Composite Supply of Healthcare: inpatient medicines and implants exempt, outpatient medicines taxable under GST regime.
Supplies of medicines, consumables, implants and medical items provided to admitted patients form a composite supply with the principal healthcare service and are exempt under Entry No. 74 of Notification No. 12/2017 Central Tax (Rate) because they are dispensed exclusively as part of integrated inpatient treatment with consolidated billing. By contrast, consultation services for outpatients are exempt as healthcare services, but goods supplied to outpatients do not qualify as part of the exempt composite supply where dispensing is not exclusive or integral and may be procured independently; such outpatient supplies are taxable.
Issues: (i) Whether supply of medicines, consumables, implants and medical items to in patients as part of hospital treatment is exempt under Entry No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 as a composite supply of healthcare services; (ii) Whether supply of medicines, consumables, implants and medical items to out patients as part of treatment is exempt under Entry No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 as a composite supply of healthcare services.
Issue (i): Whether supplies of medicines, consumables, implants and medical items to in patients as part of treatment are exempt as a composite supply under Entry No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017.
Analysis: Inpatient services are classified under SAC 999311 and the explanatory notes include medical, pharmaceutical and paramedical services provided to inpatients from admission till discharge. The statutory definition of composite supply (Section 2(30) of the CGST Act, 2017) covers supplies naturally bundled with a principal supply. Circular No. 32/06/2018 GST clarifies that amounts charged by hospitals from patients, including retention and fees, are towards healthcare services and are exempt; supplies to inpatients such as food (when advised by doctor) are part of the composite supply. The hospital's facts show integrated pharmacy, dispensing under prescriptions issued during inpatient treatment, consolidated billing and that medicines and consumables are issued as an inseparable part of care until discharge.
Conclusion: In favour of the assessee. Supply of medicines, consumables, implants and other medical items supplied to in patients as part of treatment is exempt under Entry No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 as a composite supply of healthcare services.
Issue (ii): Whether supplies of medicines, consumables, implants and medical items to out patients as part of treatment are exempt as a composite supply under Entry No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017.
Analysis: The exemption under Entry No. 74 covers healthcare services by a clinical establishment and inpatient services are expressly covered under SAC 999311. For outpatients, although consultation services qualify as healthcare services and are exempt, medicines and consumables prescribed to outpatients are not necessarily supplied exclusively by the hospital, and outpatients are free to procure medicines from other pharmacies. The facts show that outpatient pharmacy dispensing is not necessarily integral and exclusive to the outpatient consultation in the same manner as inpatient dispensing. Circular No. 32/06/2018 GST distinguishes supplies to admitted patients (composite) from supplies to non admitted patients (taxable) by analogy to food supplies.
Conclusion: Partly against the assessee. Consultation services provided to out patients are exempt under Entry No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017. However, supply of medicines, consumables, implants and medical items to out patients is taxable and does not form part of the exempt composite healthcare supply.
Final Conclusion: The Advance Ruling holds that supplies to in patients of medicines, consumables, implants and medical items are exempt as part of composite inpatient healthcare services, whereas for out patients only the consultation healthcare service is exempt and supplies of medicines and related items to out patients are taxable under GST.
Ratio Decidendi: Supplies of goods that are naturally bundled with and supplied in conjunction with inpatient healthcare services, where the healthcare service is the principal supply and the goods are dispensed exclusively as part of treatment until discharge, constitute a composite supply covered by Entry No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and are exempt; similar goods supplied to out patients, which can be procured independently, do not form such a composite supply and are taxable.
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