2023 (6) TMI 488 - AAR - GST

Medicine dispensing to inpatients forms composite supply with healthcare services as principal supply, qualifies for GST exemption

AAR Rajasthan ruled that medicines and other procedures supplied to inpatients during hospital treatment constitute a composite supply where healthcare ... Classification of supply - composite supply or not - healthcare services - supply of medicines and other procedures during treatment in patients admitted to hospital - supply of medicines and other procedures to inpatients admitted to hospital for treatment is a composite supply where principal supply is health care services falling under SAC 999311 - exemption as per entry at SI. No 74 of Notification No. 12/2017 - Central Tax dated 28-6-2017. HELD THAT:- There is no dispute that treatment of cancer Patients by the applicant is supply Sec. 7(1) of CGST Act, 2017 and falls under the ambit of GST health care services falling under SAC 999311 - The applicant supply of medicines and other procedures to inpatients admitted to hospital during treatment. Thus, applicant is involved in supply of service as well supply of goods i.e medicine along with taxable as well as exempt supply. Whether the supply made by applicant is exempt under entry 74(a) of notification no. 12/2017-CGST Rate dated 28-06-2017? - whether this is composite supply or not? - HELD THAT:- The treatment of cancer inpatient in hospital is healthcare service and which is exempt under Notification no 12/2017 dated 28.06.2017 - As per Section 2(30) of CGST Act, 2017, defines “Composite supply” as supply consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. Healthcare service is exempt from GST Tax Whereas supply of medicines and other services i.e room charges etc. are taxable. Whether the supply by applicant is composite or not? - HELD THAT:- C.B.I & C has clarified vide Circular No. 27/01/2018-GST, dated 4-1-2018 that room rent in hospital is exempted. Further clarifications vide circular No. 32/06/2018-GST, (F.No. 354/17/2018 TRU Dt. 12.02.2018) issued based on the approval of 25th GST Council Meeting held on 18.01.2018, it was clarified that Food supplied to the in-patients as advised by the doctor/nutritionists is a part of composite supply of healthcare and not separately taxable. Other supplies of food by a hospital to patients (not admitted) or their attendants or visitors are taxable. In view of the clarification circulars on room rent and food supply by hospital to in-patients, we held that same principle should be applicable in case of dispensing of medicine to in- patient. It is observed that the said supplies amounted to composite supply and eligible for exemption under category health care services”. Nature of the various services in a bundle of services will help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and other services combined with such service are incidental or ancillary services which help in better utility of main service then the various elements of the service are said to be naturally bundled in the ordinary course of business. The supply to the in-patients by the hospitals, as advised by the doctor may be a part of composite supply of healthcare and not separately taxable, supplies made in course of providing treatment to patients admitted in hospital undoubtedly naturally bundled in ordinary course of business. Principal supply i.e. healthcare service is predominant element of composite supply and other supplies such as room, medicines, implants, consumables and incidental or ancillary to predominant supply. These goods supplied to inpatients, component of composite supply, where principal supply i.e. healthcare services falling under SAC 999311, exempted as per entry at SI. No. 74 of Notification No. 12/2017-C.T. (Rate). Considering definition of health care services as narrated in Notification no. 12/2017-CGST Rate dated 28-06-2017 as amended, it is held that These goods supplied to inpatients, component of composite supply, where principal supply i.e. healthcare services falling under SAC 9993 11, exempted as per entry at SI. No. 74 of Notification No. 12/2017-C.T. (Rate). Issues Involved:1. Whether the supply of medicines and other procedures during treatment of inpatients admitted to hospital is a composite supply.2. Whether supply of medicines and other procedures to inpatients admitted to hospital for treatment is a composite supply where the principal supply is health care services falling under SAC 999311, which is exempted as per entry at SI. No. 74 of Notification No. 12/2017-Central Tax dated 28-6-2017.Summary:Issue 1: Composite Supply of Medicines and ProceduresThe applicant, M/s Innovations Medi-research Private Limited, operates a unit named Asian Cancer Hospital providing treatment to cancer patients. The treatment process includes consultancy, dispensing of medicines, and procedures such as chemotherapy. The applicant argued that these activities constitute a composite supply as defined under Section 2(30) of the CGST Act, 2017, which includes two or more taxable supplies naturally bundled and supplied in conjunction with each other in the ordinary course of business. The principal supply in this scenario is health care services, with other supplies being ancillary.Issue 2: Exemption Under Notification No. 12/2017-Central TaxThe applicant contended that the supply of medicines and procedures to inpatients should be exempt under entry 74(a) of Notification No. 12/2017-CGST Rate dated 28-06-2017, which exempts health care services provided by a clinical establishment. The term 'health care services' includes diagnosis, treatment, or care for illness in any recognized system of medicines in India. The applicant's hospital qualifies as a clinical establishment under the said notification.Findings and Analysis:1. The treatment of cancer patients by the applicant qualifies as a supply under Section 7(1) of the CGST Act, 2017, and falls under health care services (SAC 999311), which is exempt from GST.2. The supply of medicines and procedures to inpatients is part of the treatment process and cannot be treated separately. These supplies are naturally bundled and provided in conjunction with the principal supply of health care services.3. Various judicial pronouncements and circulars, such as Circular No. 27/01/2018-GST and Circular No. 32/06/2018-GST, support the view that supplies made in the course of providing treatment to inpatients are part of a composite supply of health care services and are exempt from GST.Ruling:1. The supply of medicines and other procedures during the treatment of inpatients admitted to the hospital is a composite supply.2. The supply of medicines and other procedures to inpatients admitted to the hospital for treatment is a composite supply where the principal supply is health care services falling under SAC 999311, which is exempted as per entry at SI. No. 74 of Notification No. 12/2017-Central Tax dated 28-6-2017.