Rehabilitation services by therapists and psychologists taxable at 18% GST, exemption under Serial 74A denied

The AAR, Kerala ruled that Radiantminds Rehab LLP providing rehabilitation services is not eligible for exemption under Serial No. 74A of Exemption Notification No. 28/2018-Central Tax (Rate). The applicant failed to qualify as an educational institute and lacked mandatory registration as a clinical establishment under the Kerala Clinical Establishments Act, 2018. Municipal registration and MSME certificate were deemed insufficient to establish medical establishment status. The AAR held that rehabilitation services including therapy, counselling, and related services by occupational therapists, speech therapists, and psychologists constitute taxable supplies under SAC 999319 - 'Other human health services' at 18% GST. The applicant must register for GST upon crossing Rs. 20 lakh turnover threshold and cannot claim Section 23 exemption since services are taxable, not exempt.

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ISSUES:

Whether rehabilitation services provided by an LLP comprising rehabilitation professionals recognized under the Rehabilitation Council of India Act, 1992, qualify for exemption under Serial No. 74A of Notification No. 28/2018-Central Tax (Rate).Whether the legal form or organizational structure (LLP) affects eligibility for GST exemption under Entry 74A.Whether the mode of billing (consolidated invoice by LLP vs. individual billing by professionals) impacts exemption eligibility.Whether the phrase "established by Central Government, State Government or Union Territory or an entity registered under section 12AA of the Income-tax Act" applies to all entities mentioned (medical establishments, educational institutions, rehabilitation centers) or only to rehabilitation centers.Whether the Applicant qualifies as a 'medical establishment' under applicable state health regulations for the purpose of claiming exemption.Whether the Applicant is required to obtain GST registration considering the threshold limits and exemption status.The applicable GST rate and Service Accounting Code (SAC) for rehabilitation services if exemption is not available.

RULINGS / HOLDINGS:

The rehabilitation services provided by the LLP are not eligible for exemption under Serial No. 74A of Notification No. 28/2018-Central Tax (Rate) as the Applicant does not qualify as a medical establishment under the relevant state clinical establishment legislation.The exemption under Entry 74A is linked to the nature of the service and qualifications of professionals, not the legal structure; however, the Applicant's LLP status does not preclude exemption if other conditions are met.The mode of billing by the LLP issuing consolidated invoices does not, by itself, disqualify exemption eligibility if substantive conditions are fulfilled.The phrase "established by Central Government, State Government or Union Territory or an entity registered under section 12AA of the Income-tax Act" qualifies only the term 'rehabilitation centres' and not "medical establishments" or "educational institutions," consistent with the "Rule of Last Antecedent."The Applicant's registration under municipal law and MSME certificate are insufficient to establish status as a medical establishment under the Kerala Clinical Establishments (Registration and Regulation) Act, 2018, which is the applicable statutory framework.Since the services do not qualify for exemption, the Applicant is required to register under the GST Act upon exceeding the prescribed turnover threshold under Sections 22 and 24 of the CGST Act, 2017.The services fall under SAC 999319 'Other human health services' and are taxable at the standard GST rate of 18% (9% CGST + 9% SGST).

RATIONALE:

The court applied the provisions of the Central Goods and Services Tax Act, 2017, and the Kerala State Goods and Services Tax Act, 2017, along with the exemption Notification No. 12/2017-Central Tax (Rate) as amended by Notification No. 28/2018-Central Tax (Rate).Interpretation of Entry 74A was guided by the "Rule of Last Antecedent" in statutory construction, limiting the ownership restriction to rehabilitation centres only.Legislative intent was ascertained from the GST Fitment Committee recommendations and the 31st GST Council Meeting agenda notes, which clarified that exemption restrictions apply only to rehabilitation centres to prevent misuse, while medical establishments and educational institutions remain unrestricted by ownership criteria.The Kerala Clinical Establishments (Registration and Regulation) Act, 2018, was identified as the controlling statute for defining 'medical establishment' status, requiring registration based on clinical standards, infrastructure, and quality of care, beyond mere municipal registration.The court distinguished administrative registration under municipal rules and MSME certification from the substantive registration required under the clinical establishments legislation, which the Applicant failed to demonstrate.GST registration requirements were applied per Sections 22 and 23 of the CGST Act, 2017, clarifying that exemption status affects registration liability.Classification of services under SAC 999319 was based on the explanatory notes to the Scheme of Classification of Services, recognizing therapy, counselling, and rehabilitation services by RCI-recognized professionals as 'Other human health services' when exemption is unavailable.

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