Supply of medicines & allied items to in-patients by hospital is composite supply are not separately taxable: AAR of Kerala

Categories: Advance Ruling
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Facts: M/s. Ernakulam Medical Centre Pvt. Ltd. is rendering medical services with professionals like doctors, nursing staff, lab technicians etc. In GST scenario health care services by a clinical establishment, an authorized medical practitioner or para medicals have been exempted vide classification 9993. 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.

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

Held: The Hon’ble AAR of KERALA vide Advance Ruling No. KER/ 16 /2018, dated September 19, 2018 stated that Health care services provided by a clinical establishment, an authorized medical practitioner or para medics are exempted vide SI.No.74 of Notification No. 12/2017-CT (Rate) dated June 28, 2017. The word ‘clinical establishment’ means a hospital, nursing home, clinic, sanatorium or any other institution by whatever name called, that offers services or facilities requiring diagnostics or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases.

  • Patients are admitted to a hospital only when they are extremely ill or have severe physical trauma. Inpatients receive medical facility as per the scheduled procedure and have strict restriction to ensure quality/quantity of items for consumption. Hence the medicines or allied goods supplied to inpatients are indispensable items and it is a composite supply to facilitate health care services and is not taxable.
  • Whereas an outpatient is concerned, hospital gives only prescription, which is only advisory in nature. The patient has absolute freedom to follow the prescription or not. Hospital reserves no control over his continuous treatment. Hence there is no privilege for the hospitals that are dispensing medicine to outpatients. Therefore, pharmacy run by hospital dispensing medicine to outpatient or bye standers or others can be treated as individual supply of medicine and not covered under the ambit of health care services. Hence such supply of medicines and allied goods are taxable.

Vide clarifications issued based on the approval of 25th GST Council Meeting held on January 18, 2018 [F.No.354/17/2018-TRU Dated February 12, 2018], it was clarified that food supplied to the inpatients as advised by the doctor/nutritionist is a part of composite supply of health care and not separately taxable. Other supplies of food by hospital to patients not admitted are taxable. The same principle is applicable in the case of dispensing of medicines also.

 In view of supra observation, the following rulings were issued:

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.

Citation: [2018] 98 taxmann.com 161 (AAR-KERALA)

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