treatment, or care for illness, injury, deformity, abnormality, or pregnancy. They concluded that vaccination, which is administered to produce protection against disease before its onset, does not fit within this definition. The authority emphasized that healthcare services typically involve diagnosis or treatment after the advent of disease, whereas vaccination is a preventive measure.3. Eligibility of Exemption under GST for Administering COVID-19 Vaccination by Clinical Establishments:The appellant contended that the vaccination process should be exempt from GST as it qualifies as an outpatient healthcare service. They argued that the authority's interpretation was limited to inpatient services and did not consider outpatient services, which are also exempt under GST.The authority, however, maintained that the exemption under Notification No. 12/2017 Central Tax Rate does not apply to the administration of COVID-19 vaccines. They reiterated that the transaction is a composite supply with the principal supply being the vaccine (goods) and the auxiliary supply being the administration service. The authority confirmed that the entire transaction is taxable at the rate applicable to the principal supply, i.e., 5%.Conclusion:The authority upheld the ruling of the Advance Ruling Authority, confirming that administering COVID-19 vaccination by hospitals is a composite supply, with the principal supply being the sale of the vaccine and the auxiliary supply being the service of administering the vaccine. The total transaction is taxable at the rate of the principal supply, which is 5%. The authority also concluded that administering COVID-19 vaccines does not qualify as 'Health care services' under the relevant GST notification and is not eligible for exemption.