Kerala AAAR upheld the decision of Kerala AAR that supply of medicines & allied items to in-patients by hospital is a composite supply

Categories: Advance Ruling
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Facts: Ernakulam Medical Centre (P.) Ltd. (“the Appellant’)  is engaged in rendering medical services with professionals like doctors, nursing staff, lab technicians, etc. Vide Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 health care services classified under SAC 9993 provided by a clinical establishment, an authorized medical practitioner or para-medics were exempted. Medicines supplied through pharmacy to both inpatients and outpatients under the prescription of the doctors are incidental to the health care services rendered in the hospital and beyond the ambit of taxation.

Issue Involved: Whether the supply of medicines and allied items through the pharmacy of the hospital run by the applicant attracts liability under GST?

The appellant has stated that the ruling by the Advance ruling Authority “(i)The supply of medicines and allied items provided by the hospital through the pharmacy to the in-patients is part of composite supply of health care treatment and hence not separately taxable. (ii)The supply of medicines and allied items provided by the hospital through the pharmacy to the out-patients is taxable” is opposed to law, facts, circumstances and the legislative intent behind the exemption granted vide Notification No.12/2017-CT(Rate) dated 28.06.2017 (Sl. No. 74).

Held: The Hon’ble AAAR of Kerala vide Order No. AAR/03/2018, dated December 14, 2018 upheld the view taken by Hon’ble AAR Kerala and held that the choice is entirely of the outpatients whether or not they wish to purchase medicines from the pharmacy run by the hospital. The doctor prescribes medication and the charges for doctor’s consultation is billed separately. Even if, the outpatients decide to buy the medicines from the pharmacy run by the hospital, the charges for supply of medicines is billed separately and cannot be considered as composite supply to extend the exemption and, hence, supply of medicines and allied items to outpatients is liable to GST being a taxable supply.

One of the invoice of an inpatient, who has undergone further periodical consultation reflected that it was raised only for supply of medicines and no consultation charges were visible on the invoice. Therefore, it was evident that there was no bundling of supplies but clearly differentiable supplies one of which was supply of medicines, which was a taxable supply under GST.

Thus, the Appellate Authority for Advance ruling does not find any reason to modify the decision of the Authority for Advance Ruling.The supply of medicines and allied items to the outpatients through the pharmacy attached to the hospital run by the appellant was held to be taxable under GST.

Citation: [2019] 103 taxmann.com 182 (AAAR-KERALA)