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of <h1>Consultation and medicines for out-patients are separate taxable supplies; in-patient medicines bundled with exempt healthcare services</h1> AAR held that consultation and medicines supplied to out-patients do not constitute a composite supply; medicines/consumables dispensed to out-patients ... Levy of GST - Consultation service and medicines supplied to out-patients - composite supply or not - requirement of single invoice or multiple invoices? - HELD THAT:- While providing health care related services to out-patients, medicines and consumables which is only of advisory nature, are prescribed to them by the Doctor who attends to the patient. It is also to be noted here that the pharmacy attached to the hospital/clinical establishment is an outlet to dispense medicines and consumables based on prescriptions, but in the case of out-patients, the said patients are not mandated to procure them only from the pharmacy attached to the hospital, and they are at liberty to procure the same from the hospital or other pharmacies of their choice. Whereas, in the case of in-patients, medicines and consumables are necessitated to be issued by the hospital’s pharmacy to ensure timely and proper treatment, and becomes an integral part of the healthcare service provided together to the in-patients. Further, the clarification provided as in para 5(3) of the Circular No.32/06/2018-GST, dated 12.02.2018, addresses the issue by clarifying that the food supplied to the in-patients as advised by the doctor/nutritionist is part of the composite supply of healthcare and not separately taxable, whereas the other supplies of food to patients who are not admitted are taxable. The same analogy applies to the instant case of dispensing medicines to out-patients as well. Thus, the supply of Medicines in the course of providing health care services to out-patients visiting the hospital for diagnosis or medical treatment or follow up procedures cannot be considered as part of a composite supply involving supply of health care service, as they are different supplies independent of each other. Therefore except for the exempted healthcare service, all other supplies including medicines, consumables, food etc., in the case of supplies to out-patients are taxable to GST. Thus, Consultation and Supply of medicine to out-patients cannot be treated as a Composite Supply. Issues: (i) Whether consultation services and medicines supplied to out-patients attract GST; (ii) Whether consultation and supply of medicine to out-patients constitute a composite supply; (iii) If composite supply, whether a single invoice is required or multiple invoices with same registration number suffice.Issue (i): Whether consultation services and medicines supplied to out-patients attract GST.Analysis: The exemption entry under Notification No. 12/2017-C.T.(Rate) (Sl. No. 74) covers 'health care services' by a clinical establishment including services under Heading 9993; Circular No. 32/06/2018-GST clarifies that amounts charged by hospitals for healthcare services to patients are exempt and that supplies integral to inpatient care (including food and medicines) form part of composite healthcare services. The Authority distinguishes in-patient supplies (integral and bundled with healthcare services) from out-patient supplies where medicines are advisory and patients may procure them from sources other than the hospital pharmacy; thus medicines supplied to out-patients are independent taxable supplies though consultation (healthcare service) is exempt under the Notification.Conclusion: Consultation services provided to out-patients are exempt (in favour of the assessee) and medicines supplied to out-patients attract GST (in favour of the revenue).Issue (ii): Whether consultation and supply of medicine to out-patients constitute a composite supply.Analysis: Section 2(30) CGST Act defines composite supply as naturally bundled supplies with one principal supply. The Authority applies the distinction that in-patient medicines are naturally bundled with healthcare (principal supply) because patients are obliged to receive them as part of treatment, whereas out-patient medicines are advisory and freely procurable elsewhere, and therefore are not naturally bundled with the exempt healthcare consultation for out-patients.Conclusion: Consultation and supply of medicine to out-patients cannot be treated as a composite supply (against the assessee on this issue; in favour of the revenue on the question of composite character).Issue (iii): If composite supply, whether single invoice is required or multiple invoices with same registration number suffice.Analysis: The answer to this procedural/invoicing question depends on whether the supplies form a composite supply. As Issue (ii) is answered negatively, the invoicing question does not arise for out-patient supplies.Conclusion: Not answered because composite supply is negatived.Final Conclusion: Consultation services to out-patients are exempt under Notification No. 12/2017-C.T.(Rate) while medicines supplied to out-patients are taxable; consultation and out-patient medicine supply do not constitute a composite supply, and therefore the invoicing issue is moot.Ratio Decidendi: Where medicines supplied to out-patients are advisory and patients may procure them from third-party pharmacies, such supplies are not naturally bundled with exempt healthcare consultation and thus remain taxable separate supplies; only medicines and consumables integral and necessitated by inpatient treatment form part of a composite exempt healthcare supply.
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