Health care exemption denied for outpatient substance use disorder treatment where medicines were treated as a separate taxable supply.

Treatment of patients suffering from substance use disorder as out-patients was held not to qualify for exemption under entry 74(a) of Notification No. 12/2017-Central Tax (Rate). The Authority found that the outpatient model involved registration, counselling, examination, prescription and dispensing of medicines, but the medicines supplied to out-patients were a separate taxable supply and were not shown to be so integrated with counselling as to form a composite supply of health care services. It further held that, on the facts presented, substance use disorder treatment did not fall within the notification's definition of health care services. The exemption was therefore unavailable and the answer to the question was in the negative.

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Issues: Whether the supply of services by treatment of patients suffering from substance use disorder as out-patients is exempt under entry 74(a) of Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017.

Analysis: The Authority examined whether the applicant's outpatient treatment model, including registration, counselling, examination, prescription and dispensing of medicines, constituted a composite supply of health care services. It held that the supply of medicines to out-patients was a separate taxable supply and that the record did not establish that the medicines formed part of counselling services in a manner that made the overall transaction a composite supply. The Authority further held that substance use disorder treatment, on the facts presented, did not fall within the definition of health care services in the exemption notification.

Conclusion: The supply was not exempt under entry 74(a) of Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017 and the answer to the question was in the negative.

Ratio Decidendi: A transaction is exempt as health care services only when the entire supply answers the notification's definition and the constituent elements are so integrated that they do not form a separate taxable supply; where medicines are supplied independently to out-patients and the treatment does not satisfy the notified definition, the exemption is unavailable.

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