2018 (11) TMI 278 - AAR - GST

Classification of supply - medicines, consumables and implants used in the course of providing health care services to the patients admitted for diagnosis - composite supply - Whether the medicines, consumables and implants used in the course of providing health care services to in-patients for diagnosis or treatment would be considered as Composite Supply and eligible for exemption under the category health care services ? Held that - The in-patient services are classified as exempted service under the sub-group 9993 11. Patients are only admitted to a hospital when they are extremely ill or have severe physical trauma. As far as an inpatient is concerned, hospital is expected to provide lodging, care, medicine and food as part of treatment under supervision till discharge from the hospital. The nature of the various services in a bundle of services will help in determining whether the services are bundled in the ordinary course of business - the medicine and allied goods supplied to inpatient are indispensable items of the treatment and it is a composite supply to facilitate health care services. Pharmacy is an outlet to dispense medicines or allied items based on prescription. The in-patient pharmacy and operation theater pharmacy supplied medicines and consumables only to in-patients. Whereas an outpatient is concerned, hospital gives only prescription, which is an advisory in nature - 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 medicine and allied goods are taxable. Government of India vice Circular No.27/01/2018-GST Dt.04-01-2018 has clarified that room rent in hospital is exempted. As for as inpatients are concerned, room facility in a hospital is one limb of bundled service of health care. Ruling - The supply of medicines, consumables and implants used in the course of providing health care services to in-patients for diagnosis or treatment are naturally bundled and are provided in conjunction with each other, would be considered as Composite Supply and eligible for exemption under the category health care services .

Summary

Issues involved:
1. Whether medicines, consumables, and implants used in providing health care services to in-patients constitute a composite supply under GST for exemption?

Detailed analysis:
The applicant, a multi-specialty tertiary care hospital, categorized patients as Out-Patients and In-Patients. In-Patients receive stay facilities, medicines, consumables, implants, dietary food, and surgeries. The hospital's central store procures and distributes stocks to in-patient and out-patient pharmacies based on issued indents. In-patient pharmacy supplies only to in-patients, while the out-patient pharmacy serves out-patients and external customers with valid prescriptions. The applicant sought a ruling on whether medicines, consumables, and implants used in treating in-patients constitute a composite supply of health care services under GST for exemption under Notification No.12/2017 and Section 8(a) of GST.

The authorized representative argued that the hospital's services, including room rent, medicines, dietary food, and consumables, are naturally bundled in the ordinary course of business as part of health care treatment for in-patients. These services are integral to health care and are provided in conjunction with each other. The applicant provides multiple taxable supplies in addition to health care treatment, all of which are essential for patient care. The medicines, consumables, and implants used during diagnosis or treatment are integral components of health care services provided to in-patients.

The judgment examined the concept of composite supply under GST and the exemption for health care services provided by clinical establishments. It highlighted that in-patient services, including lodging, care, medicine, and food, are classified as exempted services under sub-group 9993 11. The ruling emphasized that the nature of services provided by hospitals determines whether they are bundled in the ordinary course of business. In this case, the medicines, implants, room rent, and dietary food provided to in-patients are naturally bundled as part of health care services, ensuring patients receive appropriate diagnosis and treatment.

Regarding pharmacy services, the judgment differentiated between in-patient and out-patient pharmacies. The in-patient pharmacy supplies medicines and consumables exclusively to in-patients, forming part of the composite supply of health care treatment. However, medicines dispensed to out-patients, based on advisory prescriptions, are considered individual supplies and taxable. The ruling clarified that room rent and food supplied to in-patients as part of health care services are exempt, following the principles outlined in Circular No.27/01/2018-GST.

In conclusion, the judgment affirmed that the supply of medicines, consumables, and implants to in-patients as part of health care services constitutes a composite supply eligible for exemption under the category of health care services under GST regulations.