Consultation and medicines for out-patients are separate taxable supplies; in-patient medicines bundled with exempt healthcare services

AAR held that consultation and medicines supplied to out-patients do not constitute a composite supply; medicines/consumables dispensed to out-patients are independent, taxable supplies (not covered by the exempt healthcare composite) because out-patients may procure medicines elsewhere. By contrast, medicines/food issued to in-patients form part of the composite health-care supply and are covered by the exemption. Therefore supplies to out-patients must be treated and taxed separately (allowing separate invoicing), whereas in-patient supplies remain bundled with the healthcare service.

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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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