Digital platform for diagnostic services must collect GST on full invoice amount, not just margin, rules AAR

The Karnataka AAR ruled that an applicant operating a digital platform for diagnostic and lab services must collect GST on the entire invoice amount, not just the margin. The AAR determined the applicant does not qualify as an e-commerce operator since they procure services from diagnostic labs and add markup before invoicing clients. The services fall under SAC 9993 as healthcare diagnostic services. The applicant cannot claim exemption under Notification 12/2017 as they are not a clinical establishment but an aggregator. Since not qualifying as an e-commerce operator, TCS collection requirements don't apply. The applicant also doesn't qualify as an insurance agent when invoicing insurance companies.

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Issues Involved:

1. Whether GST needs to be collected on diagnostic and lab services provided through third-party diagnostic labs, and if so, on what amount and at what rate.
2. Whether Tax Collected at Source (TCS) needs to be collected.
3. Whether the applicant qualifies as an "Insurance Agent" when invoicing an insurance company, and the GST implications thereof.

Issue-wise Detailed Analysis:

1. GST Collection on Diagnostic and Lab Services:

The applicant acts as an aggregator for diagnostic and lab services, providing a digital platform for companies and insurance entities to manage workflows. The applicant contended that as per Notification 12/2017-Central Tax, services by way of health care services by clinical establishments are exempted from GST. They argued that they merely provide a platform and do not directly supply the services, thus not requiring GST collection.

However, the ruling determined that the applicant does not qualify as an e-commerce operator as defined under Sections 2(44) and 2(45) of the CGST Act 2017. The applicant owns a digital platform where users select services, but the services are provided through the applicant, not directly by the labs. The applicant raises invoices to their clients after adding a margin, indicating they supply the services on their own account. Consequently, GST must be collected on the entire invoice amount, not just the margin. The applicable tax rate is 18%, and the services fall under SAC 9993, which covers healthcare services.

2. Collection of TCS:

The question of TCS collection arises only if the applicant qualifies as an e-commerce operator. Since the applicant was determined not to be an e-commerce operator, this question is rendered redundant. TCS is applicable on the net value of taxable supplies, but since the applicant does not meet the criteria of an e-commerce operator, TCS is not applicable.

3. Definition as an "Insurance Agent":

The applicant questioned whether they fall under the definition of an "Insurance Agent" when invoicing insurance companies. Under Section 42 of the Insurance Act 2015, an insurance agent is someone who sells policies on behalf of an insurance company. The applicant's services are not related to selling insurance policies; therefore, they do not qualify as an insurance agent. Consequently, the applicant should raise invoices in the same manner as for other companies, without the implications of being an insurance agent.

Ruling:

(i) The applicant must collect GST on the full invoice amount for diagnostic and lab services provided through third-party labs, with an applicable tax rate of 18% and classified under SAC 9993.
(ii) The applicant does not qualify as an e-commerce operator, making the question of TCS collection redundant.
(iii) The applicant does not fall under the definition of an "Insurance Agent" when invoicing insurance companies, and should invoice similarly to other companies.

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