2026 (2) TMI 458 - AAR - GST

Composite supply of hospital inpatient services treated as healthcare principal supply; exemption applies but room charges above Rs.5000/day taxable.

Charges for medicines, consumables, tests, bed and food furnished to admitted patients form a composite supply of goods and services with healthcare as ... Composite supply - principal supply - hospital categorized as “in-patients” and “out-patients” - health care services - clinical establishment - eligibility for exemption under entry 74 of notification 12/2017-CT (Rate) - proviso concerning room charges exceeding Rs. 5000 per day - Whether charges recovered towards pathological test, radiological test and other medical test, bed charges and charges for medicines & other consumables during course rendering medical treatment to in-patients is single supply of healthcare service? - HELD THAT:- The applicant provides health care services with the help of professional doctors 0 and is equipped to treat the patients admitted to the hospital. Also, the hospital has its in-house pharmacy/ chemist operating under trade name “LAXMI CHEMIST” for supply of medicines and allied items. For the purpose of administration and identification, the patients visiting the hospital are categorized as “in-patients” and “out-patients”. The “out-patients” or commonly referred as walk-in customers and are those who visit the hospital for consultation, diagnosis and check-up from the professional doctors. The doctors based on their diagnosis prescribe medicines to such patients. Thereafter, it is the choice of the patient whether to follow the medical advice given by the doctor or not. These patients are not admitted to hospital for treatment. These patients at their choice may purchase the medicines prescribed from the pharmacy shop run by the hospital on making payment of charges. The inpatient services means services provided by hospitals to inpatients under the direction of medical doctors aimed at curing, restoring and/ or maintaining the health of a patient and the service comprises of medical, pharmaceutical and paramedical services, rehabilitation services, nursing services and laboratory and technical services till the patient gets discharged. A complete gamut of activities required for well-being of a patient from admission till discharge, provided by a hospital under the direction of medical doctors is a composite supply of service and is covered under ‘Inpatient services’ classifiable under SAC 999311. Section 2(30) of CGST Act 2017, defines “Composite Supply” as supply consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. In the instant case, taxable supplies such as medicines and consumables, room or bed charges, food charges provided to in-patients are naturally bundled and supplied in conjunction with ‘health care services’ which is the principal supply. Therefore, these supplies to in-patients in the course of the treatment till the patient is discharged is a composite supply of goods and services. The applicant provides ‘health care services’ as defined in para 2(zg) of the Notification No. 12/2017-CT(R) dated 28.06.2017. Alongwith ‘health care services’, the applicant also provides incidental services of room for inpatients on rent and medical supplies from its chemist shop to the in-patients which are admitted to the hospital. The invoice presented to the in-patient shows bifurcation of total bill among various heads as mentioned above. Here, ‘healthcare service’ is the principal supply and other supplies of services and goods are ancillary or incidental to the principal supply. Hence, it can be said that the all the services provided to ‘in-patient’ are naturally bundled and supplied in conjunction with each other. Thus, these supplies of services & goods which are offered to the inpatients in a hospital are naturally bundled supplies and liable to be taxed at the rate of provided for ‘health care services’ as it is the principal supply. We find that the exemption under S.No.74 of Notification No. 12/2017-CT (R) is not a blanket exemption. It is qualified by a proviso which says that the benefit of the said notification would not be applicable to the services provided by a clinical establishment by way of room (excluding ICCU/CCU etc) having room charges exceeding Rs. 5000/- per day to a person receiving healthcare services. Therefore, even though the services provided by the applicant is a composite service of healthcare, food, room charges, medicines etc., and the principle supply in such cases is the healthcare service which is exempt, they will still have to pay the tax on the room rent charges (other than ICU/CCCU etc as mentioned in the notification), if the same is more than Rs. 5000/ -. The Advance Ruling Authority of Kerala in M/s. Kinder Womens Hospital and Fertility Centre private Limited [2019 (5) TMI 905 - AUTHORITY FOR ADVANCE RULINGS, KERALA], answered as, “The supply of medicines, consumables, surgical items, items such as needles, reagents etc used in laboratory, room ten used in the course of providing health care services to in-patients for diagnosis or treatments which are naturally bundled and are provided in conjunction with each other, would be considered as “Composite Supply”. The in-patient is under continuous monitoring of the doctors and nursing staff and administration and dosage of medication is all under the control of the doctor and the nursing staff. The entire treatment protocol is documented and recorded. Thus, it is clear that in case of an inpatient, the hospital provides a bundle of supplies which is classifiable under health care services eligible for exemption under SI. No. 74 of Notification No. 12/2017-CT(R) dated 28th June, 2017. Whether charges recovered towards pathological test, radiological test and other medical test, bed charges and charges for medicines & other consumables during course rendering medical treatment to in-patients is single supply of healthcare service? - HELD THAT:- This supply is a composite supply of goods and services with ‘healthcare services’ as the principal supply and the rate provided for ‘health care services’ as per SI. No.74 of Notification no. 12/2017-CT(R) read with section 8(a) of CGST Act would be applicable. Whether applicant is eligible for exemption under SI. No. 74 of notification 12/2017-CT (Rate) dated 28th June 2017 for above charges recovered from in patients under 1 common contract/invoice? - HELD THAT:- The services provided by the applicant is a composite service of healthcare, food, room, charges, medicines etc., and the principle supply in such cases is the healthcare services which is exempt, they will still have to pay the tax on the room rent charges (other than ICU/CCU etc. as mentioned in the notification), if the same is more than Rs. 5000/ -. This is as per Sl. No. 74 of Notification No. 12/2017-CT (Rate) dated 28.6.2017. Issues: (i) Whether charges recovered towards pathological, radiological and other medical tests, bed charges and charges for medicines and consumables supplied during treatment of in patients constitute a single supply of health care service; (ii) Whether the applicant is eligible for exemption under SI. No. 74 of Notification No. 12/2017 C.T. (Rate) dated 28.06.2017 for such charges recovered from in patients under one common contract/invoice.Issue (i): Whether the bundled supplies to in patients are a single supply of health care service or a composite supply with health care as principal supply.Analysis: The supply to in patients comprises a bundle of activities including medical treatment by doctors, nursing care, laboratory and radiological tests, provision of medicines and room/bed facilities. Section 2(30) of the Central Goods and Services Tax Act, 2017 defines 'composite supply' as two or more taxable supplies naturally bundled with one predominant or principal supply. The classifiable service for inpatient care (SAC 999311) includes medical, pharmaceutical, paramedical, laboratory and related services provided under direction of medical doctors. Prior administrative clarifications and advance rulings have treated supplies of medicines, consumables, tests and room/food provided in the course of inpatient treatment as supplies naturally bundled with health care services where health care is the predominant element.Conclusion: The supplies made to in patients are a composite supply of goods and services with health care services as the principal supply.Issue (ii): Whether the composite supply identified above is eligible for exemption under SI. No. 74 of Notification No. 12/2017 C.T. (Rate) dated 28.06.2017 when billed under one common contract/invoice.Analysis: SI. No. 74 exempts services by way of health care services by a clinical establishment, an authorised medical practitioner or para medics, as defined in Notification No. 12/2017 C.T. (Rate). The exemption covers inpatient health care services including ancillary supplies that are naturally bundled with treatment. However, the proviso to SI. No. 74 (as amended by Notification No. 4/2022 C.T. (Rate) dated 13.07.2022) excludes exemption for room charges (other than ICU/CCU/ICCU/NICU) where such room charges exceed Rs. 5,000 per day. Circular No. 32/06/2018 GST and prior advance rulings support treating bundled inpatient supplies as eligible for exemption subject to the statutory proviso.Conclusion: The composite supply to in patients qualifies for exemption under SI. No. 74 of Notification No. 12/2017 C.T. (Rate) read with Section 8(a) of the CGST Act, except that room/bed charges (excluding ICU/CCU/ICCU/NICU) exceeding Rs. 5,000 per day are not covered by the exemption and are taxable.Final Conclusion: Supplies to in patients constitute a composite supply with health care as the principal supply and are eligible for exemption under SI. No. 74 of Notification No. 12/2017 C.T. (Rate) when supplied in conjunction with treatment; however, the statutory proviso disallows exemption for non ICU room charges exceeding Rs. 5,000 per day, which remain taxable.Ratio Decidendi: Supplies of tests, medicines, consumables, nursing care and room provided to an in patient are naturally bundled with health care treatment and form a composite supply where health care is the principal supply eligible for exemption under SI. No. 74 of Notification No. 12/2017 C.T. (Rate) dated 28.06.2017, subject to the proviso excluding non ICU room charges exceeding Rs. 5,000 per day.