Cancer detection services denied GST exemption under Entry 74 due to lack of CDSCO licensing and diagnostic validation

AAR Maharashtra ruled that applicant's cancer detection services do not qualify for GST exemption under Entry 74 of Notification 12/2017-CT(R). The services were classified under SAC 9981 (research and experimental development) rather than SAC 9993 (diagnostic services) as applicant lacked proper CDSCO licensing and validation for diagnostic testing. The authority determined the services constituted clinical research and development in biotechnology rather than healthcare services, making them ineligible for GST exemption benefits.

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ISSUES:

• Whether the provision of diagnostic services qualifies as exempt "health care services" under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
• Whether the applicant's diagnostic services constitute services provided by a "clinical establishment" as defined in the said Notification.
• Whether the services should be classified under Service Accounting Code (SAC) 9993 (Medical laboratory and diagnostic-imaging services) or under SAC 9981 (Research and experimental development services in medical sciences and pharmacy).
• Whether the applicant's services require regulatory approval/licensing under the Drugs & Cosmetics Act and Medical Device Rules, 2017 to qualify as diagnostic services.

RULINGS / HOLDINGS:

• The provision of diagnostic services by the applicant does not qualify for exemption from GST under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as the services are still in developmental stage and lack validation by medical regulatory authorities.
• The applicant's services do not fulfill the dual conditions of being "health care services" provided by a "clinical establishment" under the Notification, as the diagnostic tests are not recognized or approved by Indian regulatory bodies such as CDSCO or ICMR.
• The services provided by the applicant are appropriately classifiable under SAC 9981 (Research and experimental development services in medical sciences and pharmacy) rather than SAC 9993, since the activity is primarily research and development oriented.
• In absence of necessary licenses or permissions under the Drugs & Cosmetics Act and Medical Device Rules, 2017, the applicant's services cannot be regarded as approved diagnostic tests and hence are ineligible for exemption under the said Notification.

RATIONALE:

• The Court applied the definitions and conditions set out in Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which exempts services by way of "health care services" by a "clinical establishment." "Health care services" require diagnosis or treatment in a recognized system of medicines in India, and "clinical establishment" includes entities offering diagnostic or investigative services.
• The Court emphasized that diagnostic services must be validated and recognized by Indian regulatory authorities such as the Central Drugs Standard Control Organisation (CDSCO) or Indian Council for Medical Research (ICMR) to qualify as health care services under the exemption.
• The applicant's diagnostic test was found to be in the experimental or developmental phase without requisite regulatory approvals, thus constituting research and experimental development rather than established diagnostic services.
• The Court relied on the classification scheme issued by CBIC and the explanatory notes to SAC codes, distinguishing between SAC 9993 (medical laboratory and diagnostic-imaging services) and SAC 9981 (research and experimental development services), concluding the applicant's services fall under the latter.
• The Court noted the absence of licenses under the Drugs & Cosmetics Act and Medical Device Rules, 2017, which are mandatory for diagnostic services involving medical devices or in vitro diagnostics, reinforcing the conclusion that the services are not approved diagnostic tests.

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